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MONGOLIA 

RISK SUMMARY 

DATA & FORECASTS

POLITICAL RISK 

Uranium Exploration To

Begin

Prime Minister Batbold Sukhbaatar saysMongolia will aim to begin uranium explo-

ration before 2012, according to a report

in the Ulan Bator Post. Sukhbaatar said the

country needs to speed up operations so

 that it can exploit the almost 1mn tonnes

of reasonably assured uranium reserves in

Mongolia soon. Feasibility studies have com-

menced at the enriched Mardai and Kharaat

deposits. We are encouraged by the prime

minister’s statement and continue to stress

 that Mongolia’s investment climate remains

strong, despite concerns over recent mining

licence problems.

Our short-term political risk rating is 74.0.

ECONOMIC RISK 

Recovery On CourseMongolian industrial production rose by 

13.6% y-o-y over the course of 2010, down

from 17.8% y-o-y in the previous year. While

 the rate of growth dropped, we neverthe-

less contend that the 2010 number marks a

healthy outturn and supports our view that

 the economic recovery is firmly on course. In

particular, we highlight the healthy perform-

ance of mining last year, with this component

of industrial production rising by 10.1%. In

2011, we forecast the recovery to remain

on course, with the economy expected to

 grow by 7.9%.

Our short-term economic risk rating is 51.9.

BUSINESS ENVIRONMENT

Minco Gold Forms CNNC JV Canada’s Minco Gold has entered a joint

 venture agreement with a subsidiary of the

China National Nuclear Corporation and

has acquired a 51% equity interest on a gold

mine in Inner Mongolia. According to Trading

Markets, the mine has been producing gold

since 1996 and is currently operating at 600

 tonnes per day at roughly 85% gold recov-

ery. We expect mining sector output to grow

  to US$9.9bn by 2014, marking a fourfold

increase from 2010, with the majority of this

increase occurring in 2013 and 2014 as the

Oyu Tolgoi mine comes online.

BMI’s business environment rating is 47.0.

ECONOMIC OUTLOOK 

Bumper Year Ahead, But

Risks PersistBMI View: We remain bullish on Mongolia’s medium-term growth prospects, andhighlight a generally supportive political culture and business environment which makeMongolia a solid bet for investors. That said, we continue to flag up a number of risks.

We reiterate our long-held view that Mongo-

lia will be one of the world’s fastest-growing

economies in the next 10 years, powered

by an investment-led mining boom. Strong

foreign direct investment will enable the

development of the country’s vast mineral

resources, leading to a surge in exports and

real GDP growth in the high single digits or

above through to 2020.Heading into 2011, we highlight a highly

favourable macroeconomic environment

and hold to our forecast for 7.9% real GDP

growth this year, which we expect to be

driven by xed investment in the mining

and transport sectors. Indeed, the recent

release of preliminary data for full-year

2010 growth by the Mongolian National

Statistics Office (MNSO) indicates that

mining & quarrying surpassed agriculture

last year to become the biggest sector of the

economy. While this was no doubt helpedby the dire performance of agriculture

following a terrible 2009/10 winter, we

nevertheless contend that it is indicative of 

a broader trend, with mining activity set to

be the main driver of economic expansion

in the coming years.

The scal picture is also improving, in

line with our view, with the government

having actually posted a scal surplus in

2010 according to preliminary data from

the MNSO. Moreover, the outlook for the

banking sector is also relatively favourable,in line with our long-held view that the worst

of the crisis is over.

While we are upbeat on Mongolia’s

growth prospects and believe these will pro-

vide a multitude of attractive opportunities

for investors over the medium term, we note

an increasing dependence on international

commodity prices and Chinese demand. In

addition, ination will remain a problem

through 2011, with the initial spike in H110

driven by a domestic food shortage being

maintained through H210 by loose scalpolicy, stronger demand-side pressures and

higher international food and commodity

prices.

BMI View: The Mongolian togrog continues to perform well, strengthening to MNT1,245/

US$ at one point on January 31 from MNT1,259/US$ at end-2010. We have long been bullish

on the unit and continue to expect a robust performance. Indeed, with exports expected to

perform well on the back of strong Chinese demand, growth forecast to hit 7.9% in 2011 and

foreign investment likely to rise further, we see the togrog hitting MNT1,140/US$ by end-2011.

2009 2010e Latest Period 2011f 2012f 

Population, mn [1] 2.7 2.7 - - 2.7 2.8Nominal GDP, US$bn [2] 4.2 4.6 - - 6.1 7.7Real GDP growth, % change y-o-y [2] -1.6 9.3 - - 7.9 9.0Industrial production index, % y-o-y, ave [3] 17.8 13.6 - - 10.1 11.4Budget balance, % of GDP [4] -5.7 0.0 - - 2.5 -0.8Consumer prices, % y-o-y, eop [5] 1.8 10.0 10.9 Sep 9.0 8.0Exchange rate MNT/US$, eop [6] 1,430.00 1,259.00 1,245.25 31-Jan 1,140.00 1,080.00Goods imports, US$bn [5] 3.1 2.1 3.3 Jan-Dec 2.7 3.5Goods exports, US$bn [5] 2.5 1.8 2.9 Jan-Dec 2.5 3.4Balance of trade in goods, US$bn [5] -0.6 -0.2 -0.4 Jan-Dec -0.1 -0.0Current account, % of GDP [4] -6.3 -3.9 - - -2.6 -0.1Foreign reserves ex gold, US$bn [7] 1.3 1.8 - - 2.1 2.4Total external debt stock, % of GDP [9] 44.9 43.5 - - 37.7 33.6

Notes: e/f = BMI estimates/forecasts. Sources: 1 World Bank/BMI calculation/BMI; 2 IMF/BOM/BMI; 3 MNSO; 4 BoM/BMI;

5 BoM; 6 BMI; 7 IMF; 8 EBRD; 9 EBRD/BMI.

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