It’s never smooth sailing for Mongolia. The former communist country ousted its cabinet head last month in the wake of a corruption scandal. Mongolia was already in dire straits before that, with mounting debt and a credit rating that Moody's downgraded to Caa1 in November 2016. The country’s long history and abundant natural resources should give it advantages over others in the region, but in recent years, Mongolia has struggled.
Ukhnaagiin Khurelsukh, the new prime minister, might assume that an aggressive shake-up is what’s needed. But the country’s economy has actually performed well so far this year, benefitting from China’s demand for coal. And despite Moody’s downgrade, Mongolia managed to land a $600m new money plus exchange offering in March, as investors demonstrated optimism in the country’s potential.
With such a backdrop, it shouldn’t be a struggle for Khurelsukh to revitalize the country’s growth prospects — and the early signs are good. Last week, he commented on the country’s other bonds that face impending maturities, noting the importance of repayment. He also questioned Mongolia’s focus on mining, expressing hope that the country would diversify its economy.
That attitude falls in line with the previous administration’s plans to boost tourism, infrastructure, and non-commodity exports. There is hope that the new leadership will push forward with projects that have otherwise been delayed by government infighting, such as the privatization of the state-owned Erdenes Tavan Tolgoi coking coal mine.
Khurelsukh will enjoy some outside support. The International Monetary Fund paused its $5.5bn financing package, approved in May to relieve the country’s debt pressures, pending the formation of a new government. Part of the IMF’s plan focuses on policies to break Mongolia’s boom-bust economic cycle so closely tied to commodity prices. More than 86% of Mongolia’s exports are minerals and metals, according to the IMF.
The country is, then, on roughly the right track. The real question is whether Khurelsukh proves a safe pair of hands. The former army colonel, given the nickname ‘Fist’ after a 2012 brawl with another politician, is already being compared to Vladimir Putin — hardly the most encouraging sign for international investors. But it would be premature to draw conclusions at this stage. Khurelsukh should be given the chance to sort out the mess that Mongolia has gotten itself into.
He will have importance well outside of the country's own borders. Not only does Khurelsukh have the opportunity to reboot the Mongolian economy and diversify it away from its dependency on mining, but he could also find himself at the centre of negotiations with North Korea. As one of the few countries friendly with the hermit state, Mongolia could increasingly be pushed into the spotlight to help assuage North Korean leadership. Mongolia should use that kind of international importance should be used to its advantage.
Khurelsukh has taken the reins of Mongolia at a difficulty time, but there is no need for a big shake-up. Flashy policy solutions may seem attractive to him right now, but the country is already on the right track. He should be careful not to derail a very vulnerable recovery.