November 21, 2023
Mongolia found itself in a precarious position during the COVID pandemic when its primary trading partner, China, accounting for approximately 90% of Mongolian exports in 2019, implemented border closures, limiting Mongolia's export potential of key commodities like coal, which constituted roughly 20% of the country's GDP in 2019. However, after China reopened in the beginning of 2023, the Mongolian economy benefited from increased coal production, leading to fiscal revenue growth and improvements in building external buffers. Although the IMF's latest report expects coal exports to amount to merely 50 million tons in 2023, preliminary data paints a different picture, indicating that exports have already nearly reached this threshold by September.
If the existing dynamics persist for the remainder of the year, it's quite likely that these figures will soar to nearly 70 million tons, aligning with the government's official annual target for the coming years. We attribute this surprising increase in exports to genuine improvements in production. Notably, the expansion of export capacities has been facilitated by the inauguration of a new railway link to China in late 2022. Despite the decrease in global coal prices in 2023, the volume ramp-up covered the price differences and managed to keep coal revenues high. The resulting revenue influx will likely help the government maintain a mild budget surplus and enable the central bank to increase the level of FX reserves in 2023.