Preliminary Estimates of Economic Risks

The Mongolian Mining Journal /Mar.2025/

By А. Khaliun

It is impossible to predict with certainty the  changes that may unfold in the global economy in the second half of 2025, or whether  the direction of Mongolia's economy situation  worsen or improve.  It is equally difficult to calculate how the U.S. President's tariff policy, which is putting pressure on our neighboring countries and key business partners, will impact Mongolia, particularly through our main export market, China.

Therefore, the Mongolian government is preparing by beginning  to 'tighten its belt.' Coal prices have continued to decline from the second half of 2024, and by the first two months of 2025, they had dropped by 40% compared to the same period last year, fluctuating now between $80 and $90. Overall coal sales have also decreased.  

Mongolia’s 2025 budget revenue and expenditure are estimated at 33.5 trillion MNT, or 35.2% of GDP, with a deficit-free budget approved for the first time. The Ministry of Finance presented the 2025 budget performance to the government on March 12, 2025. Despite negative developments, such as the decline in coal  — a key export commodity — and a five-fold decrease in trading on the Mining Products Exchange compared to the same period last year, the Minister of Finance emphasized that the budget performance in the first two months of the year was not as bad as expected.

In the first two months of the year, 11.2 million tons of coal were exported, surpassing the planned 10.5 million tons. As of the first two months of 2025, state budget revenue reached 4.2 trillion MNT, or 95% of the planned amount, which is in line with expectations. This indicates that budget implementation is on track, with both income and expenditure proceeding as planned.

The falling price of coal has raised concerns since the beginning of 2025, leading to expectations that the budget will need to be revised.
However, the Minister of Finance stated, 'Although coal prices are falling, they have not reached a level that would require budget amendments. The Budget Law stipulates that if the budget deficit exceeds 3% of GDP (3 trillion MNT), an amendment must be made. The risk level outlined in the law has not been reached, and the government is working to prevent this from happening.

The government has established a Working Group led by the Minister of Finance, to support exports and boost Mongolia’s foreign exchange reserves as quickly as possible. The group has set a target to raise Mongolia’s foreign exchange reserves, currently around $4.5 billion, to $5.5 billion by April/ May. The goal is to surpass the previous peak of $5.4 billion and build reserves sufficient to cover six months' worth of import needs.
According to the Minister of Finance, a total of 9.5 million tons of coal have been stockpiled at the southern border crossings of Shiveekhuren, Gashuunsukhait, Bulgan, and Hangi. Trading on the Mining Products Exchange is not possible until the stockpiles are moved and transported further. However, the trading of mining products on the exchange will not be abandoned. 

The first task for the Working Group is to figure out how to move the coal stockpiles. To achieve this, they plan to first revise the regulations for trading mining products on the exchange, followed by amendments to the Law on the Mining Products Exchange.
Relevant organizations acted promptly and approved the revised regulations for the trading and payment of mining products, which took effect on March 19. (Read the interview with B. Dulguun, Acting CEO of the Stock Exchange.)

The Minister of Finance and B. Dulguun, Acting CEO of the Stock Exchange, both expect that the revised regulations will help revive trading on the exchange. The Ministry of Industry and Mineral Resources, along with the Government, is now planning to make improvements to the Law on the Mining Products Exchange to stimulate trading.
Declining coal sales revenue is a concern for the government and fiscal policymakers. However, the Finance Minister stated that he is not overly worried.
There is no reason to doubt that some decreased demand in China will overly impact theirneed to purchase coal from us. 

China has a demand for more than 4 billion tons of coal per year. However, our country has planned to produce only 85 million tons.. If demand in China decreases, it will not drop by more than 5%,’ said the Finance Minister. Neverthess, the fact that trading on the Exchange has fallen nearly fivefold and coal shipments to the border have decreased by 40-50% has become a headache for policymakers. With the 'diagnosis' clear, it is now the responsibility of the working group, led by the Minister of Finance, to find a solution.

It is too early to predict  the economic situation  in the second half of this year. It is possible that budget revenues may fall short of the planned level, and so the government has decided to mobilize all its resources in the first half of the year.

The concerns are legitimate, which is why the goal has been set to create foreign exchange reserves sufficient to cover six months of import needs. Prime Minister L. Oyun-Erdene has given a strict mandate to Erdenes Mongol LLC to focus on increasing Mongolia’s foreign exchange reserves. The company had planned to achieve $3.8 billion in sales in 2025, but the government has now tasked them with an additional $557 million in sales. In line with this, state-owned companies will collaborate as a group to boost foreign exchange reserves.

It was also decided to completely halt new investments with budget funds in the first half of 2025. In this context, Erdenet Plant SOE decided to postpone an investment of approximately $100 million planned for 2025, along with an additional $70 million in accompanying investments, until 2026. The company's executives have also committed to increasing foreign exchange reserves by $100 million, regardless of sales.

Large companies such as Critical Minerals, also known as “Mongolrostsvetmet” joint stock company in the past, and the Darkhan Metallurgical Plant have received additional tasks to contribute to increasing the state budget and foreign exchange reserves.

The government has taken decisive steps to increase its revenues. Investments, in turn, drive up imports. Therefore, by limiting investments in the first half of 2025, the government, having considered all the risks, took a crucial step to prevent the outflow of foreign currency.