World Bank Urges Mongolia to Seize Mining Boom for Crucial Fiscal Reforms

A new World Bank report highlights Mongolia’s critical opportunity to leverage its current mining-driven economic boom to implement essential fiscal reforms aimed at ensuring stable, sustainable, and inclusive development. The Mongolia Public Finance Review, titled “Making this time different: Fiscal reforms for stable, sustainable, and inclusive development,” acknowledges recent economic improvements while cautioning that structural fiscal vulnerabilities remain.

Mongolia’s Economic Resilience Amid External Shocks

Mongolia has demonstrated notable fiscal resilience after enduring three years of significant external shocks—including global commodity price volatility and the COVID-19 pandemic. Thanks to robust growth driven primarily by strong coal exports, the country has managed to reduce its public debt burden and build up external buffers. Proactive debt management strategies have helped mitigate rollover risks, contributing to narrower bond spreads and improvements in sovereign credit ratings.

Taehyun Lee, World Bank Country Manager for Mongolia, noted, “Mongolia stands at a pivotal moment. The current economic boom creates a unique opportunity to strengthen the country’s fiscal position, but also risks repeating past boom-bust cycles if reforms are delayed.”

Persistent Fiscal Challenges Despite Positive Trends

Despite these macroeconomic gains, the World Bank report warns of ongoing fiscal risks. The influx of mining revenues has fueled expansionary public spending, with government expenditure as a share of GDP surpassing pre-pandemic levels and exceeding comparable benchmarks in peer countries. This fiscal expansion is compounded by quasi-fiscal operations, including the subsidized housing mortgage scheme and off-budget transfers through state-owned enterprises, which could undermine fiscal discipline and threaten macroeconomic stability.

Improving Public Spending Efficiency and Social Equity

The report identifies critical areas where Mongolia could improve public spending efficiency and equity. Mongolia’s social assistance system plays a vital role in poverty alleviation and reducing inequality, yet it remains costly and could benefit from better targeting. Strengthening equitable access to quality health and education services, while addressing regional and income disparities, would enhance human capital development, which is essential for long-term growth and improved societal well-being.

Boosting Infrastructure Investment with Strong Oversight

Mongolia’s government aims to scale up infrastructure investment under the New Recovery Policy and action program to spur future economic growth. However, the report emphasizes that public investment efficiency can be improved through enhanced prioritization, strategic planning, and rigorous oversight to ensure these investments yield the highest economic returns.

Broadening and Reforming the Tax System

While Mongolia currently benefits from strong revenues, the World Bank stresses the importance of diversifying the tax base away from heavy dependence on mining. Tax reforms should aim to increase progressivity, enhance growth-friendliness, and reduce vulnerability to commodity price fluctuations. A more balanced and efficient tax system would help stabilize government revenues and create fiscal space for priority investments.

Risks of Boom-Bust Cycles and the Need for Fiscal Prudence

The report underscores the risk of Mongolia repeating past boom-bust economic cycles if fiscal reforms are not implemented timely. The government’s recently approved amended budget reflects a commitment to fiscal prudence amid revenue volatility and global uncertainties. Strengthening fiscal foundations through reform is critical to managing inflationary pressures, maintaining macroeconomic stability, and enabling sustainable investments in physical and human capital.

A Window of Opportunity for Inclusive Growth

The World Bank concludes that Mongolia’s current mining boom is a rare window of opportunity to enact transformative fiscal reforms. By improving spending efficiency, reforming the tax system, and investing strategically in human capital and infrastructure, Mongolia can secure a path toward inclusive, long-term prosperity and resilience against external shocks.

As Taehyun Lee emphasized, “Now is the time to strengthen fiscal foundations, improve spending efficiency, and create space for sustainable and inclusive growth.”