Mongolia

In 2026, the economic rebound will be driven by copper exports and investment in export diversification

The export of high-quality coal – the historic driver of the Mongolian economy – ran out of steam in 2025. The main causes were the decline in coal prices and the structural slump in Chinese demand. This slowdown was partially offset by an increase in private consumption. The latter was supported by the moderation of inflation (slightly above the 8% target) – which is expected to continue in 2026 – increased incomes, made possible by higher civil servant salaries and pensions, the rebound of the agricultural sector after the particularly harsh winter of 2024, as well as the redistribution of wealth generated by copper mines (higher wages, dividend payments) and the development of the credit market.

In 2026, growth is expected to rebound slightly, supported by continued growth in copper and gold exports, made possible by the expansion of the Orkhon mine (copper and molybdenum, in the north of the country), self-financed by the national company that operates it, and the Oyu Tolgoi mine (copper and gold, in the south of the country), financed by multilateral institutions, Canadian and Australian export credit agencies, and the Anglo-Australian group Rio Tinto. Investment is also expected to intensify in new mining projects often dedicated to the extraction of rare earths, such as the Zuuvch-Ovoo uranium mine in the southeast of the country, operated by Orano, near which a nuclear power plant will be built. Added to this will be investment in processing industries such as copper and coal processing plants, steel manufacturing and gold refining, and in energy production, with two hydroelectric power plants financed by China and the large thermal power plant backed by the Talvantolgoi coal mine. Last, investments will be made in cross-border rail connections with China.

These investments illustrate the government's desire to diversify the economy. Despite the possible opening of the Indian market, revenues from coal exports could remain depressed in the coming years. In addition, certain projects, including the Altanshiree refinery (in the southeast of the country), which may finally come on stream in 2026, aim to alleviate energy shortages which are hampering economic activity and driving up inflation. As explained above, inflation is expected to continue to slow in 2026, although heavy dependence on imports, coupled with the risk of Tugrik depreciation, is a source of uncertainty.

Fiscal austerity in the face of falling coal revenues

In 2025, public accounts returned to deficit after several years of surplus due to the unexpected decline in revenues from coal exports and an increase in public spending. The swing back to deficit was driven by investment in major mining, energy, and infrastructure projects, as well as by the revaluation of civil servants' salaries and pensions which began in 2024. To redress the budgetary situation, the new government revised the budget in mid-2025, reducing public spending by two percentage points of GDP through a 9% reduction in the number of civil servants between 2025 and 2026, the postponement or reduction of investments, and cuts in current expenditure.

The deficit is expected to narrow in 2026. Current spending will increase by only 2% despite inflationary pressures and rising commodity prices. Several ministries will see their budgets frozen at 2025 levels, some will face cuts of 6% to 12.8%, and spending deemed non-essential will be postponed. Projects due to be completed in 2026 will be fully funded, while those extending beyond that date and not aligned with the national development plan will be reduced or postponed. Salaries for teachers, doctors, and researchers, as well as pensions and social benefits, will increase in line with inflation. Investment in education and health will increase, partly thanks to funding from multilateral partners (EU, Asian Development Bank, EBRD). The debt-to-GDP ratio is expected to rise slightly in 2026: 94% of debt is denominated in foreign currencies, 56% is held by multilateral or bilateral creditors and 30% is in the form of Eurobonds with an average maturity of five years. The government is seeking to increase the share of domestic debt, while applying the new rules adopted in early 2025: a structural deficit capped at 2% of GDP, public debt at 60%, and current expenditure at 30%. These efforts, combined with the decline in the debt-to-GDP ratio in recent years, have earned Mongolia an upward revision of its sovereign rating by S&P (BB-).

The decline in coal exports in 2025 will continue to weigh on the trade balance; it will only be partially offset by growth in exports of other minerals. Imports of goods and services – one-third of which corresponds to the use of foreign transport due to the country's landlocked status – supported by rising household incomes and construction projects, are expected to grow at the same pace as GDP. This deficit will be financed by surpluses in the capital account (ADB grants and conversion of German debt into investments) and the financial account, fuelled by FDI from Canada, France, China, Japan, South Korea and the Netherlands, as well as grants from the Asian Development Bank and the World Bank to maintain foreign exchange reserves above three months of imports.

Risk of political instability amid corruption and internal strife

Since the fall of the Communist regime and the passing of the 1992 constitutional reforms, Mongolia's political system has been a semi-presidential, unicameral republic that generally respects democratic norms. The country is going through a period of great political instability: two Prime Ministers from the Mongolian People's Party (MPP), which has held a narrow majority since the legislative elections in the summer of 2024, were ousted by no-confidence votes in the space of a mere four months. The first in June 2025 was precipitated by the leader's drop in popularity (particularly among young people) due to suspicions of corruption caused by his family's ostentatious spending. He was forced to resign, prompting the departure of the Democratic Party (42 seats) from the coalition, which became the main opposition party. The second vote in October 2025 was prompted by disagreement over the taxation of mineral exporters, against a backdrop of infighting between conservatives and reformists. Deemed unconstitutional, the latter vote was ultimately annulled, allowing Gombojav Zandanshatar to remain in power. The Speaker of Parliament resigned following this sequence of events, which led to a realignment of alliances: the Green Party - Civil Will (4 seats) joined the government coalition already composed of the National Labor Party (8 seats) and the PPM (68 seats). Public discontent is growing, as are expectations for a better redistribution of mining revenues.

Internationally, Mongolia, a landlocked country with the lowest population density in the world and highly dependent economically on China and Russia, is seeking to emancipate itself from its two giant neighbours through its third neighbour diplomatic doctrine. For the time being, China, the main destination for Mongolian exports, remains crucial to the country's economy, which also depends on Russia for its oil and gas imports. Nevertheless, Mongolia is resisting as best it can, for example by refusing to join the Shanghai Cooperation Organization, or by declaring its neutrality regarding relations between China and Taiwan, and Russia and Ukraine. Its wealth of strategic minerals (rare earths, copper, uranium) provides a tremendous opportunity to diversify its relations by welcoming other economic powers onto its soil – although this openness also depends on the goodwill of China, which is Mongolia’s main gateway to the rest of the world. In line with this strategy, the country has signed Memoranda of Understanding on mining cooperation with France, Germany, the UK, Canada, Australia, the US, South Korea, Vietnam and Turkey.

This attempt at emancipation is also reflected at the regional level through the signing of comprehensive partnership agreements with Uzbekistan and Kyrgyzstan, and a trade and aerospace cooperation agreement with Kazakhstan. Mongolia also benefits from excellent relations with India, thanks to their religious proximity and their doctrine of non-alignment. These good relations are manifested in robust bilateral dialogue and economic cooperation: for example, India has financed the Altanshiree oil refinery to the tune of USD 1.2 billion, which will enable Mongolia to reduce its dependence on Russian hydrocarbons. India could also represent an alternative market for Mongolian coal.

Last updated: November 2025