2010 1st Half Mongolia Economic Review

ECONOMIC REVIEW OF MONGOLIA
FIRST HALF OF 2010
National Development and Innovation Committee
1. EXECUTIVE SUMMARY
Macro economic indicators
9.VI 10.
0.VI
GDP growth (percentage

percentage) -3.5
3.5 5
Industrial sector growth (percentage) -6.5

6.5 12.4
Debt remainder (MNT bill

billion ) 2 558.9 2 882.6
Budget balance ( MNT billion

billion) -35.4 104.6
Unemployment (thousand
thousand people
people) 39.5 39.9
Inflation (percentage) 6.3 11.4
Foreign trade turnover (million US$) 1.656 2.665
Foreign trade balance (million

million US$
US$) -129.9 -47.6
-
Main activities occurred in social and economic sectors of Mongolia in the first half of 2010
Laws and policies approved by the Parliament
Following laws had been approved by the State Great Khural. Laws and international
agreements such as Law on Property valuation, Law on Concession, Law on Banking (revised
edition), Law on Minimum wage, Law on Asset certified security, Law on Economic,
conomic, social and
cultural rights, Ratification
ication of aadditional
dditional protocol on international pact, Ratification
Ratif of
Amendmentss on Charter of International Labor Organization, Ratification of Loan
oan and financing
agreements, Ratification of Agreement
greement on “Project on developing regional auto road – addition”,
“Mongolian livestock” program,, “General Program on Financial cooperation”, “Participating in
ECONOMIC REVIEW /First

First half of 2010
2010/ NDIC 1
peace operations (revised edition)”, Law on Medicine and medical equipment (revised edition),
Accession to Protocol on ‘Agreement on issues involving trade of copyright ownership’,
Accession to Singapore agreement on trademark law, Law on Competition (revised edition), Law
on Trademark and geographical indication (revised edition) and Law on Prohibition of granting
of licenses for mineral resources exploration have been approved.
Government policies and activities
Following important policy documents have been approved and are being implemented
by the Government of Mongolia in the first half of 2010.
Government of Mongolia has approved action plan of “Business-enabling environment

reform year” in February of 2010. In the action plan, goals and activities directed at resolving
difficulties occurring at every step of business are to be implemented in 2010 while actions
aimed at providing stability of business environment at macro level and developing infrastructure
are to be continuously executed until 2011-2012. In doing so, legal environment to conduct
businesses will improve, new option for financing will emerge and financial risk as well as
business expenses will decrease.
Government of Mongolia has supborder pointed the Law on Fiscal Budget and has
agreed to present it to the State Great Khural. In the draft law, powers and rights to distribute
public spending for large repairing works, investment projects and procurement are to be given
to local offices. Upon approval, this draft law will determine budget, its principle, framework
and structural classification, define rights and responsibilities of stakeholders in the budget issues
and regulate formation, approval, spending, registration, reborder pointing and monitoring
processes of the budget.
Investment agreement signed among the Government of Mongolia, “Ivanhoe Mines

Mongolia Inc” LLC, “Ivanhoe Mines Limited” and “Rio Tinto International Holdings” have
come into realization. Also, “Program to develop South Gobi infrastructure” and ‘Action Plan to
implement the Program” have been discussed and approved. Purpose of this program is to
establish basic infrastructure in the South Gobi area and supborder point infrastructure
development that is needed for exploring, concentrating and processing mining industries. It will
also set up hard infrastructure for cities and towns that will develop following development of
these industries and establish social infrastructure and basic social services. As strategic deposits
including Tavantolgoi, Oyutolgoi, Tsagaansuvarga, Nariin Sukhait and Shivee-Ovoo start getting
exploited and utilized into economic cycle, annual economic growth is projected to reach 12.5
percent and gross domestic product per capita is to increase to 5250 US$ in 2015 which is 2.7
times higher than that of 2009. Prime Minister of Mongolia, Mr. S.Batbold will chair the Council
responsible for organizing the establishment of “Sainshand” industrial complex. Large industries
which will have huge impact on national development such as copper smelting, coke-chemical,
ECONOMIC REVIEW /First half of 2010/ NDIC 2

construction material, and coal-chemical factories will be built and they will make it possible for
infrastructure, airborder point, terminals and other surrounding small, medium and light
industries to develop. A draft of “General Regulation for formulation of Public Investment
Program” developed by the National Development and Innovation Committee was discussed and
approved by Government decree. According to the General Regulation, Public Investment
Program is to be formulated every 5 years with a possibility for year on year amendment and is
to be discussed at the Cabinet meeting within 1st of April every year together with National
Socio-Economic Development Guidelines. Total investment at national level has been increasing
during the last 10 years and is equal to 25-35 percent of gross domestic product currently.
Development index is necessary to develop regions evenly and to rationally plan public
investment based on province and rural areas’ actual levels of development. Methodology to
calculate such development index, information and data required and a list of organizations to
provide these statistics are officially approved.
“Smokeless Ulaanbaatar” national program is to be presented to the Parliament. National

Council responsible for organizing and monitoring its implementation will be headed by Mr.
S.Batbold, Prime Minister of Mongolia. The program is to be implemented along with “100
thousand apartments” program as well as projects to be executed in auto road sector.
Draft of Parliament Decree for “State policy on railroad transborder pointation” and a
draft of recommendation by National Security Council were discussed at the Cabinet meeting
and is agreed to be presented back to the National Security Council upon reflecting suggestions
by the ministers on the draft.
Plan on implementing “Direction to develop universities as student towns” was

formulated and will be implemented step by step. At the initial stage, a town for the University
of Science and Technology will be established as satellite city of “Oyun” along with “Silicon
Valley” and will occupy 1000 hectares located in the “Shivert” valley, southeast side of Nalaikh
district, Ulaanbaatar city. State is planning to supborder point and grant lands for private
universities if they merge together to have at least 5-10 thousand students.
Total of MNT 169.8 billion from the Human Development Fund was handed out to 2.4 million
citizens
Government has decided to grant MNT 1.5 million to each and every citizen of Mongolia
in 2010-2012 in forms of payment for pension or fee for health insurance, voucher for education,
health and housing as well as cash transfer. MNT 1 million is to be granted in the form of fee for
pension and health insurance and payment for purchasing health and education services or
housing while MNT 500.000 is to be granted in cash transfer from 2011-2012. Starting from the
beginning of this year, a round of MNT 70 thousand cash transfer is being distributed to citizenry
from the Human Development Fund and a total of MNT 169.8 billion is granted to 2.4 million

citizens in the first half of this year. In addition, Government has introduced its findings of
survey on whether citizens prefer stimulus money in non-cash form to cash transfer and
2.358.432 people in recurring count have voted to get their stimulus money in non-cash
nationally.
Price of consumer goods increased
Inflation is 11.4 percent at national level and 16.2 percent in Ulaanbaatar city in the first
half of this year. The fact that inflation is relatively high is due to many factors such as impact of
economic crisis, granting of stimulus to all citizens and ‘dzud’ of last winter as well as the
increase of energy price. For example, in the beginning of this year, Regulating Council of
Energy Regulatory Authority has authorized to increase energy price of electricity consumers by
17.35 percent starting from January 15th, 2010 other than citizens with normal electricity meter.
Moreover, although trading fair for meat was to be organized bi-weekly in spring season and
monthly in other seasons in Ulaanbaatar city in order to improve meat supply, to directly connect
customers with producers and to decelerate excessive price increase, meat price failed to decline
substantially due to hoof-and-mouth disease, damage of dzud and imperfect distribution system
of meat supply.
97.5 thousand herder families were affected by dzud and 9.7 million livestock lost
As of first half of the year, 9.7 million heads of livestock died unnaturally due to harsh
winter season. 90.7 percent of total lost livestock occurred in Arkhangai, Uvurkhangai, Uvs,
Bayan-Ulgii, Bayankhongor, Zavkhan, Khuvsgul and Govi-Altai provinces. Damage of MNT
63.9 billion occurred to herders as a result of large quantities of livestock loss. Furthermore,
8711 herder families are left with no livestock or with a small number of cattle. Therefore,
Government has issued a temporary regulation to re-stock herders with cattle and planned, within
the project, to provide each family with two horses, three cows and 40 sheep all under MNT 40
million. Herders included in the project are to pay back their loans within 5 years of time.
Decision to improve life guarantee of civil service officers was made
Out of 4000 housing quotas for general budget managers to distribute, 3825 quotas from
127 public institutions are granted as of first 3 months this year. 119 citizens have chosen their
housing and signed purchasing agreement out of 787 civil servants who provided applications.
Salary, pension and financial aid for public servants will be increased by 30 percent starting from
October 1st, 2010.

2. ECONOMIC GROWTH
REAL ECONOMIC GROWTH /First half of 2010/
As of the first half of 2010, GDP reached MNT 1 650.65 billion which is 5.0 percent
higher than last year. When comparing GDP growth with that of the first quarter, it has dropped
by 2.6 units. While industrial sector’s surplus value and that of services sector have gone up 8.3
percent and 12.5 percent respectively, agricultural sector’s surplus value has gone down 30.7
percent. Decrease in agricultural sector is because surplus value of livestock sector sharply
dropped.
When looking at real economic growth of each sector as of the first half of 2010:
Agricultural sector
Surplus value of agricultural sector has reached MNT 248 billion in the first half of this
year in which it is 30.7 percent lower compared to last year. The most influential factor in this
result is the amount of unproductive lost livestock. 9.7 million heads of livestock have been lost
nationally as of the first half of 2010. Almost half of this, or 4.8 million heads lost, are goats.
Since unnatural loss of big cattle has been high, supplies of livestock products such as meat,
milk, wool and cashmere have dropped. Especially, high level of unnatural loss of goats has led
to sharp drop in supply of the main livestock product – cashmere. These factors mainly affected
in the drop of surplus value in livestock-breeding.
Industrial sector
Growth of industrial sector has decelerated 4.2 units to reach down to 8.3 percent in the
second quarter compared to first quarter. However, amount of extracted products in mining
sector is less than the amount exported. For example, 1192.4 thousand tonnes of iron ore have
been exported as of the first half of the year which is 94.4 percent higher than that of last year.
However, extracted amount of iron ore is only 521 thousand tonnes or 26.5 percent less than last
year’s amount. Therefore, extracted amount is half as much as exported amount.
There has not been any growth observed in construction sector. For instance, amount of
construction building and large repairing works value is MNT 55.9 billion at current year cost as
of the first half of this year which is 16.4 percent less compared to this time of last year.
Services sector
Services sector has showed the highest economic growth and, in the first half of 2010, its
surplus value reached MNT 716 billion that is 12.5 percent more than this time of last year.
Growth in transborder pointation, wholesale and retail sales sectors has largely resulted in

services sector
tor growth. For example, value of freights transborder pointed
ed has increased by 17.9
percent or 1736.2 thousand tonnnes. Total amount sold in whole and retail sales sectors reached
MNT 891.3 billion at current year cost and that is an increase of 87.1 perce
percent
nt compared to last
year.
In the following months, economic growth is to accelerate in the 3rd and 4th quarter of 2010
excluding drop in livestock sector.
PRODUCTION OF AGRICULTURAL SECTOR
Food, agriculture and light industry is an important sector for national economy
accounting for about 30.2 percent of GDPGDP, over 10 percent of export revenue and providing 36
percent of labor force with workplaces. Food,
ood, agriculture and light industry sectors’ standing in
total economy is illustrated in the followin
following chart.
Figure 1. Food, agriculture aand light industry (FALI) sectors’ share in GDP
Other sectors
31,6% FALI sector
30.2%
Mining
sector
28,2%
Livestock
For Mongolia,, pastoral cattle

cattle-breeding is quite unique from other countries in the world
with its advantages such as low cost, energy saving, environment-friendliness and ecologically
clean raw materials of livestock. In recen
recent years, the number of livestock has sharply jumped
reaching 44 million heads. It, on one side, leads to over capacity for pasture land and, on the
other side; global warming and world
worldwide desertifications are also bringing negative impacts
impact on
the quality of Mongolia’s pasture land. Climate change is degrading quality and health of
livestock and further diminishing output of raw materials and quality of these raw materials also
tends to decline as well.

First half of 2010
2010/ NDIC 6
For example, health of pastoral cattle cannot meet requirement levels set by the World
Health Organization. Therefore, output and quality of meat fail to meet market demand fully in a
number of ways and because of this, export of meat and meat products are not increasing
significantly.
In 2010, it got severely cold in the winter and large part of homeland was covered with
heavy snowfall. In addition, insufficient reserves of grass and supplementary fodder for cattle
made the dzud even more severe and, because of this; unnatural loss of livestock was
comparatively high in contrast to previous years. Nationally, 9.7 million heads of cattle were lost
as of first 6 months of 2010 which is 6.8 times (or 1437.9 thousand heads) more than last year’s
loss. Of which, 2.9 million losses occurred in western region, 4.2 million in khangai region, 2.1
million in central region and 0.5 million in eastern region.
Table 1. Head count of livestock lost /thous.heads/
Number of livestock lost Percentage in total livestock

Cattle type 2008.I-YI 2009.I-YI 2010.I-YI 2008.I-YI 2009.I-YI 2010.I-YI
Camel 1.9 1.6 12.8 0.7 0.6 4.6
Horse 101.5 49.3 338.2 4.5 2.3 15.2
Cow 115.9 89.0 550.1 4.8 3.6 21.2
Sheep 540.2 564.2 4053.4 3.2 3.1 21.0
Goat 656.6 733.7 4772.0 3.6 3.7 24.3
Total 1416.0 1437.9 9726.6 3.5 3.3 22.1

Source: NATIONAL STATISTICS OFFICE
A total of 8500 herder families were left with no cattle and over 32 thousand families lost
half of their cattle due to this disaster occurred in livestock sector and poverty in rural areas
increased to a large extent. Ministry of Food, Agriculture and Light Industry and other related
regional administration offices must take actions such as promptly re-stocking herders with
cattle, reassigning members of herder families who lost their livestock in other sectors in need of
work force and organizing implementation of “Mongolian livestock program” which was
approved by the State Great Khural in order to overcome damages caused in livestock sector,
main pillar of the country’s economy.
In market research of main goods of livestock sector in first 6 months of 2010, sheepskin
is sold cheapest in Bulgan province at MNT 4 thousand and the most expensive in Hentii
province at MNT 8 thousand. Cowhide that is longer than 2 meters is cheapest in Uvs province at
MNT 6 thousand while it is way more expensive in Ulaanbaatar city at MNT 22 thousand.
Orkhon province has the cheapest horse hide at MNT 8.5 thousand while it is MNT 18 thousand

in Arkhangai province which is the highest in the nation. White cashmere is MNT 53.5 thousand
in Govi-Altai province at its cheapest, but MNT 40 thousand in both Sukhbaatar and
Govisumber province. On one hand, it is good that it supplements cash on hand for herders;
unfortunately, it is a heavy hit for cashmere processing industries which are strategically
important sector of national economy. It further reminds us that taking actions to protect
domestic market is unavoidable.
Agriculture
Under the framework of Atar-III campaign (Cultivation campaign) organized by the

Government of Mongolia, farming sector revived sufficiently to supply domestic flour, wheat
and potato needs fully and objectives set in the Government Action Plan is now possible to be
fulfilled. A total area of 312.2 thousand hectares is cultivated as of the first half of 2010 which is
11.3 percent larger than last year.
Table 2. Cultivation /thous.ha/
Ups and downs

Type of sown plants 2009 2010
/ %/
1 Total planted area 280,3 312,2 111,4
2 Grain 251,9 259,0 102,8
3 Of which: Wheat 248,8 249,6 100,3
4 Potato 13,5 13,6 100,8
5 Vegetable 6,4 6,9 107,3
6 Fodder plants, hay 2,8 11,4 399,0
However, bottom heat has sharply increased over normal level in June and July, thus
bringing negative blow on harvest. Especially, preliminary studies show that grain harvest in the
main region of farming, Tuv and Selenge provinces, might fail to give expected amount. Sowing
of fodder plants was increased by 3.9-11.8 times in Khangai, Eastern, Central and Ulaanbaatar
region in case harsh and severe condition of last year’s winter recurs. Thus, it is important to
consider that organizing efficient products trade is crucial because failing to do so will bring
costly harm for enterprises who will then have fodder reserves kept for over a year.
During the conference on ‘strengthening budget planning process’ organized by the

Ministry of Food, Agriculture and Light Industry, it was suggested that a guideline with very
comprehensive standards for preparation for the upcoming winter should be formulated and
preparation works of all soums should be verified against reborder points. Such action should
promptly be implemented.

INDUSTRIAL SECTOR PRODUCTION
As the Government of Mongolia announced year 2009 as the “Industrialization

Supborder point Year”, one of the many important actions taken is the formulation of
“Industrialization Program of Mongolia” and its implementation since it was approved by
Government Decree No.299 of September 30th, 2009.
NDIC is working to improve inter-sector coordination and formulate systematic

development plan and strategy since industrialization of a country is a complex process that
relies on cooperation of all sectors, needs initiative and effort of all citizens as well as their desire
and aspiration.
Following important actions to improve environment for enterprises are implemented
• Law on Concession was approved

The purpose of this law is supborder point public private partnership and increase private
investment in social and economic sector of Mongolia through regulating relations concerning
the organization of tenders for granting investors the rights of possession, operation, creation and
renovation of state and locally-owned properties under concession agreements, conclusion,
modification and termination of concession agreements. Through the law on Concession, it
presents legal environment for private sector to be involved in public private partnership so that
they can provide services for the state through contract agreement, to take up some
responsibilities of the state as well as to construct certain buildings and transfer them to state
ownership after utilizing for a certain amount of time.
• Law on legal environment for production and technological park was approved
There was a major obstacle in establishing production and technological park due to the lack
of law or legal environment specifically regulating requirements, organization, land ownership,
tax breaks and financial assistance for production and technological park. Upon approval of this
law, many advantages are formed. Regional development goals are met, new workplaces are
created in rural areas, production of high technology based value-added products increased,
issues in transborder pointation and logistics sector are improved and competitiveness in
international market is advanced.
• Program on South Gobi infrastructure development and the program action plan are
formulated
Purpose of this program is to establish basic infrastructure in the South Gobi area and
supborder point infrastructure development that is needed for exploring, concentrating and
processing mining industries. It will also set up hard infrastructure for cities and towns that will
develop following these industries and establish social infrastructure and basic social services.
Within the objective to establish basic infrastructure in the South Gobi area, hard infrastructure

facilities such as extracting and processing mining industries, power station, electricity grid,
railroad, and concrete auto road will be constructed.
• Development Bank is to be established

Development Bank of Mongolia will be a legal entity with state participation with a right to
provide financial broking services for investment needed in implementing programs and projects
of development priorities set by the Government. Development Bank will supborder point
infrastructure and industrial development and provide financial assistance in introducing modern
technologies that are environment friendly and meeting international standards.
• “Direction to develop industrialization in rural region” is approved

“Direction to develop industrialization in rural region” is approved and MNT 30 billion from
state budget dedicated for supborder pointing small and medium enterprises has started being
distributed.
• “State policy on high technology industrial sector” was approved

This document was formulated based upon competitiveness of our country, economic
structure and industrialization researches, studies for future development trend for industrial
sectors and capacity of science and technology sector and development inclination of worldwide
technology, innovation and industrialization. By developing high technology industrial sector,
current situation of raw products taking up large share of export goods will be eliminated and
condition for transitioning from raw materials-based economy to knowledge-based economy will
be created as production of value-added end products increases.
• “Investment corporation for high technology and innovation”, a state-owned LLC is

being established
“Investment corporation for high technology and innovation” LLC is responsible for
implementing state policy on high technology, developing infrastructure of the sector, financing
economically important technological and manufacturing projects as well as raising capital.
• Draft of “Sub-program on supborder pointing national champions” was developed

When looking at international experiences, globally competitive, national leading companies
play exceptional role in countries’ social and economic developments. Since these companies
become the face of business and production sector and provide noteworthy contributions while
being the leading tax payer, employer and guiding entity for business accomplishment, state
offers policy supborder point. Likewise, the purpose of the program is directed at forming
favorable legal environment for establishing globally competitive national champion.

Mining and heavy industry
• Legal ground for exploring Tavantolgoi deposit is set

Draft of Parliament Decree on exploring Tavantolgoi coal deposit was approved upon State
Great Khural meeting and “Erdenes Tavantolgoi” subsidiary company under state-owned
“Erdenes MGL” is to be established in order to conduct exploration and export activities. Hence,
“Erdenes Tavantolgoi” subsidiary company possesses the right to distribute 10 percent of
Tavantolgoi shares to Mongolian citizenry on equal terms.
• Government decision to establish Sainshand industrial complex was made

Considering the locations of mineral deposits and the shortest way to export market,
development of industrial complexes is planned to start from Sainshand and later to other
regions. After constructing “Sainshand” industrial complex, all options such as processing raw
materials coming from strategic mining deposits, developing heavy industry and producing
value-added, internationally competitive products will be possible.
• Copper smelting factory is decided to be constructed

Draft of parliament decree on constructing copper smelting and processing factory is
approved at State Great Khural meeting of April 29th, 2010. Heavy industrial development base
to add value on products and to increase export revenue will be formed after the construction of
the factory.
Regarding the objective to establish factories for enriching and producing end products
relying upon fluorspar region, a couple of factories have already put into operation. First one is
an enrichment factory by “Kevin Invest” LLC in Dalanjargalan soum, Dornogovi province with
annual capacity to produce 80 thousand tonnes of solid fluorspar with 95-97 percent content and
18 thousand tonnes of concentrated fluorspar. Next one is also an enrichment facility by “Yanitai
Uul” LLC at Airag soum, Dornogovi province with annual capacity to produce and export 20
thousand tonnes of concentrated fluorspar with 92-97 percent content.
Total production of industrial sector
Total industrial sector production was MNT 754.7 billion at 2005 price as of the first half
of 2009 which was 6.5 percent less than the same time the previous year due to economic crisis
impact. However, in the first half of this year, it reached MNT 845.5 billion which is 12.4
percent higher than last year’s data.
Increased production of main industrial sector goods such as coal, petroleum,

molybdenum concentrate with 47 percent content, fluorspar concentrate, all types of cattle meat,
milk, flour, alcohol, wine, beer, flavored water, juice, copper cathode, metal cast affected total
industrial output growth.

As of the first half of 2010, when comparing total industrial output with previous year’s
statistics, there is growth in every sub
sub-sector.
Figure 2. Total production of industrial sector as of first half of 2010 /a the price of 2005, MNT
M billion/
Mining and exploring

484.7
500 industrial sector has seen a
442.7 Mining and
exploring industry growth of 9.5 percent this year
400 compared to the same time last
year. Output of the sector has
300 252.7 Processing
industry
reached MNT 484.7 billion at
207.1 2005 price. When looking at the
200
specific products, coal,
coal petroleum
104.9 111.1 Electricity and
100 and fluorspar production
thermal power
generation, water increased by 83, 80.2, 35.8
0 supply percent respectively. However,
2009 I-VI 2010 II-VI cooper concentrate production
slowed down by 2.4 percent, gold
production by 35.8 percent, iron ore mining by 26.5 percent and zinc concentrate by 10.6 percent
each.
Figure 3. Total industrial sub-sector

sector outputs of the first half of 2010 /at the price
rice of year 2005, MNT
billion /
860 The highest growth was

848.5
840 seen in processing industry as
820 total output of the sector reached
807.0
800 MNT 252.7 billion which is 22
percent higher than this time of
780
754.
754.7 last year.
760
740 While production of
720
combed cashmere and carpet has
gone up, manufacturing of knitted
700
garments
ts and camel wool blankets
2008 I-VI 2009 II-VI 2010 I-VI
dropped in light industry sector.

First half of 2010
2010/ NDIC 12
Table 3. Production of main goods of mining and exploring industries /as of the first half of 2010/
Main types of goods Unit 2008 I-VI 2009 I-VI 2010 I-VI
Coal thous.tonne 4 163.4 5 163.1 9 447.9
527.4 598.8 1 078.9
Petroleum thous. barrel
Copper concentrate /35%/ thous.tonne 181.0 180.0 175.6
Molybdenum concentrate 2 030.0 2 285.0 2 412.1
tonne
/47%/
Gold kg 6 416.2 4 327.3 2 779.2
Iron ore thous.tonne 68.5 709.1 521.0
Fluorspar concentrate thous.tonne 69.7 53.3 72.4
Zinc concentrate thous.tonne 78.0 64.9 58.0
Table 4. Production of main goods of processing industry /As of the first half of 2010 /
Main types of goods Unit 2008 I-VI 2009 I-VI 2010 I-VI
Copper cathode /99%/ tonne 1 194.6 1 044.5 1 402.0
Knitted garment thous.uni 235.0 278.6 239.5
Combed cashmere tonne 482.8 411.5 551.3
Carpet thou.sq.m 406.1 273.4 311.7
Camel wool blanket thou.sq.m 14.4 29.0 6.8
Sawn wood cu.m 4 994.5 4 484.4 4 109.2
Cement thous.tn 69.8 94.2 95.5
Food production
Cattle meat tonne 1 733.0 177.9 1 745.0
Liquid milk thous.l 3 297.2 5 528.0 9 857.3
Flour tonne 27 946.4 39 022.4 70 072.7
Bread tonne 11 050.9 11 807.6 10 438.2
Fine pastry tonne 6 234.3 6 191.0 6 107.0
Noodle tonne 959.6 1 734.1 1 259.2
Flavored water, juice thous.l 21 395.7 21 064.2 22 540.9
Alcohol, wine thous.l 7 268.4 7 714.5 10172.5
Spirit thous.l 3 178.5 2 180.9 2 132.8

Growth of food production mainly resulted in the expansion of processing industries.
Total output of the sector reached MNT 124.5 billion which is 39.8
9.8 percent higher than half-year
half
of last year and it takes up more than half of total processing inindustrial
dustrial output. Especially,
productions
roductions of all types of meat, milk, dairy products, flour, beer and flavored water have
increased.
Table 5. Production of electricity, thermal power generation and water supply sector
/as of the first half of 2010
2010/
Product Unit 2008 I-VI 2009 I-VI 2010 I-VI
Electricity Mil.
Mil.kW-h 1 683.9 1 746.9 1 831.0
Thermal power thous.gCal 4 197.0 4 148.8 4 620.5
Fresh water distribution thous.sq.m 33 676.9 32 270.5 31 287.1
Electricity, thermal power generation and water supply sectors’ production has increased
by 5.9 percent compared to last year
year, reaching MNT 111.1 billion. Thereof, electricity, heating
and steam production increased by 6.5 percent while water purification and water supply sector
decreased by 3 percent.
Figure 4. Sales structure of industrial output /percentage/
Total industrial output sold

9.7 Mining and reached MNT 1 914.3 billion in the first
exploring industry half of this year and 66.3 percent or MNT
1 270 billion is sold on o international
22.6 markets. Share of mining and exploring
Processing
industry industry in total industrial output has
gone up to 67.7 percent which is 9 units
67.7 higher than last year while share of
Electricity, therma
l power generation processing industry fell down to 22.6
and water supply percent or 5.8 units lower and electricity,
elect
thermal power and water supply sector went down to 9.7 percent or 3.2 units lower. This is due
to higher increase of mining export and its larger share in sales structure.
Shares of industrial sector products for export differ from product to product.
prod 100 percent
of explored petroleum, 92.9 percent of metal ore, 86 percent of coal, 71 percent of woven
garments, 45.2 percent of processed iron and 5.2 percent of food products are exported into
foreign markets.

First half of 2010
2010/ NDIC 14
The number of employed in the industrial sector is 51200 as of the first half of 2010 and
that is 4.7 percent increase or 2 347 more people compared to last year.
Productivity of industrial sector is constantly improving and it achieved MNT 1.4 million
or 8.7 percent increase from this time of last year, reaching MNT 17.1 million. Productivity has
increased MNT 0.5 million or 1.7 percent in industrial sector, MNT 1.9 million or 19.2 percent
in processing industry, MNT 0.4 million or 5.2 percent in electricity, thermal power generation
and water supply sector.
Further trend
From looking at the total industrial output during the first half of this year, it is expected to
increase in the second half as well.
As growth occurs in industrial sector, it will then increase economic growth and, taking into
account of this, the year also looks to end with growth in GDP.
Following factors are to positively affect growth of industrial output. These are:
• Mining sector growth: Production of main mining products such as coal and petroleum
are trending upward.
• Processing industry growth: Processing industrial sector, especially food production, is
projected to increase substantially.
The reason coal production is increasing is related to the fact that a total of 5 enterprises are
increasing their individual coal production. Tavantolgoi Shareholders Company and Energy
Resources LLC are exploring parts of Tavantolgoi coal deposit located in Tsogttsetsii soum,
Umnugovi province and “Mongolin Alt (MAK)”, “Chinhua-MAK-Nariin sukhait” and
“Southgobi Sands” LLC are also exploiting at Nariin Sukhait coal deposit located in Gurvantes
soum.
Table 6. Coal production /thous.tonne/
Increase
Planned Output of first
Output in from the
№ Name of enterprises amount in 5 months of
2009 previous
2010 2010
year
1 Tavantolgoi SC 2600.0 2600.0 - 600.0
2 Energy Resources LLC 1400.0 3800.0 2400.0 800.0
3 Mongolin Alt LLC 1600.0 3000.0 1400.0 1400.0
4 Chinhua-MAK-Nariin sukhait 730.0 1100.0 370.0 330.0
Southgobi Sand LLC 1327.0 2500.0 1173.0 700.0
5
Total 7657.0 13000.0 5343.0 3830.0

These companies increased their mined and exported coal this year by 69.8 percent or 5343
thousand tonnes more from the previous year and, Erdenes MGL and QGX companies are
working to export 1 million tonnes of coal each starting from this year.
Although mining sector is experiencing growth, declining production of main goods of this
sector such as 43.2 percent drop of gold and 26.5 percent drop of iron ore production are hurting
the overall industrial growth.
When observing total industrial output so far till June this year, it is possible for total
output of this sector to grow in the remaining months, hence, increasing economic growth as
well.
BALANCE OF PAYMENTS
Due to financial and economic crisis occurred in 2008, the nation’s balance of payments
came negative. Increase of foreign trade imbalance deepened as values of mining products
including gold, copper and zinc sharply dropped in the global market and import goods such as
petroleum and food products increased in price.
While first quarter performance of balance of payments in 2009 was negative US$ 28.4
million, it performed positive US$ 10.2 million in the first quarter of this year.
Current account1
According to the 1st quarter performance of this year, both price and volume of the nation’s
export products had increased 2.4 times more than last year.
Current account imbalance of balance of payments in the 1st quarter of 2010 is 40 percent
more than last year’s and following factors are mainly responsible.
• Value of imported goods has increased by 50 percent. This is due to the increasing amount of
import including mining production equipments and machineries as well as fuel and gasoline
as the economy is recovering.
• The nation’s services expenses boosted due to enlarged volume of import goods, thus
bringing US$ 54.5 million worth of negative services balance in the first half of 2010. That is
12 percent increase in contrast to last year.
• Capital account imbalance is also mounting. This is because foreign-invested enterprises
transferred their return of investments out of the country more than they did last year.
1
1st quarter performance is taken into account as mid-year performance of balance of payments is not due until
August.

Figure 5. Current account / US$ million /
I. Current account
Урсгал данс A.Goods andүйлчилгээний
Бараа ба services balance
тэнцэл
0.0
-20.0
-40.0
-35.8
-60.0
-80.0 -61.5
-100.0
-97.0 -99.7
-120.0
-140.0 -120.1
-135.9
-160.0
1st quarter
1-р улирал st
11-р улирал
quarter 1st quarter
1-р улирал
2008 2009 2010
Capital and financial account2
In relation to the starting of large project to accelerate economic development, capital and
financial accounts of balance of payments are trending upward in 2010 as inward foreign direct
investment and long-termterm loan use are expanding. Capital and financial accounts of balance of
payments are positive with US$ 36.6 million in the 1st quarter of 2010 which is twice as much as
it was in 2009. It is mainly the result of 2.5 times increase of foreign direct investment in
financial account when compared to previous year year’s.. Investment value of Oyutolgoi deposit in
the mining sector of the country plays a major part in such addition.
However, the fact that volume of financial investment in financial account performed
negative US$ 84.3 million is mainly because national private enterprises had purchased more
monetary tools in the international markets more than they did the previous year. Payment value
for loan instruments in foreign markets by domestic commercial banks has increased because
,when compared to last year, it mainly affected financial account deficit of balance of payments
to deepen.
2
1st quarter performance is taken into account as mid
mid-year
year performance of balance of payments is not due until
August.

First half of 2010
2010/ NDIC 17
Figure 6. Capital and financial account /million US$ /
II.Capital
Хөрөнгөandбаfinancial
санхүүгийн данс
account 1. Direct
Шууд хөрөнгө оруулалт
Investment
300.0
265.0
250.0
187.0
200.0
153.2
150.0
100.0
60.5
36.6
50.0
18.4
0.0
11-р
st улирал
quarter 11-р
st улирал
quarter 1-р улирал
1st quarter
2008 2009 2010
Future trend
Current account deficit of balance of payments is looking to deepen.
• As a result of Oyutolgoi investment agreement, imported value of equipment and

machineries as well as fuel and gasoline heightened.
• Due to the increased amount of import,, services expense is also on an upward trajectory.
• As a result of economic recovery, income amount of foreign invested enterprises are going
go
up. Thus, transfer of return of investment into their home countries is going to increase in
that gross income of current account of balance of payments is on an upward momentum.
Capital and financial account incomes are on an upward trajectory.
• Sincee investment on mining sector is enlarging, inward foreign direct investment is projected
to increase significantly.
• Loan and grants from international banks, financial institutions and donor countries are
supposed to increase. Within this year, loan of US$ 110 million out of total US$ 300 million
dedicated for Mongolia’s infrastructure development will be provided according to schedule
from the Government
ment of the People’s Republic of China.

First half of 2010
2010/ NDIC 18
3. EMPLOYMENT AND UNEMPLOYMENT
LEVEL OF UNEMPLOYMENT
Number of unemployed citizens registered at the Labor and Social Welfare Services Office
currently in June stands at 39.9 thousand, a rise of 1.1% compared with the same period last
year. Of the total unemployed workforce, percentage of unemployed women fell by 3.8% in June
from the same period last year
The number of new registrants at the Labor and Social Welfare Services Office has
increased to over 42.1 thousand in June, 2009. World economic crisis is said to be the biggest
contributor to this increased number of registrants. However, as the Mongolian economy is well
underway of rapid recovery, level of unemployed plummeted by 23.9% as of June, 2010 in
comparison to the same period last year. Number of jobless citizens stands at 32 thousand in
June this year.
Of the total number of registered unemployed, 64.1% of citizens were able to find jobs
through the Labor and Social Welfare Services Offices in June last year whereas this figure
stands at 51.1% in the same period this year. The latest figure of 13% drop in citizens finding
jobs through the Labor and Social Welfare Services Office is explained by hike in the bank’s
interest rate, resulting in decreased level of lending to the service industry.
Table 7.Level of unemployment
Indicators Unit June, 2009 June, 2010
Number of registered unemployed citizens at the

Persons 39495 39941
labour and social welfare services offices
Number of registered unemployed women Persons 21910 20647
New registrants Persons 42100 32024
Registered unemployed who found jobs through

Person 25329 20388
the labour and social welfare services offices
Source: National Statistics Office

Figure 7. Registered unemployed citizens at the Labor and Social Welfare Services Offices, by
level of education.
2009.06 No
2010.06 No
Primary; Primary; education,
education 3,6
3,5 0.5
0.6
Lower Higher
Higher Education
education College; secondary 17,4 College,
16,4 5,8 22.2
Lower 5.4
secondary
23.6
Vocational
Vocational training
Upper Upper
training
secondary 6.0
secondary 6.0
44.2 44.9
In the Figure 7, it illustrates the fact that the education level of Mongolian workforce is
not changing in line with changes in the demand and supply of labour market.
Fugure 8. Registered, unemployed by age category
45-59;
59; 19,4% 16-24, 21.2%
35-44,
44, 25.8%
25-34, 33.6%
Of the total registered unemployed, around 60% of jobl jobless

ess citizens fall within 25-44
25
years of age bracket. Therefore, it is seen as an indication of mismatch between education level
le
of Mongolian workforce and labor
abor market skill demand.

First half of 2010
2010/ NDIC 20
Future trend
There are more vacant positions to be created due to seasonal job opborder pointunieties
in mining, construction, infrastructure, manufacturing, agriculture and tourism sectors.
As the Government of Mongolia announced 2010 as the year of “Business enabling
environment reform”, a number of important initiatives is being taken by the Government of
Mongolia directed towards supborder pointing and increasing investment inflows into small and
medium enterprises. The present intend of Government is to create opborder pointunities for the
unemployed to be included in various vocational training programs as well as to implement
policies on creating both seasonal and permanent positions for the unemployed.

4. INFLATION
INFLATION
The price levels of consumer goods and services continued to rise since the beginning of
2010. However, the latest data on CPI in June revealed a drop of 1.5 percentage points in
comparison to figure in the month of May. Consumer price index stands at 11.4% in the first half
of 2010.
Following are the main factors that contributed to high inflation rate in the first half of the
year.
• Distribution of Human Development Fund. Government of Mongolia approved
its first ever sovereign wealth fund, Human Development Fund, to pool all
revenues generated from mining sector and distribute social transfers to each
eligible citizens. Therefore, cash transfer of MNT 70,000 had been handed out to
each eligible citizen since February this year. As a result, herder’s disposable
income had increased after receiving the MNT 70,000 from Human Development
Fund. This increase in herders disposable income projected adverse impact on the
meat market as herders were reluctant to supply a few remaining livestock to the
meat market after harsh winter.
• Harsh winter. Months of freezing temperatures and heavy snowfalls in the winter
of 2009 claimed lives of 9.7 million livestock. Severe loss of livestock throughout
Mongolia depressed the supply of meat, left the country with over inflated meat
price in the first 5 months of the year. This hike in the meat price is estimated to
contribute over 90 percent of increased prices of consumer goods and services.
• Fuel Price. Price of fuel has been somewhat fluctuant throughout the first half of
the year. Whilst, only in a month of May, the fuel was costing more than it was at
the end of 2009, fuel price remained lower than the end of last year for the
remaining months. However, frequent fluctuation was observed on monthly basis
throughout the first half of the year. This unstable fuel price creates uncertainty
amongst consumers and undermined consumer confidence. A long term fuel price
policy would be required to prevent further uncertainty amongst consumers.
• Price of Electricity and heating. Energy Regulatory Authority announced its
decision to increase the price of electricity by 17.35% and the price of heating
price by 14.5% from the 15th of January, 2010. However, the price of household
electricity was on hold until the 1st of June and increased by MNT 11, to MNT 79
per kilowatts. This price climb makes up around 0.5% of total increased price
levels of consumer goods and services.

• Price of cashmere. Price of cashmere is almost doubled compared to the same
period last year. This price acceleration was seen as a favorable market
adjustment to the herders as Mongolia had just experienced severe weather
conditions, resulting in loss of millions of livestock.
• Price imported goods. As the Chinese economy is showing strong signs of
recovery after global economic downturn, housing and real estate market is
booming in China, causing massive increase in the price levels of consumer goods
and services in the first half of the year. Chinese consumer price index increased
by 2.9% in June. This has a direct effect on Mongolian economy where the price
of such imported goods as clothing, gourmets, shoes, furniture went up in line
with China.
INFLATION EXPECTATIONS
After evaluating the factors causing inflation, Government of Mongolia put forward
following set of initiatives in order to prevent further acceleration of inflation rate.
• A Cabinet meeting was held to discuss some measures to be taken on staple foods
and passed official government resolution to address supply side issues of stable
food. Ministry of Foodm Agriculture and Light Industry was ordered to organize
regular meat exhibitions in Ulaanbaatar, twice a month in spring, and once in all
the other seasons, to bring buyers and sellers together directly from June 2010.
The quantity of meat to be kept in reserve has also been adjusted to reflex the
previous year’s shortage of meat. Beginning from the next year, the quota
for Ulaanbaatar will be 12,000 tonnes, for Darkhan and Erdenet 1,000 tonnes
each, and for all other provinces 100 tonnes. This meat in reserves will be sold in
the spring. Also, the relevant government agencies were instructed to take the
count of such staple food as meat, flour, sugar, rice, oil in reserves and to reborder
point it the Government meeting on monthly basis. They were also ordered to take
all the necessary actions to ensure sufficient level of staple food is stored in all
reserves.
• Of the MNT 120,000 to be handed out to each eligible citizen through Human
development fund, MNT 70,000 has already been distributed to citizens. From
August 2010, remaining MNT 50000 will be distributed in MNT 10,000 pieces on
monthly basis in order to prevent price levels of consumer goods and services to
rise as well as increasing household disposable income.
• With the purpose of decreasing consumption of imported fuel and increasing the
local fuel production, Government of Mongolia had just approved Mongolian
Socio-Economic guidelines for 2011, which includes setting up of an oil refinery
in Dornogovi province as well as one in Darkhan city with the capacity of

producing 2 million tonnes of oil. Overall, these actions are set to be implemented
in order to stabilize the supply of meat and other staple food products, which, in
turn, have a positive effect on price stability and to decrease dependency on
imported fuel from overseas. Heat waves and soaring temperatures across many
parts of the world is likely to have a negative impact on the supply of such food
products as wheat, sugar and rice.

5. EXTERNAL SECTOR
FOREIGN TRADE
As the world economy is rebounding from recession, Mongolia’s foreign trade is
showing strong sign of recovery, which is being fueled by the upward momentum in the metal
prices and increased level of copper and coal export to China, Mongolia’s largest trading partner.
Commodity circulation in the first half of 2010 is much more exuberant compared to the same
period last year. Country’s export
exportss revenue reached over $1.309 trillion, marking Mongolia’s
highest export revenue ever. Trade deficit has stabilized in recent months, narrowing to US$48
million in the first half of the year. This figure is relatively lower than figure
figuress in the same period
from previous 2 years.
Figure 9. Trade deficit in thousand US USD /first half of 2005-2010/

2010/
1600
1472
1400 1356
1309
1200
1271
1000 868 893
800
617 836 763
600 500
400 612
200 383 -48

0 -104 -5 -130
-32
-201
2005.1-6 2006.1
2006.1-6 2007.1-6 2008.1-6 2009.1-6 2010.1-6
-200
-400
Экспорт
Export Импорт
Import Гадаад худалдааны тэнцэл
Trade deficit
Source: Customs office of Mongolia, statistical information of foreign trade
Export revenue is up by 71.5% from previous year to $1.309 billion.

The continued strength in the prices of Mongolian main exporting
ing commodities this year
has been the main driving force behind record high export revenue. The average price of copper
rose from $4045
4045 in the first half of 2009 to $7130 in the same period this year. Also, price
pri of
zinc was $1322 and price of barrel of crude oil was $52 on average in the first
firs half of 2009.
These commodities’ price surged in the first half of 2010, reaching $2157 and $78 respectively.

First half of 2010
2010/ NDIC 25
Chinese robust economic outlook has a favorable impact on Mongolian economy
directly. Chinese economic growth was recorded higher in the second quarter of 2010 by 3.2%
to 11.1% when comparing it with the same period last year. Chinese import is up by 52.7% in the
first half of the year comparing it with the same period last year. This, in turn, doubled the
commodities that Mongolia exported to its southern neighbor.
As the investment inflow to the mining sector increases, the advanced exploration
techniques and improved transborder pointation capacity have led to sustained export growth.
For example, “Bold tumur yoroo gol” LLC purchased 1420 semi freight carriage trains for their
iron ore production from Yoroo soum of Selenge province. Also, Energy Resources is employing
four 200 tonnes capacity self-loader, first time ever in Mongolian mining industry. These
investments are projecting positive impact on the export figure.
Increased capacity of border points intensifies the commodity circulation
In order to boost the effectiveness of the busy border points around the country,
Government of Mongolia has taken a number of significant initiatives. For example, Gashuun
Sukhait and Shivee Khuren border points switched to 24 hours a day operation effective from
29th of August, 2009 and 1st of January, 2009 respectively to properly maintain the exporting
operation. Throughout first 5 months of 2010, $224 million dollar worth products were exported
and imported through Gashuun Sukhait and Shivee Khuren border points. Other than these two
border points, crude oil is increasingly being exported through Bichigt border point in
Sukhbaatar Province. Also, Gobi-Altai’s Burgastai border point exported more iron ore this year.
Consequently, increased volumes of minerals being exported to our neighboring countries in
recent years are supporting the sustainable growth on Mongolian foreign trade. In 2009,
Mongolia exported a total of 7 million tonnes of coking coal. Of these 7 million tonnes of coking
coal, 6.8 million tonnes were exported through Gashuun Sukhait and Shivee Khuren border
points. Just in the first half of 2010, 6.3 million tonnes of coking coal were exported and majority
of this export were through these 2 border points. The main exporters include “Energy
resources”LLC, “Mongolyn Alt” LLC and “Tavan Tolgoi” LLC.
Import is up by 51.9% from previous year, reaching $1.356 million
Almost 50% increase in the production of non-mining tradable sector (manufacturing)
with real growth of 12% translated to rise in the volume of equipments, petroleum and raw
materials import in first half of the year. Motor vehicles and car parts import is up by 60%,
machinery, various tools and equipments, electronic appliances and their parts import is up by
40% and chemical products and chemical raw materials import has doubled in comparison to the
same period last year.
Expanded explorations in the mining sector in recent years continue to put upward
pressure on the demand for petroleum products. Therefore, the volume of imported petroleum is
recorded 16% higher this year. Also, increase in the price of crude oil is impacting the import
figures.

Rapid economic recovery, inflated household disposable income and increased consumer
confidence have all contributed to the rising consumer commodity and import of household
goods. For example, in the first half of 2009, staple food products import is down by 28%
whereas, 37% increase is recorded in the same period this year. Similarly, the number of motor
vehicles imported in 2009 was down by 70%, but in 2010, it was up by 86%.
The Government of Mongolia announced 2009 as the “year of support ing
industrialization”. Within the scope of this year, 46 food manufacturing factories have been set
up with the purpose of replacing the goods that are being imported from overseas. As a result,
flour import has dropped by 12 million tonnes this year alone, thanks to newly established
flourmill with the capacity of producing 170 tonnes of flour each year and expansion of other
flourmills around the country.
Due to the introduction of export quota on rice by China (to tackle domestic shortages),
rice import is down in the first half of the year, pushing the price of rise up by over MNT 200 in
the local food market. In addition, sugar price surged in the world market, peaking at 28 cents a
pound in January. This adversely impacted the price of imported sugar.
Future trend
• Development of mining sector, in particular, coal exploration is likely to continue
impacting the export revenue favorably. Consequently, import of fuel and petroleum
products is expected to rise.
• As the consumer confidence strengthens, import of household commodities is likely to
continue increasing.
• As the investment inflow to the mining sector increases, import of mining equipments is
expected to surge.
• Import of raw materials is likely to rise due to rising number of manufacturers.

COMMODITY PRICE
Figure 10. Price of Gold, Copper, Oil, Coking coal /as of first half of 2010/
Copper
The world price of 1 tonne of copper in the first half of 2010 fluctuated between $6091
and $7950. /Figure 10 illustrates the fluctuation of copper price between January and July in
green/
International experts are claiming that the drop in copper price is a direct result of
decreased demand for copper by Chinese manufacturers. However, this phenomenon is said to be
a temporary one. The price of copper is likely to increase again in the near future. The
management of world’s one of the largest copper producer Sonami, Chilean mining company, is
confident that the price of copper will rise by approximately 19% this year alone. On the other
hand, Mr. Bret Clayton, the chief executive officer of Rio Tinto Copper said that higher copper
prices have not “necessarily been supported” by the matching demand this year. Therefore, it
will further slide downward toward the end of the year. Eventually, insufficient level of demand
will pick up in the next year, forcing the hike again.

Gold
London metal exchange report pointed that the price of gold peaked at $1058 and
plunged at $1291 in the first quarter of 2010, indicating constant growth in the gold price.
/Figure 10 illustrates the fluctuation of an ounce of gold price in red/
Despite gold prices touching record highs again in recent months, the gold price
instability is driven by investor concerns about financial stability about the European Union
sovereign debt crisis, and by the metal’s continuing appeal as a currency and inflation hedge.
The gold price remains depressed not only in the Asian markets, but gold was exchanged as low
as $1198 an ounce in European and US markets. The rationale behind this is that purchasing an
ounce of gold between $1200 and $1210 is seen as too risky investment by a lot of investors.
Some economists are expecting that some European Union countries’ economies will worsen
towards the end of June while others argue otherwise. This uncertainty puts downward pressure
on the price of gold.
As a result of downgrading of Portuguese credit classification, price of gold surged to
$1264 an ounce in June. Furthermore, some of the US giant corporations recorded strong
performance in the second quarter of this year which, in turn, had a positive impact on their
shares. Consequently, increase in such commodities as euro and crude oil also dragged the price
of gold upwards.
“Standard Chartered Bank”’s metal analyst Daniel Smith speculates that there is an
opportunity for gold price to further increase in the medium and long term. This speculation is
explained by the increasing level of gold purchases by European investors in order to hedge
against currency exchange risk. In Asia too, investors are keen on purchasing gold to avoid
inflation risk.
Oil
According to New York commodity exchange, oil is exchanged at an average price of
$78.39 a barrel in the first half year, up by 52.6%, from $27.04 in the same period last year.
/Figure 10 illustrates the fluctuation of oil price in blue/
May was the most fluctuated month for oil price in the first half year, recording the
highest price of $86.2 on the 3rd of May, 2010 and reaching its lowest price of $66.88 on the 24th
of May, 2010.
European Union sovereign debt crisis is feared to slow down the world economic growth
by many investors, causing slip off of the world demand for oil. Also, strengthening value of US
dollar against euro contributed to increased oil price.

6. BANKING & FINANCE
BANKING SYSTEM
Monetary Policy
The Bank of Mongolia started implementing tight monetary policy in order to restrain
country’s economic instability and to reduce the risk of further overheating of the inflation in the
economy.
Figure 11. Supply of money /in MNT million/
4,000,000.0 Despite the tight monetary

policy that is likely to restrict
3,500,000.0
the growth of domestic
3,000,000.0 production of goods and
services, it is implemented to
2,500,000.0
address the issues of rising
2,000,000.0 price level of consumer goods
and services. Half year CPI
1,500,000.0
inflation reached 16.5% for the
1,000,000.0 city of Ulaanbaatar and 11.4%
500,000.0 for rest of the country.
Although it would seem that
0.0 Bank of Mongolia should
2007 04 07 10 2008 04 07 10 2009 04 07 10 2010 04
01 01 01 01 introduce loose monetary
Quasiмөнгө
Бараг money Мөнгө
Money(М1)
/M1/ policy at the time of rapid
economic growth in order to
Source: Bank of Mongolia
restore consumer confidence, ,
of those who were affected by the economic crises the most in particular, introducing loose
monetary policy would run the risk of economic over-heating, leading to increased inflation rate.
Therefore, it would be incongruous move if the Bank of Mongolia loosens its monetary policy as
it would push the rate of inflation even higher, hurting near term economic growth and
employment. Also, this would lead to possibility of returning to the macroeconomic vulnerability
of the boom-and-bust cycle of the recent past. As a heavily weather dependent country, the
inflation rate fluctuation is highly observed when given sector goes through the boom-and-bust
cycle. Therefore, it is highly unlikely for Bank of Mongolia to loosen its monetary policy for the
rest of the year. The lending in the first half of the year reached MNT 2.882 trillion, up by 13.4%
from the same period last year and up by 9.6% from the end of the year figure.

Lending
Lending activities are always in the center of public’s attention because of Mongolian
banking system. Despite commercial banks preference in general to, purchase Central bank’s
bills or to place its available fund in overseas investments in relative to providing lending
services in the most of months of 2009 and some months of first half of 2010 due to
macroeconomic instability, lending activities this year have increased in comparison to last year.
As of the first half of 2010, outstanding loan is almost doubled, reaching MNT 882 billion,
13.4% up from previous year or 9.6% up from the beginning of the year.
Figure 12. Total outstanding loans /MNT million /
3,500,000.0
3,000,000.0
2,500,000.0
2,000,000.0
1,500,000.0
1,000,000.0
500,000.0
0.0
2007 03 05 07 09 11 2008 03 05 07 09 11 2009 03 05 07 09 11 2010 03 05
01 01 01 01
Чанаргүй зээл
Non-performing loan Хугацаа хэтэрсэн
Overtime loan зээл Loan зээл
Хэвийн
Source: Bank of Mongolia

The first half of 2010 record indicates an increase in the lending. However, producers are
concerned of its sustainability for the second half of the year. Bank of Mongolia announced its
intention to keep the policy rate at 11% by employing tight monetary policy as the high rate of
inflation threatens to robust the economic growth.
Consequently, purchases of Central bank’s bill is back up again in May, after continued
drop in the first half of the year. As the commercial banks use up their lending money for
purchasing Central bank bills, the amount of lending available for public goes down. However, it
is important to note that not all banks are the same in terms of making the remaining cash
available for lending. Some bank may limit the funds available for lending while others may not
follow their trend. Even though Bank of Mongolia is implementing tight monetary policy, some

of larger banks may not necessarily limit the fund available for lending. Lending in the first half
of 2010 went up gradually and this steady growth is expected to be kept for the rest of the year.
State Bank of Mongolia
Mongolian financial sector had been through substantial stress last year, leaving a few
commercial banks non-operational, namely, Zoos Bank and Anod Bank. As the Zoos bank was
no longer fit to operate on its own, Government of Mongolia announced its decision to establish
a new state-owned bank based on the activities of collapsed Zoos Bank in order to protect the
rights of public from the 27th of November, 2009. Since then, the State bank’s total assets
reached to MNT 116.129 billion, its own capital reached to MNT 27.958 billion and number of
customers reached well over 110,000 as of June, 2010.
Although there were some controversies whether or not to establish state-owned State bank
during the time of its establishment last year, public is currently no longer concerned over its
existence anymore. However the issue has now focusedon how the operations of State bank and
the Development bank, which is soon to be established, would correlate to each other. It is clear
that both banks have different purposes and functions, as State bank is a commercial bank
whereas the Development bank will be established with the purpose of financing large, strategic
projects. However, both banks are either wholly or in part owned by the state. Therefore, when
both banks are in existence, Government of Mongolia would have to run operational and control
risk on both banks. Public’s attention is now onthe Government of Mongolia’s ability to cope
with these increased risks.
From the time of establishing the State bank, it was rumored that State bank would be
switched to Development Bank. However, latest decisions by the Government of Mongolia in
relation to financial market are seen to be quite inconsistent with this rumor. Furthermore,
making abrupt decision about the State bank in close approximation would undermine the public
confidence in the bank. Thus, it is unlikely for Government of Mongolia to privatize the State
bank for the rest of the year.
FOREIGN CURRENCY EXCHANGE
Mongolian currency exchange is regulated by the market demand and supply for foreign
currency. The value of Mongolian currency is determined by the market activities.
As the world economy is rapidly rebounding from recession, the price of our main export
products is rapidly growing on the global market. Investment inflows into the country ares up
this year mainly due to signing of large investment contracts by foreign investors in the mining
sector. Furthermore, Bank of Mongolia reportedreported that Mongolian official foreign
currency in reserves increased, reaching $1.23 billion as of June, 2010.
Mongolian tugrug is stronger against American greenback by 6%, against euro by 17.7%,
against Korean won by 10.4, against Chinese RMB by 5.5%, against Russian ruble by 8.5% in
the first half of the year.

China took an important ant step towards market economy
conomy with its announcement
announce of
increasing the value of its currency by abandoning its decade old fixed exchange rate to the US
dollar in favor of a link to a basket of world currencies. However, if the value of RMBshoots up
dramatically, Chinese export commodities would be unattractive to other countries, leaving
significant drop in Chinese export revenue. Therefore, Chinese authorities are likely to increase
the value of its currency gradually. As for Mongolia, foreign currencies in reserves are
a likely to
further increase in the near future in relation to investment growth in the mining sector and other
large strategic projects. Consequently, Mongolian tugrugs is expected to be stable against major
currencies.
FINANCIAL MARKET
MONGOLIAN STOCK
OCK MARKET
Some improvements were observed since the beginning of 2010 in the Mongolian Mongolia
financial market. Market valuation of top 20 indices, which indicate the market fluctuations in
general, are up since the beginning of the year. The value of traded sto
stocks
cks in the first half of the
year increased to MNT15.215.2 billion
billion, by MNT 4.9 billion or by 47.6% from the same time last
year.
Figure 13. Actively traded stock /number of traded stocks at half-year/
year/
14000000
12000000
10000000
8000000
6000000
4000000
2000000

First half of 2010
2010/ NDIC 33
Top 20 index
Basket of top 20 index basket had been renewed effective from the 1st of January, 2010.
Of the top 20 companies, the stock value of 19 companies appreciated in the first quarter of the
year. However, stock value of top 20 indexes started sliding down from the second quarter.
Top 20 index stands at 10,367.47 points in the first quarter of this year, up by 4358.74 points or
89.2% from the same period previous year.
Figure 14 illustrates that the stock trading between February and April has increased
constantly whereas, in the last months, stock trading was down. Of the 20 index, stock price of
APU company, Shariin Gol company, Material Impex company, Gobi company, Bayangol Hotel
company and Mon.Tsahilgaan company hiked by 15% in the first quarter, which projected a
positive influence on the top 20 index.
Figure 14. Top 20 index
12,000.00
10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
0.00
2010.01.04
2010.01.11
2010.01.18
2010.01.25
2010.02.01
2010.02.08
2010.02.17
2010.02.24
2010.03.03
2010.03.11
2010.03.18
2010.03.25
2010.04.01
2010.04.08
2010.04.15
2010.04.22
2010.04.29
2010.05.06
2010.05.13
2010.05.20
2010.05.27
2010.06.04
2010.06.11
2010.06.18
2010.06.25
Market Capitalization
Total market capitalization stands at MNT 768.4 billion up by MNT 297 billion or by
63% since the beginning of the year.
Companies with the highest capitalization are Tavan Toilgoi company /121.1 billion/,
APU LLC /118.9 billion/, MTSH LLC /75 billion/, Baganuur company /67.1 billion/ and Shivee
Ovoo company /65.8 billion/.
Total of top 30 company’s stock valuation constitutes 89.25% of the total market. A
company with the highest capitalization is Tavan Tolgoi company whose market capitalization
stands at MNT 121.1 billion.

Table 15. Top 30 companies with highest capitalization /as of 25th June, 2010/
140000
120000
100000
80000
60000
40000
20000
0
Summary
In general, the stock prices of listed companies on Mongolian Stock exchange have
surged in the first quarter of the year. This is mainly due to the fact that the end of financial year
data became publicly available and dividends were distributed by some companies. For
example, APU Company recorded MNT 8.06 billion in profit at the end of 2009 financial year
and announced its decision to distribute MNT 1.4 billion as dividends. The stock price of APU
emerged stronger by 136.51% since the beginning of the year partly due to the distribution of
dividends.
Since the second quarter of 2010, share prices of top 20 companies started to plummet.
This is mainly because increased stock price in recent months have led to large quantities of
stock being injected back to the stock market, causing decreased level of demand for these
stocks. Other factors that contributed to lower stock prices include Gobi company and State
department store company whose distributed dividends were relatively lower in comparison to
interest rates of commercial banks.
An increased level of interest from overseas investors on Mongolian stock exchange
market is being observed since the beginning of 2010. Over 60% of the total transactions that
took place on Mongolian stock exchange market were made by foreign entities. In particular, the
surging stock price of mining companies demonstrates the fact that both local and foreign
investors are increasingly interested in the mining sector.
Government of Mongolia has initiated steps towards developing financial markets
through better management.
ment. The management and the structure of Mongolian stock exchange is
now in the process of being replaced. Currently, many applications from overseas stock
exchanges /UK, Germany and Korea/ had been received for the bid for Mongolian stock
exchange management.
ment. Selection process would be completed by mid-September
September this year. If the

First half of 2010
2010/ NDIC 35
management of Mongolian stock exchange is outsourced to a foreign company, it is expected
that Mongolian financial market would be developed in a more efficient and productive manner.
Conclusion
In the first quarter of 2010, companies on the Mongolian Stock Exchange saw
considerable rise in their stock prices. This was both thanks to the year-end financial report
having come out and announcements for meetings on dividend payments being made. APU
Company, for example, has made profit amounting to MNT 8.06 billion, 1.4 billion of which is
to be distributed as dividend payments. This has led APU’s stock prices to skyrocket by over
136.51% since the beginning of the year.
In the second half of the second quarter, however, market demand started decreasing and
stock prices followed. After the stock prices went up in the previous months, investors started
selling out their stocks actively which inevitably led to greater stock supply and falling prices.
The fact that the dividend payments of some companies like Gobi and the State Department
Store were far lower than bank interest rates impacted the stock prices to a certain level too.
Overall though, the newly active attention from foreign investors made sure Mongolian
stock market grew since the beginning of this year. As of H1 2010, trading done by foreign
entities made up at least 60% of the total trading . The companies in the mining sector have
performed especially well which points to the growing attention from both the domestic and
foreign investors focused on our mining sector.
The Government of Mongolia is paying extra attention on efforts to develop the stock
market. In this light, they have started an administration and structural reform in the MSE. Many
foreign stock exchanges /London, Germany, Korea, etc. / have already expressed their interest in
participating in the tender. Decisions will be finalized by the middle of September this year.
Expectations have already risen that the long-awaited stock market in its classic form might
finally come into life with the directions of an experienced foreign management team.

THE WORLD FINANCIAL MARKET
Asia, Pacific region
That most countries in the region are on the path to recovery from the recent economic
crisis can be seen from the economic indicators. According to a recent estimate by the World
Bank, in 2010, the world economy will grow at best at a rate of 2.9 - 3.3.
Key financial and economic events that took place in the Asia Pacific region in the first
half of 2010 are:
• In February, the Central Bank of China increased the reserve ratio for banks by
0.5%. In March, China reportedreported a negative trade balance for the first time
since 2004.
• ADB addressed the central banks in Asia encouraging higher interest rates.
• According to a research carried out from the Japanese Government, Japan’s
Consumer Confidence Index for the first quarter reached 41%, a record high since
March 2007.
• The Central Bank of China started implementing contractionary monetary policy
targeting inflation. The inflation level was recorded at 1.9% in January 2010,
2.7% in February and 2.4% in March.
• In April, Japan’s private sector machinery orders, the main component of the
country’s corporate spending, showed 5.4% increase from the previous month.
This proves that the Japanese car industry has survived the recession.
• In April, China reported positive trade balance worth USD 1.68 billion. However,
this also meant 87% fall YOY.
• In April, India’s inflation rate decreased down to 9.6% as a result of the
government’s steps against inflation. The industrial sector has been growing at a
fast rate in recent years’ industrial production index reaching 17.6% in April, the
highest rate in 20 years.
• Naoto Kan replaced Yukio Hatoyama as the new PM of Japan, becoming the 6th
PM since 2006.
As Europe struggled with budget deficits, Asia’s major stock exchanges suffered volatility in the
first half of the year. The biggest falls in Asian stock exchange indexes came about in January
and April. But starting at the end of the first half of the year, indexes are finally going up. The
graph below illustrates the movements of the MSCI Asia Pacific Index in the period of June
2009 – June 2010.

Europe
Key events of the first half of 2010 in the financial and economic markets of Europe:
• The EU member countries agreed upon 45 billion euro, or USD 61 billion bailout for
Greece.
• As UK anticipated election that took place in May, the country’s Consumer Confidence
Index fell drastically as some economic indicators started showing volatility.
• The Central Bank of EU continues to keep the historically lowest interest rate of 1%.
• In April, the general meeting of EU decided upon 750 billion euro, equivalent of USD
975 billion for easing Europe’s economic crisis and a bailout for Greece. Of this, 110 11
billion euro, equivalent of USD 136 billion,, is going to be spent solely on Greece’s
Gree
recovery from debt. IMF is to give additional 250 billion euro,equivalent of USD 308.34
billion,, for the same purpose.
The debt problem of some of the EU member

members in addition to the uncertainty reigning over the
whole region brought about the biggest ever depreciation of euro against USD. Following Greece
were Spain, Portugal,, Italy, France and England going down with debt budget deficit problems.
prob
Consequently, these countries started cutting down government spending. In addition, April
Economic Sentiment Indicator reached 100.6, 23 month record high. In March, it was 97.9.
The EU Central Bank continues to buy government bonds and give money supply to the
banks of its member countries in order to ease the debt and budget deficit problems of the region.
They will continue to carry on these steps with the hope of stabilizing the region’s money
market.

First half of 2010
2010/ NDIC 38
The growing uncertainty in Europe after in
investors
vestors pulled out their money from the region
led to 15% in Euro’s value in H1 2010. Whether Europe’s financial and economic situation
improves heavily depends on the region’s exports.s. As Britain’s budget deficit rises fast, Britain
started to cut down the budget spending drastically. The budget spending for the next year has
been planned accordingly to be lower than those of the previous years. Debt problems across
Europe continue to damage the region’s financial market. Graphic below illustrates the MSCI
Europe Index performance for the period of June 2009 – June 2010.
The Americas
Key economic and financial events of the region in the first half of 2010:
• Except
xcept Chile and Argentina, most countries in the region have shown improving
financial and economic indicators in the first half of the year.
• The economies of Chile and Argentina were heavily damaged by the earthquake
catastrophe that happened in the area in February of this year. The continuing
price hike in the world raw materials markets, especially gold, copper, oil and gas
markets, is taking a toll on the economic and financial growth of the South
American region. Most central banks in the region are implementing i
expansionary monetary policy by lowering interest rates. Right now,
now Brazil is the
only one in the region implementing the opposite, contractionary policy.
• The Federal Reserve Bank of the US announced their plan of ending the financial
market stabilization
abilization strategy they have been implementing since 2008.

First half of 2010
2010/ NDIC 39
• The US economic growth in the first quarter of 2010 was measured at the
expected rate of 3.2% enabling the Federal Reserve Bank to carry on their current
monetary policy.
• As euro is volatile and weak USD is appreciating against other currencies,
currencies its
demand is growing.
• Some of the developed South American countries had high inflation rates in May
and June.. In May, the economic leaders of the region, like Brazil, Peru and Chile,
drastically raised their interest rates.
• Also in May, Canada raised interest rates.
The economic statistics for the first quarter indicate Argentina’s recovery from the last
year’s economic crisis. The experts say high prices and the rising export levels of the country’s
agricultural products have helped the economy. Its neighbor Chile seems to be recovering faster
than previously expected by the experts. The earthquake that took place in February has done a
lot of damage to the country. In May, th the Chilean central bank raised interest rates against
possible high inflation rates. The highest economic growth rate for the first quarter in the region
was Peru’s. The below graphic illustrates the MSCI America Index performance for the period
from June 2009 – June 2010.
THE DEVELOPED ECONOMIES
THE UNITED STATES
The US economic indicators for the first quarter of 2010 were favorable. Consumption
level showed a considerable YOY improvement and there was growth in light and medium
industries. More
ore expansion expected in the industrial sector. Although there’s some rise in
inflation rates, they’re still at a tolerable level. GDP growth of the first quarter of 2010 was
2.7%, 0.3% lower YOY. The previous quarter, the last qu quarter of 2009, real
eal GDP growth had

First half of 2010
2010/ NDIC 40
reached 5.6%. US domestic price level increased by 1.7%, with considerable increases in the
energy and food prices. According to GDP price indexes, civil and military spending of the
federal Government went up by 0.15% in the first quarter.
However, not everything was good news. Judging from the public sentiments, job market
is still not in a very good condition. Unemployment rate for the first half of the year reached
9.7%. The number of new job openings for the first quarter was 162000, which was less than the
expected number of 184000, but that was also the highest in 2 years. Experts expect the inflation
to hit hardest on the poorer households, but in general, the economy seems to be recovering.
According to most economists and politicians, the real GDP growth rate for this year is expected
to be around 3-3.5%. Compared to Europe’s expected real GDP growth rate of 1-1.5%, this is a
rather good rate. However, there are some worrisome parts in this forecast including gigantic
budget deficit threatening to lead to higher interest rates and inflation.
Indicators January February March April May June
Unemployment rate 9.7 9.7 9.7 9.9 9.7 9.5
Average hourly wage 22.45 22.48 22.48 22.50 22.55 22.53
CPI 0.2 0.0 0.1 -0.1 -0.2 -0.1
PPI 1.3 -0.5 0.8 -0.1 -0.3 -0.5
US price level 1.2 -0.1 0.4 1.1 -0.5 -1.3
Source: http://www.bls.gov
According to this forecast, 2010 might end up being a good year for the US, bringing a
new economic beginning. This is largely thanks to the tax discounts for new first-time home
buyers, the more favorable loan regulations for new car buyers and reforms from the Federal
Government on loan regulations for finance and real estate markets. As of the end of March
2010, about USD 1.25 billion have been spent on this program, and the Federal Government
leaders plan for a long-term interest rate decrease.
Table 8. US Real GDP growth projection 2010 /monthly/
Months May June July August September October November December
GDP 14,632.3 14,632 14,684 14,684 14,684 14,743 14,743 14,743
Source: http://www.forecasts.org/gdp.html
After his meeting with the president Barack Obama, Ben Bernanke, the Federal Reserve
Bank chairman, told journalists that external factors have significant impacts on the US

economy, and that Europe’s financial crisis is dangerous for the whole of the global economy,
especially the US.
Inflation
By the end of June 2010, inflation in the US has increased by 1.1% YOY. But compared
to the individual sectors’ price increase of health services by 3.5% and gas and oil increase
of3.9%, - 1.1% is a rather good number. This favorable inflation estimates are the result of price
decrease in products and labor after the economic crisis. Therefore, the inflation rate is expected
to continue at the same level in this and the coming year.
2010 events
• In 2010, US budget deficit reached USD 1.6 billion, and total debt is 360% of GDP, of
which, government debt taking up 90%.
• About 40% of all the employed in the US work at low-salary service jobs. Although there
were 500.000 job openings since the beginning of the year, the number of unemployed is
not decreasing. To improve this situation, President Barack Obama is planning on a new
program that will give financial help for small and medium business owners that offer
employment.
• The US Congress announced that in order to eliminate budget deficit, it will be necessary
to increase every type of tax to at least 2.4 times the original amount. Meaning 10% tax
will be 24%, 15% will be 36% and 35% will be 85%.
• According to President Barack Obama, the economic growth was positive and constant in
H1 2010. This is a sign of recovery whereas when he took his position, the economy had
fallen to its lowest point. He has been taking many steps towards recovering the
economy, giving special attention to the unemployment problems. He has given a
promise to increase aid to the state governments to help keep the government jobs like in
police, health services and firefighters.
• President Barack Obama is to implement a USD 2-3 trillion program for the economic
recovery. Experts estimate that there’s a possibility that the budget deficit might increase
to as much as USD 9.3 trillion in 10 years.
Foreign Trade
The US trade deficit reached USD 42.3 billion in May 2010, surpassing USD 40.3 billion
of the previous month. Export increased from April’s 148.7 billion to 152.3 billion. Whereas
import increased from April’s 148.7 billion to 194.5 billion in May. As to the components,
deficit from goods increased from April’s 148.7 billion to 194.5 billion in May, and deficit from
services was negative 12.2 billion in April which continued at the same level in May.

Table 9.US foreign trade balance /2010 H1/
Month Export Import Balance
January 2010 99,444.0 145,816.0 -46,372.0
February 2010 99,235.0 150,048.0 -50,813.0
March 2010 104,417.0 155,631.0 -51,214.0
April 2010 103,188.0 155,039.0 -51,851.0
May 2010 106,087.0 159,848.0 -53,761.0
Total 512,372.0 766,382.0 -254,010.0
Source: http://www.census.gov
The US has had a negative trade balance for almost 20 years now. As you can see from
the table above, although service net export is usually positive, goods net export causes an
average annual deficit of 193 billion USD, equal to 2.1% of the GDP,. Some economists express
their frustration about this problem, and people blame WTO, saying they don’t follow the same
principles in US foreign trade and treat other countries better which has negative impacts on the
US economy.
Using the statistics from the first 5 months of this year, first 5 months of last year and the
whole of the last year, we can make some projections about the trade balance for 2010. When
comparing the first 5 months of these two years, we can see that although the trade volume
increased in 2010, the trade deficit increased as much too. The US trade volume for the first 5
months of 2009 was 910.85 billion and trade deficit 195.733 billion. In 2010, the trade volume
for the first 5 months increased to 1278.754 billion and trade deficit to 254.010. Bboth are
expected to increase in the same manner until the end of the year.
AUSTRALIA
Australians are recovering from the world economic crisis in 2010 thanks to timely and
effective monetary, tax, and foreign exchange policies, high population growth, and most
importantly, their strong and reliable financial sector.
The GDP growth for the last year was around 2%, employment increased at a stable rate,
and investment level remains high. The Australian economy seems to be at the door of its next
big boom of fast economic growth.

As part of the AUD 42 billion Economic Stimulus program from the PM Kevin Radda’s
government, the people received 20 billion USD directly for increased consumption level which
reached 50% of the GDP.
Unemployment
As the economy is recovering, previously high unemployment rate was estimated by the
Australian Bureau of Statistics at 5.1% as of June 2010. The same report said that unemployment
level decreased by 200 people in June reaching 598400.
In June, the employment level increased too, - by 45900 people to 11.1 million. This
increase is explained by 27500 more people in temporary employment which reached 3.306
million, and 18400 more people in permanent employment which reached 7.795. The permanent
employment has been steadily growing in the last 10 months.
June 2010
June 2010 compared
Quarterly May 2010 June 2010 compared to May
to June 2009
2010
Employed(thousands) 11 054.8 11 100.7 45.9 3.3%
Unemployed(thousands) 598.6 598.4 -0.2 -9.6%
Unemployment rate(%) 5.1 5.1 0.0 -0.7
Coal and iron ore have long been the main exports in Australia. As the demand for these
commodities increased in the last 10 years, the export level of 12 billion USD of 1999 increased
six-fold to 2009 reaching 69.4 billion USD. As the price of coal and iron ore increased thanks to
the stable world economic growth, these commodities became the main exports in the above
mentioned period. As other exports increased at an average annual rate of 5.4%, these 2
commodities average exports was 20%. These two used to make up 10.3% of the total export in
1999. In 2009 they made up 27.8% of the total export.

Foreign Trade
Table 10. Australian foreign trade balance /as of May 2010/
May compared
2009 - 2008
March April May to April
Factors 2008 2009 (percent 2010 2010 2010 (percent
change)
change)
Export 276925 250141 -9,7 20528 23328 24725 6,0
Import 286248 256455 -10,4 22297 22205 23080 3,9
Trade balance -9323 -6314 - -1769 1123 1645 -
As coal and iron ore emerged as the main components of the export, the Australian export
and import ratio drastically increased. North Asia is the main market of Australian coal and iron
ore. These two commodities are the main components of the trade done with this region.
Australia is the leader in the world iron ore export, making up 40% of the total world
export alone. In 1999, Australian iron ore export was 3.6 billion USD, and in 2009, it increased
to 30 billion. As of 2009, the main markets for Australian coal and iron ore were China, Japan,
and South Korea. Japan and South Korea are the foremost markets for Australian coal, whereas
China is the biggest market for Australian iron ore and the second biggest market for Australian
coal.
Future Trends
In a projection until 2015, Australian natural resources export is expected to show stable
growth and remain in its strong position. As the prices resurge, the raw materials export amount
that was 129 billion USD in 2009-2010 is estimated to increase to 154 billion USD in 2010-
2011, showing 18.6% growth.
Thanks to the investments made in the infrastructure and mining sectors, raw materials
export is expected to rise to 175.2 billion USD (by 2009-2010 prices) in the near future 2014-
2015, increasing by 34.9% compared to the 2009-2010 level.
The short term price hike in the raw materials market will again have a positive impact on
the export import ratio, raising it to 2.75% of the GDP in 2010-2011. Also, the medium term

price hike in the raw materials market is expected to have a positive impact in the real GDP
growth.
THE NEIGHBORING ECONOMIES
RUSSIA
Financial Market
The key event of 2010 was without doubt the comparatively fast economic growth.
Growth rate was especially high in the industrial sector and exports. At the end of H1, GDP has
expanded by 4.2%. As to the industrial sector, the growth in the first four months was estimated
to be at 8.3%. The export level in the first four months was estimated to have increased by up to
61.6% YOY.
The domestic currency exchange market had a good H1 this year. As the crisis is
subduing in many countries, foreign currency supply has increased alleviating the banks of their
currency deficit.
Also during this period, ruble depreciated against USD by 96.5 kopeks, thus one USD
now equals 313 rubles. But euro depreciated against ruble by 5.3 rubles, now one euro equals
38.29 rubles.
In the first months of 2010, oil production reached many years’ high, equaling 41 Mt in
January, in February 37.2 Mt, in March 41.3 Mt, in April 39.8 Mt.
Although unemployment rate decreased in H1, this didn’t have a significant effect on the
economic growth. But the average income rose: average salary was 20 383 rubles /915 808.19
MNT/ in April, showing 12.4% increase YOY. This resulted in improved purchasing power.
The National reserve level was USD 39.32 billion as of July 1, 2010.
Russia is planning on USD 7 billion loan from the foreign markets this year. Although
the original plan was for 20 billion, the amount decreased because of a decision to issue bonds on
the global market. On April 22, 2010, Eurobond worth of 5.5 billion USD was issued on the
global market. Of this, 2 billion was 5 year bonds and the other 3.5 billion was 10 year bonds.
The real yields were set at 3.741% for the 5 year bonds and 5.082 for the 10 year bonds. This is
the first financial tool issued on the global market by Russia since 1998. The revenue from these
bonds is to be used to decrease the budget deficit. The Finance Minister has said that in the
future, Russia would like to issue more financial tools on the global market, but the units will be
in rubles. Also, at the G20 meeting in Washington, he said that Russia plans to decrease the

capital outflow, although it would depend on the oil prices. As to 2010, the total capital flow is
forecasted to reach 20 billion USD. According to the central bank, capital flow in the first quarter
was 12.9 billion USD.
The average interest rate of the ruble loans given to state factories by Russian banks
decreased to 11.7% by March of this year, a 20 month low for the country. Also, since the
beginning of this year, savings interest rates have decreased to 7.4%.
The inflation rate for H1 2010 was 4.4%, 3.2 units lower YOY.
Food products price index was also 4.4 as of H1 2010. The main product category, -
agricultural products, - had stable price index.
At the end of 2009 and at the beginning of 2010, the central bank worked actively on
decreasing the inflation rate. Thus, by the end of March the inflation rate for the year was
considered to have come below 7%. The government estimated the inflation rate to be around
6.5-7.5% by the end of the year, which would be the lowest rate in recent years.
The Supreme Court ruled that banks can now close the accounts of companies of which
have disappeared, this allowing for a healthier bank system.
In H1 2010 the financial market participants grew more active, which can be explained
by the increased economic activities of the seasonal sectors like construction, transportation and
agriculture. The increasing prices on the world oil market also led to more active trading of the
oil companies’ stocks. The indexes of the major stock exchanges of RTS, MMVB performed
well.
GDP
Russian economy has performed well since the beginning of 2010. The Ministry of
Economic Development has estimated the GDP growth for H1 to be at 4.2%. The same period
last year showed 9.6% decrease. This was Russia’s first GDP increase in 2 years.
In January the economy started slowly reviving, but in February, the slackening
investment activities were about to start showing up in the main economic indicators, when in
March the economy started reviving again thanks to the comeback of seasonal companies. In H1
the investment volume made in the basic capital showed 1.2% increase YOY. However, the
worldwide global warming is affecting Russia especially harshly, to the point where agricultural
and construction works are delayed, damaging the economic growth.

Industrial Sector
The total industrial production grew by 9.7%. The growth rate is highest in the energy,
transportation, electronics, rubber and plastic products, fabric and sewing factories,
transportation vehicles and mechanic equipment industries. Production in machine and
mechanisms, metal and paper factories, on the other hand, seems to have shrunk.
The agricultural sector seems to be in an overall stable and positive dynamics. The
production growth rate was at 1.6% as of April 1, 2010.
According to the statistical data issued from the Statistics Bureau, food price has
increased by 4.4% in H1. The highestt increase was observed in the vegetable prices, which have
increased by 26.2% in H1. Also fruits and berries prices and dairy products prices have gone up
by 10.8% and 7.8% each.
The Ministry of Industry and Trade suggested a ban on used car tires’ import, an effort to
encourage the domestic production. Automobile prices have gone up by 1.1%; as result of the
tightening regulations on automobile import put into effect since the beginning of the year, prices
of domestically produced automobiles are going up.
Investment amount made in basic capital in March 2010 was 500.2 billion rubles, which
showed 0.7% YOY increase.
Construction activities that took place in the first quarter were worth 590.7 billion rubles,
which showed 8.1% YOY decrease.
Export, import
The export volume of the first quarter reached 32.8 billion USD, which showed a drastic
increase of 7.3% from the previous month. In March total import was worth 18.5 billion, 19.9%
increase from the previous month, and 27.7% increase YOY. In H1 export made up 65% of the
total trade flow, and import making up the remaining 35%.
The trade balance reached 46 billion USD, 2.4 times the amount for the same period last
year -18.8 billion.
Total trade flow in the first quarter of 2010 was 136.6 billion USD. Trade flow in goods
showed 42.7% YOY growth. Also in this period, export volume increased by 79.4 billion or
64.3%, and CIS export volume increased by 11.9 billion or 33.1%.

In H1 retail goods trade flow amounted to 5.6 trillion and 500.6 billion rubles, showing
3.2% increase YOY. According to the Statistics Bureau, 87.4% of this trading was done by trade
associations and private businesses operating outside the market.
Conclusion
That Russia continues to keep its World Bank quote of 2.78 illustrates the strong
economic growth the country is experiencing. That Russia’s main raw material oil’s production
increased has been a great push to the economy.
For the first time since 1998, Russia issued 5, 10 year Eurobonds worth 5.5 billion USD
on the world market. This is the country’s first step towards getting involved in the world market
through financial tools.
The economy started growing in H2 2009 and experts continue to forecast that the growth
will continue stably.
The Ministry of Finance made forecasted budget revenue for this and also next year.
According to this forecast, additional budget revenue for 2010 was to reach 92.9 billion rubles,
but the average price of a barrel of URALS oil has been 74.1 USD in the first 5 months, 57 USD
higher than the planned prices. The main budget revenue killers are the high cost economic and
political decisions. An example would be the tax discount for gas exports to Ukraine started in
H1, taking down 85 billion USD from the budget revenue.
Additional revenue from higher oil prices will not cover the budget deficit, but will only
cover the retirement fund’s losses, say Russian economists.
On the other hand, the World Bank says that since the beginning of the year, Russian
economy is performing much better than expected. They estimate the GDP growth for the year to
reach 5-5.5%.
PEOPLE’S REPUBLIC OF CHINA
Thanks to the factors like improving outside circumstances, growing domestic

consumption, faster foreign trade and especially export growth compared to last year, China’s
economycontinued its growth in the second quarter of 2010.
Although investment’s share in the GDP decreased a little, domestic investment’s and net
export’s share in the GDP have increased again, thanks to the steps China’s taking against
overheating.

When the economic crisis led to a drastic fall in Chinese foreign trade flow,
flow the Chinese
government increased lending. This resulted in higher levels of domestic consumption and
investment, but also, it opened the door for an economic bubble.
The estimates show that GDP growth for the second quarter will be 10.3%, and 11% for
the first half of the year, which is 3.95% more YOY.
The 12th of China’s 5-year

year social and economic development plan is set to be issued this
year. Hence, policies that targeted at fastening the progress of the structural economic reforms
and changing the traditional
itional macroeconomic system have been carried out since 2010. In
connection with that, increasing economic system
system-related
related risks and medium-term
medium volatility
concerning the whole of the economy have been observed.
GDP growth for the second quarter of 2010 re reached

ached 10.3%, which was higher by 0.2
units than the estimates made in the first quarter, and showed 2.4 units increase YOY.
YOY growth of the agricultural sector was 3.6%, industrial sector 13.2%, service sector
9.6% resulting in GDP estimate for the first half of 2010 reaching 17.284 trillion RMB equaling
USD 2.55 trillion.. This means price
price-corrected
corrected YOY growth of 10.3%, 2.4 unit higher than last
year.
The growth rate for the second quarter of 2010 was 10.3%, 2.4 units higher than the last
year. Thee growth rate for the first half of 2010 was 11.1%, 3.7 units higher than the last year.
Figure 16.GDP growth /2007-2010, first halves/
20 14
18 17.284
12
16 11.5 11.1
13.986
14 13.06110.4 10
12 10.676 8
10 7.1
8 6
6 4
4
2
2
0 0
2007.1H 2008.1H 2009.1H 2010.1H
Explanation: Real GDP growth in red

red/trillion CNY/, growth rate in blue line

First half of 2010
2010/ NDIC 50
As to the production level estimates for the H1, the agricultural sector’s production has
remained the same. H1 national wheat production level was 123 Mt, 0.3% decrease from last
year. The cause for this decrease was that this year’s rain exceeded many years’ average amount,
even flooding some regions of the country. The industrial sector, on the other hand, grew at a
high rate. H1 value-added production of the sector showed 17.6% growth YOY. As to the newly
registered companies’ statistics, government-owned companies’ number grew by 17.7%.
Jan-May 2010, large scale factories’ income performance reached 1.539 trillion CNY,
showing 81.6% YOY growth. This income increase was due to the fact that the economic crisis
is basically over and the world economic growth since the beginning of the year has been raising
export level of China.
Budget revenue rose by 33.27% YOY mainly thanks to the higher production level,
higher prices and (over-realization) of the tax plans.
In H1, total budget revenue reached 3.48 trillion CNY and the corporate income tax rose
by 41.5% whereas budget expenses reached 2.28 trillion CNY with 27.69% YOY growth,
together resulting in 1.19 trillion CNY worth of budget surplus.
The H1 corporate income tax reached 791 billion CNY, 41.5% YOY increase. Also, in
H1 China’s foreign trade flow increased drastically which was the main cause for customs tax
revenue increase. Overall, as of H1 2010, the average tax income for all types of taxes increased
24% YOY.
Figure 17.Budget revenue, expenses /2006-2010, trillion CNY/
Explanation: *-Forecast /Total budget’s share in GDP /

The inflation rates rose drastically since the beginning of this year reaching 2.4%. This raised the
expected inflation and the central bank’s inflation goal of 3% for the second quarter was
surpassed. Although this inflation increase didn’t have a significant impact on the economy, that
there was a tendency for increasing expected inflation prompted policies targeting inflation.
CPI
PI for the second quarter of 2010 reached 2.9% and 2.6% for the H1. The price of services and
products in major cities rose by 2.5% whereas, in the provinces, this number was 2.8%.
Figure 18.CPI
CPI and PPI growth/2007-2010, year halves/
20
15 7.6
10
7.9 6
2.5 PPI
5
3.2 CPI
2.6
0
-1.2
2007.1H 2008.1H 2009.1H 2010.1H
-5
-5.9
-10
The central bank set an inflation goal of 3% for the whole of 2010. But the remainder of 2009
loans added to new loans of 2010 together with the economic recovery led to stronger demand
side, resulting in higher product prices. Thus
Thus, by June 2010, the central bank’s inflation goal was
surpassed.
Product price increase by categories: food products 5.5% increase, alcoholic beverages and
cigarettes 1.7% increase, health services and consumer commodities 2.7% increase, cultural and
entertainment services 0.3% increase, co cost of living 3.9% increase, clothing 1.1% decrease,
household items and services 0.6% decrease, transportation and communication services 0.1%
decrease.
PPI of the H1 increased 6.0% YOY, which is 3.4 units more than CPI. The PPI increase
incre
was due to raw materials price hikes, especially fuel, mining, car parts
parts.
In the H1 money supply decreased and CNY savings decreased YOY, which might be
due to higher consumption level.
Total money supply (M2) reached 67.4 trillion CNY, eq

equivalent
uivalent of 10.05 trillion USD, by
the end of June 2010, which shows 18.5% increase YOY and 1.6% increase from the previous

First half of 2010
2010/ NDIC 52
month. Both M1 and M0 increased too; M0 amounting to 24.1 billion CNY with 24.6% growth,
M1 amounting to 3.9 trillion with 15.7% growth. Although M1’s comparatively slow growth is
attributed to the high savings levels and people’s tendency to keep their cash in the bank, that
cash level is constantly increasing in recent years might also be related to the appreciation of
CNY against other currencies and resulting increase in consumption.
From the graph, you can see that there’s much fluctuation and volatility in the money
supply , but the overall trend of decreasing M2 and increasing M1 and M0 matches this year’s
money trends.
Figure 19.Money supply growth /2007-2010, half-yearly, trillion CNY/
Explanation: YOY growth rats are illustrated by the prick line.
Loans taken from financial institutions and commercial banks continue to take up a fair
percentage of the total money supply. As of H1, loan remainders from financial institutions
reached 44.6 trillion USD after 4.6 trillion increase since the beginning of the year. The 9.54
trillion CNY given out as new loans in 2009 led to rising inflation and overheating of the
economy. Thus, at the beginning of the year, monetary policy tightened resulting in 2.7 trillion
YOY decrease in new loans.
CNY savings reached 67.4 trillion CNY, 7.6 trillion CNY increase since the beginning of
the year. An interesting trend was observed on Chinese economic statistics: in the recent few
years, the savings level equaled the total money. The central bank has sold bonds worth 205
billion CNY in H1 2010. The central bank’s growing bond sales aim to eliminate the price
bubble and to pull out the excess money from the market, thus lowering the expected inflation

rates. The sale of 3 year-bonds worth 160 billion CNY in just H1 of 2010 was an amount 7 times
those of the last years’.
The total trade flow increased considerably since the beginning of this year, export
increasing by 40% over last year. Although trade balance has been positive every year, the rising
import volume is leading to decreasing trade income.
In H1 the total trade flow was worth 1.35 trillion USD, 43.1% increase YOY. From this,
export accounted for 705.1 billion USD and import accounted for 649.8 billion USD, resulting in
55.3 billion USD positive trade balance.
Figure 20. Trade balance/2007-2010, billion USD/
One side of the falling trade balance is the fast rising import demand, but another is the
little presence of value-added innovative products in the exports because of which export income
is failing to make up for the import loss.
In H1 2010 China continued trading with its 25 biggest trade partners, sending half of its
total exports to Europe, Japan and the US, and receiving at least 60% of all its import from the
US, Taiwan and Japan alone.
As the largest raw materials consumer, in H1, China imported 117.97 Mt oil, 8.84 Mt
iron, 309.28 Mt iron ore, 2.03 Mt copper concentrate, and exporting 10.14 Mt coal, 1.4 Mt coke
and semi-coke of coal and 1.14 Mt crude oil.

Thus, with fast growing foreign trade flow and yearly increasing FDI directed at itself,
China
hina started leading the world by its foreign currency official reserve.
Figure 21.Foreign
Foreign currency reserve
reserve/trillion USD/ Picture 22.Gold stock/tonnes
tonnes /
3 4000
3389 3389
3500
2.5 2.45
3000
2.13
2
1.84 2500
1929 1929
1.5 2000
1.33
1500
1
1000
0.5
500
0 0
2007.1H 2008.1H 2009.1H 2010.1H 2007.1H 2008.1H 2009.1H 2010.1H
As China starts loosening currency peg

peg, there is risk of decrease in the income from
foreign trade and in the competitiveness of Chinese products on the world market. But, for a
country exceedingly dependent on export income, this is a right step towards a new stage of
development with more value-added,
added, innovative export products and services.
H2 of 2010
After a 11.9% rise in the first quarter 2010, the economic growth slowed down a bit to
10.3% in the second quarter, thanks to the steps taken against overheating of the economy. In
H2, the economic
mic growth rate is expected to fall down again, to come back up in the last quarter,
showing a ‘U’ shaped growth pattern. The growth rate in the last quarter is projected to be
around 9.25%.
In May and June, inflation rate came down a little, easing the iincreasing
ncreasing price pressures
in consumer goods. The expected slowing down of the economic growth in the third quarter will
enable a stable inflation growth at around 3%.
There is little chance that CNY will appreciate against USD in H2. Stronger CNY will
posee high risks at this time of increasing exports and expanding economy.
As to the monetary policy, that the annual new loans level is set to be at 7.5 trillion CNY
in 2010 means there is room for more investment increase. Because of the downward trend in

First half of 2010
2010/ NDIC 55
M1 levels, consumption level is expected to fall and increase only by 18.5% in H2 compared to
H1.
Since the foreign trade has started recovering, the export and import levels are expected
to stably increase in the future.
Conclusion
Chinese economy has clearly recovered from the economic crisis, showing in the factors
like high GDP growth rate, increased share of consumption in the GDP, fast growth of foreign
trade volume and especially export sector. Although macro-economic indicators all show growth
in the domestic and outside market volatility might be a threat to the economic growth. Though
the medium term market conditions seem fairly stable, uncertainties, and especially structural
uncertainties, are on the rise.
China is seriously working on a structural reform right now. Many important policy-level
steps are being carried out in the scope of this reform, a good example for which is the phased
implementation of CNY to USD exchange rate program. As a result of this program, in the
period of two years starting in 2008, the CNY to USD exchange rate fell from 1:683 to 1:678.
Looking at the big picture, we can confidently say that China’s economy has fully
recovered from the recent economic crisis. The indicators are expected to show up higher in the
last half of the year. But, it is crucial for a long-term economic stability and flexibility to
transform from an export and investment dominated economy to a consumption and value-added
service sector-oriented economy.

7. CONCLUSION
• As part of the “1.5 million MNT to every citizen” program, MNT 168.9 billion has been
given out to 2.5 million people. Aug 1, 2010 is set as the starting date of monthly MNT
10,000 to every citizen.
• Winter 2009-2010 has been harsh on Mongolia, causing 9.7 million livestock’s untimely
decease, and stripping 8,500 households of all their livestock. The Parliament has
approved the program “Mongolian livestock”.
• There is an upward trend in the Mongolian economic growth. The industrial sector that
takes up 30% of the economy has shown 12.45% increase. Also, the prices of the main
export commodities remain comparatively stable on the world market.
• This year, 2010, has been officially declared as the year for business enabling
environment reform. Laws and acts encouraging production have been passed
accordingly.
• Prices of consumer goods remain comparatively high. But compared to the previous
month, there has been 1.5 units decrease, and 11.4% as of the first half-year.
• In H1 2010, copper price on the world market remained above USD 6100, and gold price
remained above USD 1060.
• The central bank kept the interest rate above 11%, increasing the rate starting from May.
• As of H1 2010, MNT appreciated by 6% against USD, by 17.7% against euro, by 5.5%

against CNY and by 8.5% against Russian ruble.

8. APPENDIX
World Economy Forecast /2010 summer/

Key Issues
• The budget problems in European countries and the resulting market uncertainty are
posing a big hindrance to the world economy. As economic stimulants like budget
investment’s importance is falling, GDP growth is increasingly depending on private
investment and consumption, and the economic recovery is stabilizing.
• As of now, Europe’s financial breakdown does not pose a significant threat to the
developing economies. Although the world stock market shrank by about 8-17%, this did
not show up in the developing economies’ indicators. Despite the drastic fall in bond
flows of May, the capital inflow in developing countries has increased 90% YOY in the
first 5 months.
• Statistic data was not enough for measuring the damage caused by European budget and
debt crisis. According to the data available, both developing and developed economies
saw stable growth up to March, except some high income European countries where
economies were stagnant.
• World GDP is projected to grow at the rate of 3.3% in both 2010 and 2011, and 3.2% in
2012 given. The growth of capital flow entering developing economies can rise from its
2009 level of 2.7% to 3.2% in 2012. Thanks to their increasing work productivity level,
developing countries will see GDP growth at 6.2%, 6.0% and 6.0% in the years 2010-
2012. These growth rates are twice the rates in developing countries.
• However, if the current uncertainties in Europe continue to persist, it will lead to some
unpleasant consequences. If the high income countries tighten their budget policies, the
economic recovery will slowdown, economy will grow at the rates of 3.1%, 2.9% and
3.2% in 2010-2012. The economic slowdown will be mainly present in high-income
countries, annual GDP growth falling down to 2.1%, 1.9% and 2.2%. The developed
economies, on the other hand are estimated to grow at the rate of 5.9%.
• If Europe’s debt problems persist, investors’ risks rise or they become pessimist, even
worse consequences will await ahead.
o In five EU member countries budget deficits and government debts have
completely shut down bank loans. If this results in their inability to pay
back their debts, the GDP growth will be in danger of falling down by
2.4% in 2011, bringing another economic breakdown in high income
countries.
o If the debts systems of the above 5 countries (Greece, Ireland, Italy,
Border pointugal and Spain), then that will not only damage operations of

several banks in other countries but will entail serious hardships for the
world economy.
o Moreover, such a turn of events would drastically decrease the capital
inflow of Europe, Central Asia and to a less extent that of South America.
• In order to ensure long-term stability the developed economies need to tighten their
budget policies in the next several years. Moves like setting limits on borrowing from
banks and from the outside and taking decisive steps towards reducing budget deficit will
be politically difficult, but will open the doors for developed and developing countries to
medium-term economic growth.
• Since low income countries have little budget surpluses, reduction in outside
development aids will translate into falling infrastructure and human resources
investment, inevitably slowing down the economic growth as a result. The number of
poor people living on less than 2 USD a day might go up to 79 million.
Raw materials recent news and future forecast
Commodity prices have jumped high from 2009 to 2010. The main force behind was the
rising demand from China in metal, oil and the seasonal agricultural products. As of the end of
April, electric power price has risen 80%, and metal prices have risen 2-fold compared to
February 2009 lows. Most raw materials, including agricultural products, resin and cotton saw
20% price increase in the above indicated period. Food prices went up by 7%. According to the
above data, non-fuel products saw 16.8% price increase in 2010. Prices are expected to go back
down in the next few years.
Europe’s debt, economic growth and production flow problems have resulted in May’s
drastic fall of industrial products prices. Along the industrial products, oil prices fell by 20 USD
to 68 USD, and metal prices fell from their high April prices by 20%. The agricultural products
too saw drastic fall because of the falling resin and oil prices. Though price of products is
expected to stabilize by the end of May, there’s no guarantee that demand will remain similarly
stable. Due to the past statistics of China’s demand growing high at the end of the previous five
quarters, oil demand went up by 1.3 million barrels a day, 17% increase, in the last quarter of
2009. World supply side however, is on the slow side. Supply and price relation-wise, OPEC’s
supply of 6.5 million barrels a day equals that of 2002 when oil price was 25 USD. Also, the US
and Europe investment levels are high. According to the expected slow growth of oil demand
equaling 1.5% annual increase, while OPEC countries work on raising their production capacity,
the other, non-OPEC suppliers should increase their supply by 0.5% annually. Thus the market’s
supply side will remain stable. The expected long-term average price of 75 USD is not realizing
because of OPEC’s production management and the world market price continues to be volatile.
Tragically, the oil spill in the Mexican gulf, though it did not affect world production, means a
long-term clash between production management and the prices.

As of this decade China will continue to be the main player in the metal demand.
Whereas metal demand fell by 1.1% in the rest of the world, China’s demand of basic metals
(silver, copper, lead, nickel, tin and zinc) shows 17% annual growth. In 2009 China imported a
tremendous amount of metals, state and private factories buying most of it and thus becoming the
determining factors of the market price. As Chinese foreign market recovers the 2010 demand is
expected to be affected positively. And as other economies’ growth and demand increases in the
next 2 years, raw materials’ prices are forecasted to go up.
The price rise in the agricultural sector has been a little slower than that of the metal
market, reaching 27% as of December 2008. This rise also concentrates on the few main
products’ prices.Whereas wheat price fell by 8%, food oil price went up by 28%. The main
agricultural input fertilizer’s fell down from its highest price in the third quarter of 2008 by 2/3.
Some other price changes were seen in the coffee market, where high demand led to 46% price
increase; in the cocoa market, where price also rose by 46% because of supply fall from
Colombia due to weather hardships and because of hardships in Ivory Coast’s supply to the
world market. In 2009 rice prices fell by a little in India and though in Philippines the price
pressure was risingthe pressure was eased by May 2010 harvest the prices falling to their 27
month low.In the agricultural markets, especially in crop plants markets, supply levels are
expected to rise in the projected period. Though food prices will be higher in 2010 than in 2009,
forecasts estimate the prices to come down in 2011 and 2012 by 3% and 1% accordingly.
Overall, total world production is projected to grow by 3.3% in each of 2010 and 2011, and by
up to 3.5% in 2012. Whereas the developing countries are expected to see an average annual
economic growth of 6% in the next 3 years thanks to their high productivity and stable
population growth, for high income countries this number is projected to fluctuate between 2.3%
and 2.7%. This big gap in economic growths would mean that the developing countries will have
the upper hand in determining the world economic trends in the coming years. In the period of
2010-2012 developing economies will make up almost half of the world demand, their import
taking up 40% of the world export growth.
Developed countries
The economic growth of the US will remain strong in the third and fourth quarters of
2010, and is expected to reach 3.3% growth rate for the year. In 2011 GDP growth will fall down
a little to 2.9% annual rate due to the gradual tightening of the fiscal policy.
Japan’s economic growth will reach 2.5% this year, but fill fall down to 2.1% for the next
year.

World economic growth projection
Real GDP Growth 2008 2009 2010 2011 2012
World 1 .7 -2 .1 3 .3 3 .3 3 .5
High income countries 0 .4 -3 .3 2 .3 2 .4 2 .7

OECD countries 0 .3 - 3 .4 2 .2 2 .3 2 .6
Europe 0 .4 - 4 .1 0 .7 1 .3 1 .8
Japan - 1 .2 - 5 .2 2 .5 2 .1 2 .2
US 0 .4 - 2 .4 3 .3 2 .9 3 .0
The rest of the OECD countries 3 .0 - 1 .7 4 .2 4 .2 4 .5
Developing countries 5 .7 1 .7 6 .2 6 .0 6 .0
East Asian and Pacific Ocean countries 8 .5 7 .1 8 .7 7 .8 7 .7
PRC 9 .6 8 .7 9 .5 8 .5 8 .2
Indonesia 6 .0 4 .5 5 .9 6 .2 6 .3
Thailand 2 .5 - 2 .3 6 .2 4 .0 5 .0
Europe and Central Asia 4 .2 - 5 .3 4 .1 4 .2 4 .5
Russia 5 .6 - 7 .9 4 .5 4 .8 4 .7
Turkey 0 .7 - 4 .7 6 .3 4 .2 4 .7
Poland 4 .8 1 .7 3 .0 3 .7 4 .0
South American and Caribbean countries 4 .1 - 2 .3 4 .5 4 .1 4 .2
Brazil 5 .1 - 0 .2 6 .4 4 .5 4 .1
Mexico 1 .8 - 6 .5 4 .3 4 .0 4 .2
Argentina 7 .0 - 1 .2 4 .8 3 .4 4 .4
Middle East, North Africa 4 .2 3 .2 4 .0 4 .3 4 .5
Egypt 7 .2 4 .7 5 .0 5 .5 5 .7
Iran 2 .3 1 .8 3 .0 3 .2 3 .2
Algeria 2 .4 2 .1 4 .6 4 .1 4 .3
South Asia 4 .9 7 .1 7 .5 8 .0 7 .7
India 5 .1 7 .7 8 .2 8 .7 8 .2
Pakistan 2 .0 3 .7 3 .0 4 .0 4 .5
Bangladesh 6 .2 5 .7 5 .5 5 .8 6 .1
Saharan Africa 5 .0 1 .6 4 .5 5 .1 5 .4
South Africa 3 .7 - 1 .8 3 .1 3 .4 3 .9
Nigeria 5 .3 5 .6 6 .1 5 .7 6 .4
Kenya 1 .7 2 .6 4 .0 4 .9 5 .4
In the medium-term world economy is expected to grow, though this will largely depend on the
growth of the developing economies.
As for Europe, economic growth expectation will be little weaker, reaching only 0.7%
this year and rising a little in 2011 and 2012 reaching 1.3% and 1.8% accordingly. In the long-
term the high income countries in Europe would not be able to surpass the US’ economic growth

rate due to several different reasons. First of all, the growth rate of Europe’s labor force would be
slower than that of the US. Secondly, European countries will soon start making major budget
amendments. And lastly, that European private sector investment is mainly dependent not on the
bond stock market but on the banking sector will be a drawback, too.
Developing countries
The economic growth rate in developing countries is projected to make a huge leap from
its 2009 rate of 1.7% to an annual average rate of 6% for the next 3 years. Most of the
economies’ growth rates are expected to be stable, except in the biggest developing economy
China, where the projected economic growth will fall from its 2010 rate of 9.5% to 8.5% the next
year. This change can be attributed to the drop in budget investment implementation of which
started in 2009. China and India excluded, GDP growth of developing countries will be at 4.55,
4.4% and 4.6% in 2010, 2011 and 2012 accordingly.
As high demand for foreign financing led to a drastic fall in capital flow in 2009 several
developing countries made budget amendments contributing to economic growth slowdown. As
a result, in 2010 demand for foreign financing is estimated to fall down from 1.2 trillion USD to
1.1 trillion USD. In 2009 capital flow decreased by 40% whichforced the developing countries to
reduce their budget deficits. This last year countries with budget deficits cut the deficit amount
from -283 billion USD by more than half, down to -128 billion USD. Some European and
Central Asian countries cut their budget deficits by even more than 50%. Given budget deficit as
percentage of GDP will continue to be more or less similar to that of 2009, demand for financing
in developing countries will be around 1.1 billion USD in 2010-2012.
Foreign Direct Investment flow going to developing countries is estimated to rise from it
2009 level of 454 billion USD (2.7% of the GDP) to 771 billion USD (3.2% of the GDP) in
2012.
East Asia and Pacific region have born the economic crisis comparatively well. The
economic growth of the region is expected to be at 8.7% in 2010, 7.8% in 2011 and 7.9% in
2012. This strong growth in East Asia is closely linked to the China’s and regional active
economic and trade relationships. Thus economic growth in China and the region will be
approximately 7.8% in 2011 and 8.4% in 2012.

2010 1st Half Mongolia Economic Review

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ECONOMIC REVIEW OF MONGOLIA

FIRST HALF OF 2010

National Development and Innovation Committee

GDP growth (percentage

Industrial sector growth (percentage) -6.5

Debt remainder (MNT bill

Budget balance ( MNT billion

Inflation (percentage) 6.3 11.4

Foreign trade turnover (million US$) 1.656 2.665

Foreign trade balance (million

Laws and policies approved by the Parliament

ECONOMIC REVIEW /First

Government policies and activities

Government of Mongolia has approved action plan of “Business-enabling environment

Investment agreement signed among the Government of Mongolia, “Ivanhoe Mines

ECONOMIC REVIEW /First half of 2010/ NDIC 2

“Smokeless Ulaanbaatar” national program is to be presented to the Parliament. National

Plan on implementing “Direction to develop universities as student towns” was

ECONOMIC REVIEW /First half of 2010/ NDIC 3

Price of consumer goods increased

Decision to improve life guarantee of civil service officers was made

ECONOMIC REVIEW /First half of 2010/ NDIC 4

REAL ECONOMIC GROWTH /First half of 2010/

ECONOMIC REVIEW /First half of 2010/ NDIC 5

PRODUCTION OF AGRICULTURAL SECTOR

For Mongolia,, pastoral cattle

ECONOMIC REVIEW /First

Table 1. Head count of livestock lost /thous.heads/

Number of livestock lost Percentage in total livestock

Total 1416.0 1437.9 9726.6 3.5 3.3 22.1

ECONOMIC REVIEW /First half of 2010/ NDIC 7

Under the framework of Atar-III campaign (Cultivation campaign) organized by the

Table 2. Cultivation /thous.ha/

Ups and downs

During the conference on ‘strengthening budget planning process’ organized by the

ECONOMIC REVIEW /First half of 2010/ NDIC 8

As the Government of Mongolia announced year 2009 as the “Industrialization

NDIC is working to improve inter-sector coordination and formulate systematic

Following important actions to improve environment for enterprises are implemented

• Law on Concession was approved

ECONOMIC REVIEW /First half of 2010/ NDIC 9

• Development Bank is to be established

• “Direction to develop industrialization in rural region” is approved

• “State policy on high technology industrial sector” was approved

• “Investment corporation for high technology and innovation”, a state-owned LLC is

• Draft of “Sub-program on supborder pointing national champions” was developed

ECONOMIC REVIEW /First half of 2010/ NDIC 10

• Legal ground for exploring Tavantolgoi deposit is set

• Government decision to establish Sainshand industrial complex was made

• Copper smelting factory is decided to be constructed

Total production of industrial sector

Increased production of main industrial sector goods such as coal, petroleum,

ECONOMIC REVIEW /First half of 2010/ NDIC 11

Mining and exploring

Figure 3. Total industrial sub-sector

860 The highest growth was

ECONOMIC REVIEW /First

ECONOMIC REVIEW /First half of 2010/ NDIC 13

Product Unit 2008 I-VI 2009 I-VI 2010 I-VI

Source: NATIONAL STATISTICS OFFICE

Figure 4. Sales structure of industrial output /percentage/

Total industrial output sold

ECONOMIC REVIEW /First