💵 TUGRIK'S COMEBACK | INSURANCE INDUSTRY GROWTH | OVERDEPENDENCE ON MINING

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 💸 TUGRIK RALLIES AGAINST DOLLAR AS TRADE SURPLUS AND RESERVES RISE

The Mongolian tugrik has gained 1.4% against the US dollar since March, reversing a sharp depreciation over the past year that alarmed consumers and policymakers.

The dollar had soared to a record high of $1 = ₮3,500 in January, eroding the purchasing power of Mongolians who rely on imports for many goods and services. But the tugrik has since bounced back, helped by a combination of factors. These include an increase in foreign currency reserves, a surge in exports, and the repayment of two government bonds that boosted investor confidence.

Monetary manoeuvres: Mongolia’s foreign currency reserves rose 11.6% to $3.7 billion in the past year, after commercial banks limited dollar-based transactions. The central bank also hiked its policy rate to 13% last December, up from 6% in January, to curb inflation and stem capital outflows. However, inflation surged to 12.1% this March, well above the central bank’s target of 6%.

Trade resurgence: Mongolia's trade balance improved significantly in the first quarter, as exports jumped 96% and imports rose 14.7% compared to last year. The trade surplus widened to $1.8 billion, up from $228 million a year ago.

• The country's main export is coal, which accounts for about 40% of its total shipments. Coal prices have rebounded from a slump last year, driven by strong demand from China, Mongolia's largest trading partner.

Fiscal responsibility: Mongolia has recently repaid the last installments of two sovereign bonds, totalling $531 million. The Chinggis bond, issued in 2012, was fully paid off last December, while the Gerege bond, issued in 2017, was settled this May. The bond repayments enhanced Mongolia's creditworthiness and reduced its debt burden.

External factors: However, the tugrik's appreciation was also partly due to the dollar's weakness in global markets. The US currency has fallen 9.7% since reaching a five-year high of $112.1 in September last year, as measured by the US dollar index. The dollar has faced competition from other currencies, such as the Chinese yuan and digital currencies, which have gained popularity for international trade and payments.

While a stronger tugrik benefits Mongolian consumers by lowering import costs, the government faces the challenge of maintaining exchange rate stability and avoiding excessive volatility that could hurt domestic producers, exporters, and foreign investors.

📈 DATA STORY: MINING BOOM ATTRACTS FOREIGN INVESTORS BUT RAISES DIVERSIFICATION CONCERNS

Mongolia has attracted $34 billion of foreign direct investment in the past decade, mostly in its mining sector, which accounts for more than 90% of its exports.

The landlocked country, rich in coal, copper and gold, has seen a surge in mining activity as global demand and prices for commodities have rebounded from the Covid-19 slump.

The mining industry received $25 billion of foreign investment between 2011 and 2022, representing 73% of the total inflows, according to data from the National Statistics Office. The sector also boosted Mongolia's export earnings, rising from $4 billion in 2011 to $11.7 billion in 2022.

However, Mongolia's dependence on mining poses risks to its economic stability and sustainability. The country is vulnerable to external shocks and price fluctuations that could affect its trade balance and fiscal position.

🗂️ MONGOLIAN INSURERS ENJOY A DECADE OF SOARING PREMIUMS DESPITE LONG ROAD AHEAD

Mongolia's insurance sector has seen a remarkable expansion in the past decade, as premiums have risen more than eightfold to ₮474.9 billion ($137 million) in 2022.

A spectacular surge

The industry has benefited from a growing middle class, rising disposable income and increased awareness of the benefits of insurance. The government has also introduced policies to support the sector, such as mandatory health and motor insurance.

• The total premiums collected by insurers rose from ₮56.8 billion in the fourth quarter of 2010 to ₮474.9 billion in the same period of 2022, according to data from the Financial Regulatory Commission. The total revenue from premiums increased 9.6 times to ₮304.8 billion over the same period.

• The net premiums earned by insurers, which reflect their profitability and customer retention, also grew significantly, from ₮23.5 billion in 2010 to ₮188.7 billion in 2022.

The bigger picture

However, Mongolia's insurance sector remains underdeveloped compared with the global average and its regional peers. The insurance premium revenue accounted for only 0.63% of Mongolia's gross domestic product in 2022, far below the world average of 7.16%.

Mongolia's insurance industry is relatively young, having started in 1997 with the enactment of the Insurance Act. Since then, the sector has evolved and diversified, offering a range of products and services to individuals and businesses.

• The challenges: low public awareness, high operating costs and regulatory uncertainty. The Covid-19 pandemic has also posed risks to insurers' solvency and liquidity.

Despite these hurdles, Mongolia's insurers have shown resilience and innovation, adapting to changing customer needs and market conditions. The sector has potential for further growth and development, as Mongolia's economy recovers from the pandemic and its population becomes more affluent and urbanized.

🏃 QUICK STORIES

📌 XacBank set to list on Mongolian bourse after central bank nod. The bank, one of the country’s five systemically important lenders, aims to raise capital and boost transparency under a new banking law. The listing is subject to approval by the Mongolian Stock Exchange and the Financial Regulatory Commission.

📌 Erdene Resource has started drilling at its Zuunmod project in southwest Mongolia, which contains molybdenum and copper deposits. The miner plans to drill 4,000 metres in total, with 2,500 metres in the first stage. It is also conducting exploration, metallurgical, engineering and hydrogeological work at the site.

📌 English has become the primary foreign language in Mongolia’s new Education Bill. The landlocked country, which has taught English in its schools for over two decades, wants to boost its quality and prepare its youth for the global economy.

📌 A constitutional amendment to increase the number of parliamentarians from 76 to 152 and guarantee a hybrid electoral system of proportional and majoritarian representation has been put forward by lawmakers. The proponents argue that the reform would enhance the diversity and legitimacy of the parliament and strengthen the democratic process in the country.

📌 Hungary seeks to boost ties with Mongolia in geology, agriculture and air transport. László Kövér, the speaker of Hungary’s national assembly, visited Ulaanbaatar to discuss ways of enhancing co-operation between the two countries.

⭐ TOP NEWS

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• The circus saved this woman’s life. Now she’s repaying the favor (CBS News)

• Church’s Youngest Cardinal Hopeful for Papal Visit to Mongolia (National Catholic Register)

• The effect of psychosocial support for women in Mongolia (The Asia Foundation)

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Editor: E. Zolbayar
Writer: A. Bilguun

Disclaimer: The information Inside Mongolia provides is for educational and informational purposes only. It is not intended to be and does not constitute financial advice, trading advice, or any other advice. The decision whether to consider the information we provide is solely our readers' independent decision.