The twin deficit of Mongolia

Editor's note:

As I am editing and finalizing our 6th issue, I want to thank all our 1,500 readers. Our editorial team works hard to get you the most important insides on Mongolia. I think Mongolia is a land of golden opportunities thus our mission is to open up those hidden opportunities to you. 

So stick with us, check your inbox every Monday, and share Inside Mongolia with your friends and colleagues. Any questions and feedback are more than welcome. You can always reach me at [email protected]. 

Zolbayar.E, Founder & Editor-in-Chief Manhattan, NYC

  📌 DID YOU KNOW?

Some dipping into diplomacy: 

1. In  1961, Mongolia was admitted to the U.N. with nine votes in favor and one abstention – the United States. 

2. 2021 marked the 110th anniversary of Mongolia’s modern Diplomatic Service.

3. Ulaanbaatar currently hosts 25 Foreign Embassies, including the EU Delegation. 

4. Mongolia itself counts 32 Embassies and 13 consulate offices spread across the world.

5. There’s a facet of foreign relations of Mongolia called “The Third Neighbor Policy” that refers to building strong relationships with countries other than Russia and China.

📉 THE TWIN DEFICIT OF MONGOLIA

Did you know that the U.S. has had twin deficits since 2000? Well, Mongolia had sustained a twin deficit since 2008 too, except for 2010 and 2018. When both the current account and government budget is running a deficit it is called a “twin deficit”. 

In 2021, Mongolia’s Balance of Payments (BoP) was -$220 million USD and the biggest influence was the current account, the balance of trade in goods and services, and primary income as in earnings minus payments made on foreign investments. The current account deficit widened by $1.2 billion in the past year, totaling -$1.9 billion. 

Money maker: Main capital inflows of the country comes from the trade surplus that has been sustained since 2014 due to the productive and profitable mining sector. Last year, a 209.4% surge in mineral price resulted in increased export earnings. Moreover, transportation services made a comeback with a surplus of $23.5 million for the first time since 2007. Upon news of a new railway, transportation efficiency is bound to pick up soon.

Cash outflow: With tourism suffering due to the pandemic, and professional services such as construction, consulting being imported, Mongolia incurred -$1.3 billion in services. Exhibiting a 5% decrease from 2020, and 31% decrease from 2019, there is more improvement on the horizon for the services industry. The current account deficit also suggests that Mongolia has a favorable investment climate for foreigners. The primary accounts liabilities have been increasing over the years due to accrued investment payments, mostly from FDI (Foreign Direct Investment). 

Effect on MNT (Tugrik)

The twin deficit implies that the budget deficit is correlated with the large current account deficit and devalues currency in the long run. Mongolia has been compensating for the deficit with FDI and loans, becoming exposed to exchange rate risk. In the future, it is important to divert these inflows to economically viable sectors and reduce the current account deficit. Given today’s highly concentrated export of one sector, it is crucial to diversify the exports to manage the associated risk. 

📢 MONGOLIAN ART IN SWITZERLAND

The Swiss, don’t miss this!

Mongolian artists Baatarzorig and Nomin Bold are exhibiting their work at the Kunstverein Frauenfeld in Switzerland this spring. While Baatarzorig’s art focuses on the preservation/loss of Mongolia's cultural heritage during various historical transformations, Nomin reflects on happiness, wealth, politics, nature and friendship from the perspective of identity, history, and the rapid modernization of Mongolia’s society. 

About the artists:

• Baatarzorig and Nomin both draw on the techniques of Mongol Zurag, a highly detailed style with Tibetan and Chinese elements.

• They are married to one another and have had multiple joint exhibitions all over the world. Take a look at their ‘Tamlaga’ exhibition from 2019 HERE. 

The details: 

• Duration: April 10th - May 8th;

• Location: Bernerhaus, Bankplatz 5, 8500 Frauenfeld.

🏛️ IPOs AND UNDERWRITERS

Mongolia has long been a force in the world's resource markets, due to its abundance of coal, copper, and gold. These days, however, it is the country's stock market that is attracting attention. 

With 8 securities companies working as underwriters, 13 companies went public and raised $47.5 million (₮136 billion) in the last 5 years. Let’s take a brief look at these companies and their underwriters.

Underwriters: Golomt Capital worked on the most number of IPOs, raising $19.1 million (₮54.8 billion) for four companies, which accounted for 40.2% of total raised assets in IPOs. Coming in second and Mongolia’s first-ever securities company, BDSec worked on three IPOs and raised $4.6 million (₮13.1 billion). The remaining underwriters each worked on one IPO. 

IPOs: As for the IPO companies, iTools went public in 2017, followed by 8 companies in 2018 and 4 in 2019 and 2021. Among these 13 companies, 7 are in the financial sector which includes Ard Credit, Ard Insurance, Bodi Insurance, Bogd Bank, InvesCore, LendMN, and Mandal Insurance. 

Stock performance: Since their IPO, Tumen Shuvuut’s stock prices have grown by 220%, shares of Ard Credit, Mandal Insurance, Invescore have grown more than 150%. Underwriters in these IPOs include Golomt Capital, Ulzii & Co Capital, and TDB Capital. In comparison, Mongol Basalt and iTools fell 42% and 5%, respectively, from their IPO prices. For these companies, Bumbat Altai and Standard Investment were the underwriters.

Upcoming IPOs and getting involved:

As systemic banks, like Golomt Bank, Khan Bank, and more, prepare to go public in the next 3 to 4 months, following the new amendment to the Banking Law. Besides those big banks, other interesting companies of different sectors are preparing to go public. Therefore, be prepared. Here are some major brokerage firms through which one can get involved.

• BDSec;

• Ard Securities;

• Golomt Capital;

For a full list of brokerage firms, you can visit mse.mn.

An essential duo:

IPO activity in Mongolia is hitting a new stride as more and more companies go public. In a similar light, the importance of underwriters in these IPOs is growing. Although it would be biased to say that a stock rises or falls depending on the underwriting company, they are an important indicator for investors. Their expertise and assessment of the value of a business and whether future growth is realistic are important factors in how well an IPO does. 

🔔 DATA STORY

Ever wondered how much Mongolians make? Well, not so much when we measure it by USD. As you see in the graph, our purchasing power has been stagnant since 2014 mostly due to the depreciation of the Tugrik and inflation. 

🏃 QUICK STORIES

📌 Accelerator program for innovative mobile apps launched last week. The JICA, MobiCom and MOJC organized the “MonJa2 startup accelerator program”, selecting 3 startups which will receive a maximum of $20 thousand in funding and networking opportunities with Japanese companies.

📌 Mongolia’s crypto law came into force last week. Approved by the Mongolian Parliament on December 17, 2021, the ‘Law on Virtual Asset Service Providers’ requires that anyone wanting to engage in virtual asset services must register with the Financial Regulatory Commission.

📌 Cyber security & digital governance to be strengthened. ADB & MDDC discussed further ways to improve coordination in digital transformation projects. They also exchanged views on the implementation of the ADB’s Digital Economy project aimed at strengthening the legal and regulatory framework for e-commerce. 

📌 Mongolia Economic Forum soon to resume. On January 6th, the Cabinet approved the structure and strategy of the Ministry of Economy and Development. The first major task of the newly established ministry will be the organization of the Mongolian Economic Forum, which has now been suspended for two years. The forum is set to take place in April.

💼 JOB HUNTING?

• 🌽 Program Specialist / Food and Agriculture Organization of the United Nations: Want to contribute to FAO’s activities in the country? 👉 (Link)

• 🧒 Program Assistant / UNICEF - United Nations Children's Fund: Might qualify as an advocate for children? 👉 (Link)

• 📊 Analyst / Rio Tinto: Super into data? 👉 (Link)

📷 A GLIMPSE OF MONGOLIA

Much to the dismay of wrestling fans, if you ask a random Mongolian what sport they usually play, the answer would most likely be ‘BASKETBALL’.

Pinch of history: 

Basketball was first introduced to Mongolians by Chinese guest workers in the 1940s. The first national championship took place in 1954. Consequently, the Mongolian National Basketball Association was founded a few years later with the participation of professional players from the Soviet union. Since then, the association holds annual competitions enjoyed by fans all over Mongolia.

Fun facts:

1. In 2019, Mongolian national basketball team won a silver medal at the B-One League which took place in Anning, China.

2. Enkhiin-Od, a.k.a Mongolian Mike, has been included in the list of top 100 college basketball players in the USA, announced by ‘Slam’ magazine. He also became the first Mongolian athlete who played in the NCAA by invitation.

3. The third edition of the FIBA 3x3 U23 World Cup was organized in Ulaanbaatar in 2019.

ESSENTIAL LINKS

• Not sure where to eat in Ulaanbaatar? Food and drink reviews in English. (Dodddo0)

• 5 tips to survive Mongolia’s brutal winter. (Breathe Mongolia)

• Must know geography facts! (Geography Now)

• Are the Mongolian stereotypes true? (Real Mongolia)