IMF Says Mongolia's Economy Held Up in 2025 Despite a Coal Price Slump, But Warns on Inflation and Fiscal Slippage

A Year Better Than Feared, But Not Without Cracks

In its Article IV consultation — the IMF's standard annual review of a member country's economy — the Fund's Executive Board found that Mongolia's 2025 macroeconomic performance beat expectations despite a sharp decline in coal prices, historically the country's single largest export earner. A strong recovery in agricultural output and solid mining production drove growth, while a jump in copper exports and softer import demand helped narrow the current account deficit even as coal earnings weakened. Still, the IMF assessed Mongolia's external position in 2025 as weaker than its underlying fundamentals and desirable policy settings would suggest.

That momentum carried into 2026: GDP grew 7.8% year-over-year through April, powered by continued strength in mining. The IMF expects growth to moderate from 2025's high pace as the boost from last year's strong farm harvest fades, though mining should keep offsetting softer growth elsewhere in the economy.

Inflation Turns Back Up

Mongolia's inflation picture reversed course this spring. After several months of moderation, headline inflation began climbing again in March 2026 on the back of surging meat and energy prices, reaching 12.0% year-over-year in June. The IMF projects inflation will stay elevated, around 10% by the end of 2026, before gradually declining. The Fund flagged this as one of the most significant near-term risks to the outlook, alongside external risks tied to Mongolia's heavy dependence on coal exports to China and broader global commodity markets.

A Warning on the Budget

The IMF's sharpest language was reserved for fiscal policy. It called on Mongolia's government to prioritize rebuilding fiscal buffers and safeguarding debt sustainability, and specifically urged the submission of a supplementary budget to Parliament to avoid a repeat of the cash shortages the country experienced at the end of 2025. The Fund also said a tax package Mongolia's government recently approved should be reconsidered, warning that it would erode revenue from outside the mining sector at a time when the government faces political pressure to raise spending on wages and pensions ahead of upcoming elections.

The IMF's own projections show Mongolia's non-mining primary balance — a measure of the underlying fiscal position excluding mining revenue — deteriorating from a deficit equal to 5.6% of GDP in 2025 to a projected 8.2% of GDP in 2026, and continuing to widen through the rest of the decade. General government debt is projected to climb from 45.1% of GDP in 2025 to 47.0% in 2026, and to keep rising toward 63.7% of GDP by 2031 under current policies.

Monetary Policy and Reserves

On monetary policy, the IMF said the Bank of Mongolia should maintain a tight stance and stand ready to tighten further if there are signs that inflation expectations are becoming unanchored. It also recommended the central bank strengthen its operational and legal independence and stop engaging in quasi-fiscal activities. On foreign exchange, the Fund noted that Mongolia's gross international reserves have grown markedly but remain below the levels the IMF considers adequate, and recommended the central bank continue building reserves opportunistically while gradually stepping back from its role as a primary supplier of foreign currency to the domestic market.

Reader Q&A

Did the IMF say Mongolia's economy is in trouble?

No — the overall assessment was that Mongolia's economy performed better than expected in 2025 and kept growing strongly into 2026. The IMF's concerns are about risks ahead, particularly rising inflation, fiscal slippage, and Mongolia's exposure to swings in coal and copper prices, not about the current state of growth.

Why is Mongolia's inflation rising again?

The IMF attributed the renewed increase, which pushed inflation to 12.0% year-over-year in June, mainly to surging meat and energy prices, following several months in which inflation had been moderating.

What specific budget action is the IMF asking for?

It called for Mongolia's government to submit a supplementary budget to Parliament to prevent the kind of cash shortages that occurred at the end of 2025, and urged reconsideration of a recently approved tax package that the IMF says would weaken non-mining tax revenue.

How exposed is Mongolia to coal prices?

Very exposed — coal has historically been Mongolia's largest export earner, largely to China, and the IMF specifically flagged uncertainty about Chinese coal demand and commodity prices as a key downside risk to the country's outlook.

What did the IMF say about Mongolia's currency and reserves?

It said gross international reserves have risen markedly but remain below adequacy thresholds, and recommended the central bank keep building reserves opportunistically, allow greater exchange-rate flexibility, and gradually reduce its role as the main supplier of foreign currency to the market.