With two very large mining projects expected to reach full production this decade, Mongolia is entering a commodity boom. History has taught us that commodity revenues offer unique opportunities for development but can also depress long-term economic prospects by increasing macroeconomic unpredictability, reducing incentives to invest in physical and human capital and undermining economic and political institutions. Social spending should be detached from resource revenues, better targeted and fully incorporated into the budget.
Mongolia's vast mineral deposits and growth in the mining-sector activities have transformed Mongolia's economy, which by tradition had been dependent on herding and agriculture. Until recently Mongolia had remained a relatively small, landlocked, low-income economy, with a population of 2.7 million. Mongolia’s development potential, however, is colossal, associated predominantly to two large mining development projects. Oyu Tolgoi is a large copper and gold deposit in the South Gobi desert, approximately 80 kilometers north of the border with China. It is estimated to hold over 35 million tons of copper and 1,275 tons of gold. Tavan Tolgoi is estimated to hold reserves of over 6 billion tons of coal. Tavan Tolgoi is also in the South Gobi, approximately 240 kilometers north of the border with China and 150 kilometers away from Oyu Tolgoi.
Mongolia has transformed itself from a socialist country to a vibrant multiparty democracy with a booming economy. Mongolia is at the dawn of a major transformation driven by the exploitation of its vast mineral resources. Mongolia was among the most aid-dependent countries in the world receiving $2.5 billion of foreign aid between 1991-2002. However, due to strong economic performance and nearly doubling of GDP, driven primarily by mining gains, Mongolia is not as dependent on foreign aid as before.
This economic growth has translated into some benefits for the people of Mongolia. Poverty has been on a downward trend over the past decade. Mongolia’s health care system was based on the Soviet Union’s Semashko model, in which the state was responsible for both the financing and delivery of health care. All citizens were eligible for free medical care. Given the size of the country, the long distances to cover, and the sparse population, the Semashko model was not sustainable without enormous subsidies from the former Soviet Union. The Government of Mongolia commenced reforms in the health sector to shift the emphasis of the health care system from hospital care to PHC. Also, in line with the Government’s decentralization policy, responsibility for the health care system was decentralized to provincial governments beginning in the mid-1990s. Since the economic transition, Mongolia has...