A recent article from Reuters reporting that "private citizens in Mongolia are donating cash, jewelry, gold and even horses" to help the government pay off its debts shows the severity of the economic crisis in the cash-strapped nation. However, with a population of only 3.12 million, Mongolia is unlikely to pull through by relying simply on public donations. Many wonder whether China will offer assistance to Mongolia and how China's One Belt, One Road initiative could play a role in revitalizing the regional economy.
As of September last year, Mongolia's debt across all sectors stood at $23.8 billion, accounting for over 210 percent of its GDP. Realistically, it won't be easy for Mongolia to keep from defaulting on its debt amid rumors that the country can't pay the salaries of its national athletes. China may need a plan to help prevent the crisis from spreading to other countries within the region and to provide its neighbor with necessary assistance. With more than $3 trillion in foreign exchange reserves, China has the ability to safeguard regional financial stability amid economic uncertainty caused by sluggish global demand and falling commodity prices.
However, it's unrealistic to pin all hopes of lifting Mongolia out of hardship on external assistance. One of Mongolia's biggest challenges right now is the low level of its foreign exchange reserve. As such, the resource-rich country is in urgent need of measures that will boost its exports in a bid to increase the country's trade surplus.
The Mongolian economy has long been centered around mining and agriculture. Developing the deep processing industry in agriculture and resource products is not a new topic for Mongolia, but China's One Belt, One Road initiative now provides a fresh opportunity for Mongolia's economic development. The initiative aims to improve infrastructure in countries including Mongolia and is likely to bring in investment that the cash-strapped nation desperately needs.
Mongolia should seize the opportunity to upgrade its industrial structure to create a solid foundation to develop its manufacturing industry. China and Mongolia could adopt flexible forms, such as a resource-for-loans deals in which loans are repaid with resource goods, to push forward bilateral cooperation within the framework of the Belt and Road initiative or other mechanisms. Such measures would have referential value for relevant countries if the initiative proves itself a success in Mongolia.
The Mongolian economy grew by 17 percent in 2011. It is still possible for the resource-rich country to regain its former glory, but the nation will need to work harder to improve its investment environment, maintain political stability and curb corruption to lure more investors.
The author is a reporter with the Global Times. firstname.lastname@example.org