November 20, 2013
The Mongolian central bank has forecast a strong rebound for the economy in 2014. However, a return to GDP expansion in the high teens depends on agreeing a route to progress the Oyu Tolgoi mine.
Mongolia topped the world growth rankings in 2011 at 17%, driven by foreign direct investment into the mining sector. However, with the country witnessing rising resource nationalism, as has also been seen in several Central Asian peers, GDP expansion dropped to 12.2% last year.
The World Bank estimated earlier this month that 2013 growth will come in at 12.5%, but central bank head Naidansuren Zoljargal suggested the final figure for the year will disappoint. "I am pretty confident [this year] it will be around 11ish percent," he told the Wall Street Journal in an interview.
The official added however that the Central bank of Mongolia hopes to see the economy perk up in 2014 as investors return to work. "[N]ext year we are a bit more optimistic," he said. "I'm pretty sure the [2014] number can go higher than 11%, somewhere between 11% and 17%."
Key will be the the second-stage development of the Oyu Tolgoi copper and gold mine, he noted. The huge project did much to dent growth over the last two years as Ulaanbaatar has argued with partner Rio Tinto over investment costs.
However, Naidansuren suggests an agreement is imminent. "It looks as if it is going to work, it is just a question of the timing," he asserts. "Maybe it is going to come next month, in two months or three months from now, but I am pretty confident that the second phase will happen and that is about $4bn we are talking about."
The suggestion of a swift agreement on the second phase appears at odds with recent developments. Turquoise Hill – the unit through which Rio Tinto holds its 66% stake in the mine – announced on November 14 that it had suspended underground work. The government subsequently said little more than that it is ready to continue discussions.
The ongoing delay helped push the World Bank to drop its original forecast of 13% growth for 2013 earlier this month. However, the international institution also warns of downside risks including inflation, higher off-budget spending and a mounting balance of payments deficit.
Mongolia saw a 49% slump in FDI in the first nine months of 2013, mainly due to the introduction of the 2012 Strategic Entities Foreign Investment Law (SEFIL) and uncertainty over the result of the presidential election in June. However, with the re-election of Tsakhiagiin Elbegdorj and the adoption of changes to the restrictive investment legislation, Mongolia looks likely to see a revival in FDI inflows in 2014.
Elbegdorj campaigned against nationalist challengers by promising to return FDI to previous levels. With both the presidency and parliament settled until 2016 following elections over the past 18 month, the sentiment amongst investors is truning positive once again, reports Finance Asia from the Mongolian Investment Summit held in Hong Kong on November 19.
Source:http://www.bne.eu
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