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Impact of Fiscal Consolidation on the Mongolian Economy

Author

Listed:
  • Ragchaasuren Galindev
  • Tsolmon Baatarzorig
  • Nyambaatar Batbayar
  • Delgermaa Begz
  • Unurjargal Davaa
  • Oyunzul Tserendorj

Abstract

The Government of Mongolia began implementing an IMF program under the Extended Fund Facility agreement (EFF) in May 2017. Under the program, the government has decreased expenditures and increased taxes to achieve debt sustainability via fiscal consolidation and stable growth. At the same time, the government has faced challenges because of its commitment of fiscal consolidation to the IMF: the rising price of fuel and its own fuel-subsidy policies. We used the PEP standard static CGE model to examine the impact of fiscal consolidation on the Mongolian economy under various conditions. Moreover, we used a poverty (microsimulation) model to analyze those impacts at a household level. Our analysis of the impact of fiscal consolidation under pessimistic and optimistic mineral-commodity-price scenarios showed that Mongolia’s economy was closely tied to international commodity prices. Our examination of the government’s alternative policies on fuel subsidies in an environment of fiscal consolidation demonstrated that the effect of increased fuel prices on the economy depended upon government fuel-subsidy policy.

Suggested Citation

  • Ragchaasuren Galindev & Tsolmon Baatarzorig & Nyambaatar Batbayar & Delgermaa Begz & Unurjargal Davaa & Oyunzul Tserendorj, 2019. "Impact of Fiscal Consolidation on the Mongolian Economy," Working Papers MPIA 2019-20, PEP-MPIA.
    • Handle: RePEc:lvl:mpiacr:2019-20
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    References listed on IDEAS

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    2. Baatarzorig, Tsolmon & Galindev, Ragchaasuren & Maisonnave, Hélène, 2018. "Effects of ups and downs of the Mongolian mining sector," Environment and Development Economics, Cambridge University Press, vol. 23(5), pages 527-542, October.
    3. Edgar F.A. Cooke & Sarah Hague & Luca Tiberti & John Cockburn & Abdel-Rahmen El Lahga, 2016. "Estimating the impact on poverty of Ghana’s fuel subsidy reform and a mitigating response," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 8(1), pages 105-128, March.
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    1. Ragchaasuren Galindev & Tsolmon Baatarzorig & Nyambaatar Batbayar & Delgermaa Begz & Unurjargal Davaa & Oyunzul Tserendorj, 2019. "The Economic and Environmental Impact of Foreign Direct Investment on the Mongolian Coal-Export Sector," Working Papers MPIA 2019-21, PEP-MPIA.

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    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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