Mongolia's economy grew by 7.7% in the first half of 2026, with real GDP reaching MNT 16.4 trillion. This is the highest first-half growth of the last three years and exceeds the 2026 annual forecasts of international institutions such as the ADB and the World Bank. Yet on 20 August, with those figures barely a week old, the government submitted a 2026 budget amendment to the State Great Khural, cutting a total of MNT 1.4 trillion in spending. Presenting it, Prime Minister N. Uchral said:

“The state is tightening its belt as it should, and we are amending the budget by MNT 1.4 trillion.”

The state tightening its belt while the economy posts high growth is not a contradiction once the composition of that growth is examined. The 7.7% was produced by a narrow set of factors that did not reach households, investment, or the budget. 

Mining was the main contributor to growth
Real value added in the mining and quarrying sector rose by 31.5%, accounting on its own for 3.9% of total economic growth. Agriculture contributed 1.4%, services 1.8%, and industry and construction 0.5% of positive impact respectively. The main drivers of the growth were production at Oyu Tolgoi and coal exports. According to Rio Tinto's report, Oyu Tolgoi's copper production in concentrate reached 198 thousand tonnes in the first half, up 31% from the same period of the previous year, while coal exports reached 65.6 million tonnes in the first seven months, an increase of 59%. The 7.7% growth therefore resulted from strong mining production and export growth rather than from a broad-based recovery of the economy.

Exports rose and the external balance improved
One of the most positive indicators of the economy in the first half was the external sector. The current account posted a surplus of USD 207 million, reversing the USD 1.75 billion deficit of the same period of the previous year. As of the first seven months, exports reached USD 12.2 billion, up 57.5%, while imports increased by 10.4%, bringing the trade surplus to USD 5.0 billion. However, part of the export growth was driven by commodity prices. For example, export revenue from copper ore and concentrate rose by 89.7%, while the physical volume increased by only 23%.

Domestic demand and investment growth slowed
Although foreign trade indicators improved, domestic demand and investment activity remain weak. Gross capital formation fell by 14.5%, and within it gross fixed capital formation fell by 11.0%, reducing GDP growth by 6.5%. At the same time, real household consumption grew by only 0.5%, a marked slowdown from the 6.5% growth of the same period of the previous year. Behind this lie price and labour market pressures. Inflation reached 13.0% in July, and the number of employed people fell by 22.1 thousand in the second quarter. These are precisely the pressures the budget amendment is designed to address, and they explain why a year of record exports has not translated into relief for households. 

The amendment reallocates rather than cuts
Fiscal pressure is equally real. As of the first seven months, the equalised budget balance recorded a deficit of MNT 2.2 trillion, an increase of 70% from the same period of the previous year, even as export earnings rose 57.5%. The amendment provides for savings of MNT 433.4 billion from current expenditure, MNT 758 billion from the capital city's securities, and MNT 249.5 billion from capital expenditure. However, this is not so much a reduction of the deficit as a reallocation of spending. Almost all of the MNT 1.44 trillion in savings is planned to be spent on new outlays. The largest share is the education sector's outstanding wage costs at MNT 675.5 billion, with the remainder allocated to base pensions for the elderly, wage increases in the health, culture and sports sectors, food supply, and energy subsidies. According to the Prime Minister, the amount actually saved is MNT 49.5 billion. 

The International Monetary Fund's 2026 Article IV assessment, published on 6 August, warned of precisely this risk. The IMF considered the submission of the budget amendment to Parliament a priority, but advised refraining from further expanding current spending, particularly wages and pensions, and rebuilding fiscal buffers. It also noted growth of 7.8% through April while emphasising that underlying growth momentum remained subdued, which is consistent with the composition of the first-half figures. In this sense, the budget amendment is not merely a spending-cut measure but a policy instrument for cushioning the risks associated with high inflation and with energy and fuel supply, while protecting household incomes. 

From the pace of growth to the sustainability of growth
Strong growth has not removed the two main risks: high inflation and the budget deficit. While mining exports are supporting economic growth, the 13.0% rise in consumer prices is putting pressure on domestic demand and household purchasing power. The fact that, alongside spending cuts, the budget amendment includes decisions to increase wages, pensions, and food and energy expenditure shows that despite high economic growth, pressure remains on people's real incomes and cost of living. Therefore, going forward, in addition to maintaining the pace of growth, it is important for Mongolia's economy to ensure price stability, improve fiscal discipline, and channel mining revenues into investment that raises long-term productivity. Although the 7.7% growth of the first half of 2026 is a strong indicator, the main challenge remains turning this growth into more sustainable and broad-based economic growth.

Published Date:2026-08-24