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Mongolian overheated economy yields ominous omen: IMF official

(Xinhua)

08:40, February 08, 2012

ULAN BATOR, Feb. 7 (Xinhua) -- Overheated economy in Mongolia is leading to significant problems such as high inflation, exchange rate volatility and wage pressures, according to an IMF report released Tuesday.

The report, drafted by Steven Barnett of IMF regional office for Asia and the Pacific, warned that the consequences of the overheating economy could heighten fears about "hard-landing" of the country's economy, especially if external shocks hit the economy.

Barnett blamed the expansive fiscal policy as the main cause of the overheating and economic volatility. "Government spending increased 60 percent in 2011 and is set to rise a further 30 percent this year," he said.

The expansive government spending had created too much demand and lead directly to higher inflation, a substantial increase in imports, exchange rate volatility and a squeezing-out of the private sector, he added.

The IMF official recommended the Mongolian government to immediately scale back its spending.

Mongolia's Gross Domestic Product (GDP)grew by 27.8 percent last year at current prices, but high inflation, unstable exchange rate and especially uncertainties in the global economy had posed threats to the mining-dominated economy.

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