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MONGOLIA I WORLD RANK: 129 REGIONAL RANK: 29 ECONOMIC FREEDOM STATUS: MOSTLY UNFREE n an effort to accelerate its transition to a competitive economy, Mongolia has adopted policies to liberalize markets and develop the financial sector. However, long-term economic development will still require further critical reforms. The evolving regulatory framework governing investment remains opaque, injecting uncertainty into investment decisions. The weak rule of law and lingering corruption are additional drags on the economy. Institutional reforms and continued efforts to streamline public administration are critical to sustaining economic growth. Management of public finances has deteriorated notably, and growing budget deficits have pushed the level of public debt to more than 75 percent of GDP. ECONOMIC FREEDOM SCORE 54.8 ( ▼ DOWN 4.6 POINTS ) 0 50 60 70 80 60.4 60.9 REGIONAL AVERAGE WORLD AVERAGE (ASIA-PACIFIC REGION) NOTABLE SUCCESSES: Trade Freedom 100 CONCERNS: Rule of Law, Investment Freedom, and Government Spending OVERALL SCORE CHANGE SINCE 2013: –6.9 QUICK FACTS FREEDOM TREND 80 70 60 50 POPULATION: 3.0 million UNEMPLOYMENT: 7.1% GDP (PPP): $36.1 billion 2.3% growth in 2015 5-year compound annual growth 10.3% $12,147 per capita INFLATION (CPI): 5.9% FDI INFLOW: $195.1 million PUBLIC DEBT: 76.5% of GDP 40 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2015 data unless otherwise noted. Data compiled as of September 2016 BACKGROUND: Since the adoption of a new constitution in 1992, Mongolia has transformed from a closed society ruled by a single-party Communist system into an open society and a dynamic multi-party democracy. This transition has been accompanied by the gradual introduction of free-market reforms and relatively well-maintained political stability. While improving overall relations with the U.S., Japan, and South Korea, Mongolia has also maintained strong ties with Russia and China. President Tsakhiagiin Elbegdorj, whose Democratic Party coalition controls parliament, is serving his second term. Agriculture and mining remain the most important sectors of the economy. Uncertainty over investment rules has caused investment in the mineral sector to ebb and flow. 158 2017 Index of Economic Freedom KEY: WORLD AVERAGE 12 ECONOMIC FREEDOMS | MONGOLIA RULE OF LAW 88th GOVERNMENT SIZE 136th 103rd 100 100 80 80 70 70 60 60 50 50 119th 179th 87.1 57.6 0.0 Tax Burden Government Spending Fiscal Health Rank MONGOLIA 37th 0 51.3 28.4 36.8 Property Rights Judicial Effectiveness Government Integrity Property and contractual rights are recognized, but enforcement is weak. The government lacks the capacity to enforce intellectual property rights laws. The judiciary is independent but inefficient and vulnerable to political interference. Pervasive corruption stems from a political culture that places a high value on relationships. Graft is endemic, and weak institutions do not enforce anticorruption measures effectively. 81st 23rd The individual income tax rate is a flat 10 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax and an excise tax. The overall tax burden equals 23.7 percent of total domestic income. Government spending has amounted to 37.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 9.4 percent of GDP. Public debt is equivalent to 76.5 percent of GDP. OPEN MARKETS 136th 100 100 80 80 70 70 60 60 50 50 0 67.2 76.6 72.3 Business Freedom Labor Freedom Monetary Freedom The regulatory framework continues to evolve, although the pace of reform has been sluggish. Labor regulations are relatively flexible, but the labor market lacks dynamism. The nonsalary cost of employing a worker is moderate, and dismissing an employee is not burdensome. Faced with a budget deficit, the government is contemplating the sale of some state-owned enterprises such as power plants, coal companies, and the stock exchange. 0 REGULATORY EFFICIENCY 0 109th 132nd 39th 74.9 45.0 60.0 Trade Freedom Investment Freedom Financial Freedom Rank Trade is important to Mongolia’s economy; the value of exports and imports taken together equals 87 percent of GDP. The average applied tariff rate is 5.0 percent. The judicial and regulatory systems impede foreign investment, and state-owned enterprises distort the economy. The limited availability of long-term loans and costly collateral requirements make access to credit a challenge for small and medium-size firms. The Heritage Foundation | heritage.org/Index 159