Mongolia has faced several major crises over the past five years. It has survived and has adapted to some or is in the process of adapting to others. Today, the country is more stable, both politically and economically, than it has been for a long time. The outlook for 2026 looks favourable both for investors and for the business environment. However, challenges remain both inside the country and externally – the former cantered on the new government leadership being able to maintain unity and public support, while the latter is entirely focused on China and, less directly but just as importantly, on President Donald Trump.

Since 2020, Mongolia has faced a collapse in exports to China for eighteen months; a debt crisis which came close to a default; public protests over government mismanagement of the economy and environmental disasters; a major corruption scandal; and revolts within the ruling Mongolian People’s Party (MPP). Against what looked at one stage as very “difficult odds”, the country came through the difficulties and looks in better shape today than it has been for over six years.

China's exports, which account for over 90% of all mining sector exports, which in turn account for over 85% of all exports, remain the critical factor in the economy. It was the collapse in exports in 2020-end 2021 (due to border closures) that led to the debt crisis. Today, export volumes remain relatively stable, although there was a drop in coal volumes early this year due to a glut in China. That was overcome because Mongolia’s exports are cheaper than alternatives. Both governments have agreed to help make border crossings more efficient and to build new rail lines to help boost volumes.

The main external uncertainty is about US policies and whether the Trump Administration may again threaten or impose very high tariffs on Chinese exports. If that were to happen, China's industrial activity would slow, and demand for industrial materials, such as coal, would decline. For Mongolia, that would mean either lower export volumes or a lower price. Either way, there would be a hit to the budget and either cuts to spending and investment or a weaker tugrik (to help with budget management) and inflation pressures again rising.

Resource nationalism, already affecting major foreign investments in Kazakhstan and the Kyrgyz Republic, has now appeared in Mongolia

Copper exports look safer as global demand continues to rise. The issue in Mongolia is the tougher stance adopted by the government with Rio Tinto, the major shareholder and operator of the country’s biggest and most important mine at Oyu Tolgoi. The government is pushing for a greater say in management and wants a bigger share of the revenue. This is consistent with the trend of “resource nationalism” seen elsewhere across Central Asia, e.g., currently in Kazakhstan and in the Kyrgyz Republic, and risks delaying expansion plans for the mine. How this plays out is being watched by other investors.

The risk of debt default is no longer an issue thanks to both government actions and the recovery in export earnings. The Public Debt to GDP ratio is holding around the 40% level, and that seems safe (all being as expected with China exports) for 2026-2027 (the review period). International credit risk agencies, S&P and Moody’s, both improved their assessment of Mongolia's credit risk in October.

Domestically, the country has endured a volatile couple of years. There were frequent protests over the government’s failure to address social issues (in Ulaanbaatar, especially) and environmental degradation. The latter was mostly due to the Dzud (extreme continental climate changes) weather system, but successive governments failed to make adequate preparations for this frequently occurring phenomenon. The protests were amplified with public anger over disclosures about senior-level corruption in the country’s coal trade with China.

The backdrop to all these events has been a complete breakdown in unity within the ruling MPP. However, the recent changes, which include a new prime minister and a new leader of MPP, appear to have settled the issues, and the country looks more stable than it has been for years.

The outlook for the economy, i.e., assuming there is no major disruption to export revenues, looks relatively good. Growth is expected to be just over 5.5% for this year and not far off that again in 2026 (depending on China and Trump). Inflation is a concern but remains below 10% and should decline in 2H26. However, the government is delaying utility price increases and will not be able to push that too far into the future. Also, the higher-for-longer interest rate (for inflation management) is a concern for companies, and many say they are delaying inventory building and investment plans until rates come lower.

The planned budget surplus did not happen this year (higher social / investment spending and a big drop in expected coal export taxes in 1H25), and it may be tough to achieve in 2026. But the deficit is manageable, and public debt management should not be a problem either.

Against this relatively favourable backdrop, the government is starting to focus more on diversification efforts to eventually reduce China's coal risk. This includes incentives to boost exploration and, eventually, production of more copper deposits and critical minerals. Plans to boost tourist numbers (already rising steadily from China and Russia) and to increase value-added in textiles are also prominent.

The government is also aiming to reduce “neighbourhood risk” with efforts to improve political and cultural contacts and trade volumes with India (New Delhi is looking for additional sources of coking coal), Japan, and South Korea. With the latter, several agreements have been signed, e.g., critical minerals, trade management, technologies, etc.

Mongolia is far from being clear of problems. Astute domestic management from the new political leadership – including the delicate handling of the negotiations with Rio Tinto - and the avoidance of a trade war between Washington and Beijing will be important factors. But at least the country is in a better place than it has been since 2019.