Fall of Mongolian coalition government could lead to severe economic downturn

Written by PR Newswire

Mongolia faces a crunch parliamentary vote on Monday which could lead to fall of coalition government
New analysis from Mongolian Economic Development Board indicates this could lead to a sharp fall in national income and foreign direct investment (FDI), as well as spiralling inflation
Political instability will jeopardise economic progress achieved in the last few years

ULAANBAATAR, Mongolia, June 1, 2025 /PRNewswire/ -- As Mongolia's parliament prepares to vote on Monday on whether the country's coalition government should remain in office, new economic analysis warns that the demise of the government could see the size of Mongolia's economy contract by over 20% within six months, and FDI fall by almost 40% year-on-year.

Prime Minister Oyun-Erdene called on Wednesday for members of the Great State Khural to decide on whether the coalition government, which has been in place since last June's parliamentary elections, should remain as a way of ending recent political instability. The Prime Minister is due to address the Khural on Monday ahead of a 'confidence vote' – likely to be deemed one of the most important moments in Mongolia's political history since becoming a democracy in the early 1990s.

As the vote approaches, new economic data – which can be viewed in full here ^[1] – produced by Mongolia's Economic Development Board ^[2] warns of the scale of the economic hit Mongolia could face, namely:

A 22% reduction in Gross National Income within six months
A 12.2% increase in inflation within a year
Year-on-year unemployment rising to 2.5%
The Mongolian Tugrik depreciating against the US Dollar by 17.9% by the end of 2025
An 18-point year-on-year decrease in Mongolia's Political Stability Index

These forecasts are in line with the experiences of other countries where political instability has had a negative impact on the economy, including following the fall of a coalition government:

According to data from the World Bank and other key sources, the coalition breakdown in Estonia caused FDI to tumble from 7.54% in 2021, to 0.74% in 2024, and its economic growth to stall from 7.3% in 2021, to -0.9% in 2024
An international study analysing data from up to 169 countries between 1960 and 2004 has concluded that high levels of political instability are associated with lower GDP per capita growth, particularly due to declining productivity growth and reduced accumulation of physical and human capital

Commenting, Dr Batnasan B., Professor at the Business School of the National University of Mongolia and Member of the Economic Development Board, said:

" The latest data clearly highlights the potential economic consequences of a collapse in Mongolia's coalition government: a sharp economic downturn, runaway inflation, and a rise in unemployment.

"It is entirely appropriate that elected representatives decide who governs the country. But it is equally important that such decisions are made with full access to the facts and a clear understanding of the potential risks.

"The Economic Development Board's analysis—combined with lessons from other countries that have faced similar circumstances—presents a compelling warning: all the hard-won economic progress Mongolia has achieved in recent years could be jeopardized if Monday's vote results in increased political instability."

This new analysis, as well as precedent from around the world, clearly shows the magnitude of the decision to be taken by lawmakers on Monday, and the jeopardy to the significant economic progress Mongolia has made since the COVID-19 pandemic, including adding $9 billion USD to its economy and increasing GDP per capita by an additional $2,400.

NOTES

Economic Development Board of Mongolia: https://www.facebook.com/profile.php?id=61574363563476 ^[3]

Full economic analysis available here: https://nrpa.gov.mn/mn/zasgiyn-gazryn-togtvorguy-baydal ^[4]