August 14, 2015 / 10:50 AM / 4 years ago

Mongolia's growth slows to 3 pct in H1 2015 as copper, coal drag

ULAN BATOR, Aug 14 (Reuters) - Mongolia’s economic growth has fallen to just 3 percent in the first six months of 2015, about half as fast as the pace for the same period a year ago, mirroring free-falling commodity prices and the slowing economy of its main customer China.

The landlocked country rich in coal and copper is reeling from prices for the two commodities that have fallen 20-30 percent over the last year and a drop in demand from its number-one trade partner as Beijing targets a 7-percent expansion this year, its slowest in a quarter century.

“This is a pretty sobering reminder that the Mongolian economy is very dependent on resources,” said Dale Choi, head of the Mongolian Mines & Metals research firm.

Choi said growth had fallen off drastically from peak economic expansion of 17.5 percent in 2011.

The first-half figure is a far cry from official projections made last year, when the country was run by another government. A presentation in Toronto from Mongolia’s then-mining minister in March 2014 showed growth projections of 19 percent.

The Asian Development Bank has said the 3 percent growth rate is likely to persist for the full year, which would make it Mongolia’s slowest pace of expansion in six years. Growth for all of 2014 registered at 7.8 percent.

Mongolia also has to contend with falling foreign investment because of China’s waning demand for commodities and caution from investors because of government disputes with miners.

Prime Minister Chimed Saikhanbileg took office last November with the task of rebalancing the economy, and his focus has been on recapturing investment for the mining sector.

In May, Saikhanbileg signed a deal with Anglo-Australian miner Rio Tinto to reboot a $6 billion expansion project for the Oyu Tolgoi copper-gold mine that was put on hold in 2013 because of disputes over the second phase of the development.

The Oyu Tolgoi project is the biggest single foreign investment in Mongolia, and its reboot has revived hopes for a string of other stalled mining projects.

Choi said that Oyu Tolgoi alone isn’t enough to get the country back on track.

Spending on the project won’t begin until Rio can lock in a deal with bankers led by the European Bank of Reconstruction and Development and the World Bank’s International Finance Corporation to provide financing for the project.

A financing package worth $4 billion expired last year when the earlier disputes could not be resolved.

“Authorities should continue redoubling efforts to move (other) major projects forward,” said Choi.

Reporting by Terrence Edwards; Editing by Tom Hogue

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