Economic activity in Mongolia has traditionally been based on herding and agriculture. Mongolia has extensive mineral deposits; copper, coal, molybdenum, tin, tungsten, and gold account for a large part of industrial production. Soviet assistance, at its height one-third of GDP, disappeared almost overnight in 1990-91 at the time of the dismantlement of the U.S.S.R., leading to a very deep recession. Economic growth returned due to reform embracing free-market economics and extensive privatization of the formerly state-run economy. Severe winters and summer droughts in 2000-2001 and 2001-2002 resulted in massive livestock die-off and anemic GDP growth of 1.1% in 2000 and 1% in 2001. (A severe 2009-2010 winter is also underway, with two million or more livestock already dead; the economic impact will not be fully known until late spring.) This was compounded by falling prices for Mongolia's primary-sector exports and widespread opposition to privatization. Growth improved to 4% in 2002, 5% in 2003, 10.6% in 2004, 6.2% in 2005, 7.5% in 2006, 9.9% in 2007, and 8.9% in 2008 (est.). Much of the growth was due to high copper prices and new gold production. Besides agriculture (21.2% of GDP), dominant industries in the composition of GDP are mining, trade and service, and transportation, storage, and communication. (Mongolia's economy continues to be heavily influenced by its neighbors. For example, Mongolia purchases 80% of its petroleum products from Russia. China is Mongolia's chief export partner and a main source of the "shadow," or "gray," economy. The gray--largely cash--economy is estimated to be at least one-third the size of the official economy, but actual size is difficult to quantify since the money does not pass through the hands of tax authorities or the banking sector. Remittances from Mongolians working abroad, both legally and illegally, constitute a sizeable portion. Money laundering is growing as an accompanying concern. Mongolia, which joined the World Trade Organization in 1997, is the only member of that organization to not be a participant in a regional trade organization. Mongolia seeks to expand its participation and integration into Asian regional economic and trade regimes.

Because of Mongolia's remoteness and natural beauty, the tourism sector has recently shown signs of rapid growth. Prior to the onset of the global economic crisis, spiking international commodity prices led to a surge of international interest in investing in Mongolia's minerals sector despite the absence of a policy environment firmly conducive to private investment. How effectively Mongolia mobilizes private international investment around its comparative advantages (mineral wealth, small population, and proximity to China and its burgeoning markets) will ultimately determine its success in sustaining rapid economic growth. Parliament passed a windfall profits tax on copper and gold that took effect in mid-2006, and tax reforms enacted on January 1, 2007 helped government revenues jump 33% in 2007. Meanwhile, major amendments to the minerals law allowed the government to take an equity stake in major new mines. However, in late 2007 and early 2008, Mongolia's parliament proved unwilling to move on major mining deals and consistently declined to reform mining laws that observers said substantially varied from best practices. Observers further called such deals and reforms crucial for the development of Mongolia's extractive industries. This failure frustrated many foreign and domestic investors and others who hoped to see Mongolia's promising mining sector grow rapidly. In 2009, sharp drops in commodity prices and the effects of the global financial crisis began to be felt in Mongolia's economy. The local currency dropped some 40% against the U.S. dollar, and two of the 16 commercial banks have since been taken into receivership, but a series of quick and effective moves, including a Stand-By Arrangement with the International Monetary Fund (IMF), helped maintained stability and has kicked off a broad discussion on fiscal and financial reforms.

In summer 2009 the government negotiated an “Investment Agreement” with Rio Tinto and Ivanhoe Mines to develop the Oyu Tolgoi copper and gold deposit. On August 25, 2009, parliament passed four laws--one repealing the windfall profits tax, one adjusting corporate tax structures to accommodate large-scale projects, and two involving infrastructure--necessary to allow the signing of the deal. The deal was concluded in a gala signing ceremony on October 6, 2009; the parties are in the process of completing several other conditions precedent before an April 6, 2010 deadline, at which time the agreement would go into full force.

Environment
As a result of rapid urbanization and industrial growth policies under the communist regime, Mongolia's deteriorating environment has become a major concern. The burning of soft coal by individual home or "ger" (yurt in Russian) owners, power plants, and factories in Ulaanbaatar has resulted in severely polluted air. Across all of Mongolia, deforestation, overgrazed pastures, and efforts to increase grain and hay production by plowing up more virgin land have increased soil erosion from wind and rain. With the rapid growth of herds, overgrazing in selected areas also is a concern. Recent rapid and relatively unregulated growth in the mining sector for minerals (gold, coal, etc.) has become the focus of public debate. A great deal of public attention is being paid to non-transparency of the government process of awarding licenses, the equitable sharing of economic rents between foreign investors and the Government of Mongolia, and the potential impact on the environment. However, the real environmental concern is the sharp boom in the number of informal gold miners, who frequently illegally use mercury, which may lead to an epidemic of mercury poisoning. The government is also making significant efforts to introduce sustainable energy projects in an effort to reduce reliance upon Russian power plants.

GDP (2009 est.): 6.1 trillion Mongolian Tugruks/MNT (U.S. $4.02 billion at current exchange rates).
GDP growth (2009 est.): -1.6% (2008 to 2009 GDP in MNT).
Per capita GDP (2008 est.): approx $1,800.
Natural resources: Coal (thermal and metallurgical), copper, molybdenum, silver, iron, phosphates, tin, nickel, zinc, wolfram, fluorspar, gold, uranium, and petroleum.
Agriculture (21.2% of 2009 GDP, livelihood for about 40% of population): Products--livestock and byproducts, hay fodder, vegetables.
Industry (29.5% of 2009 GDP, includes mining 22%, manufacturing 4.1%, and utilities (electricity, gas, and water) 2.3%): Types--minerals (primarily copper and gold), animal-derived products, building materials, food/beverage.
Trade: Total turnover of foreign trade for 2009 was $4.033 billion. Exports--$1.902 billion (USD figures based on current USD/MNT exchange rate): minerals, livestock, animal products, and textiles. Markets--Asian countries (approx. 74.5%), European countries (approx. 16.8%), and countries of American continent (approx. 8.5%). Imports--$2.131 billion: machinery and equipment, fuels, food products, industrial consumer goods, chemicals, building equipment, vehicles, textiles. Suppliers--91 countries account for 93.2% of total imports, of which European countries (50.4%) and Asian countries (42.6%).
Aid received: From 1990-2008, official development assistance to Mongolia from bilateral and multilateral donors totaled over $3.698 billion. Received $185.94 million in official development assistance in 2008.
Fiscal year: Calendar year.