Mongolia Business Forecast Report Q4 2012

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Greater Resource Nationalism Here To Stay
Our view that the opposition would grow in influence ahead of the June 28 parliamentary election and that resource nationalism would
becoming a dominant theme in Mongolian politics has played out following the victory of opposition parties, which formed a governing
coalition on July 20 While uncertainty over ownership rights in mines will likely grow, we believe that the government will remain willing
to negotiate with foreign firms
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Transforming Minerals Into Wealth
The Mongolian government will face major domestic challenges over the coming decade as the country's mining boom takes off
Indeed, it will need to strike a balance between distributing mining revenues in a way that is acceptable to the population while avoiding
stoking inflation Moreover, we believe it will face a tough task in managing the social change that the mining boom will create, including
immigration and the growing gap between rich and poor

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
New Regulation To Affect Long-Term Growth
The introduction of a new law on foreign investment into sectors of strategic importance will have a material impact on Mongolian
economic growth in the more distant future For the time being,
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
External Position Sustainable For Now
Mongolia's balance of payments is highly exposed to a more pronounced decline in external demand for its exports, as well as to a
deterioration in the investment climate We maintain our view that despite a negative net international investment position equivalent to
83 5% of GDP in Q112, the external position remains sustainable However, a weaker global macro environment, event risks in Europe
and the US, as well as stricter regulation in the mining sector could yet combine to put our sustainability scenario into question
TABLE: CURRENT ACCOUNT
Monetary Policy
Central Bank To Reverse Course In 2013
We have revised down our end-2012 policy rate forecast to 13 25% (from 14 00%), suggesting that we no longer expect interest rate
hikes by the central bank this year Declining inflation risks in H212 and signs that M2 money supply growth continues to slow suggest
that the central bank's focus will gradually shift away from price stability towards economic growth We are therefore changing our
policy rate forecast and now expect 50 basis points of cuts to 12 75%
TABLE: MONETARY POLICY
Key Sector Outlook
China's Dominance Of Global Coal Sector To Grow
China will remain the main driver in global coal output and consumption growth in the coming years as its growth dwarfs other major
players in the coal sector Indeed, outside China, we see little significant production growth as low natural gas prices in the US, export
restrictions in Indonesia and higher taxes in Australia limit scope for growth in the other major producers
TABLE: LARGEST COAL PROJECTS

Chapter 3: 10-Year Forecast
The Mongolian Economy To 2021
Investments And Exports To Drive Growth
Mongolia's bounce back from the global financial crisis, in line with rising prices for key commodities, has been highly impressive, and
we expect the bumper rates of growth to continue through the long term This will be underpinned by surging foreign direct investment
inflows into the mining sector and related industries, laying the groundwork for an export-led boom
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS
Infrastructure
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
TABLE: TOP EXPORT DESTINATIONS
Operational Risk

Chapter 5: BMI Global Assumptions
Global Outlook
Q412 Update
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 35