Mongolia’s main exports are minerals. They produce iron, coal, copper, and gold, with nearly 90% of it going to China.

Based on that information alone, I’m sure you can imagine the current shape of Mongolia’s economy. This country is yet another victim of China’s slowdown and its resultant effect on commodity demand.

When China was booming, so was Mongolia. It was one of the fastest growing economies in the world from the crisis bottom in 08’ to the commodity super-cycle peak in 2011.

And of course as with any boom, the government decided to go on an infrastructure spending binge, taking on large sums of debt to finance everything. It’s the classic story of leveraging up during the good times only to suffer later.

As soon as China started slow in 2011, Mongolia’s economy began to implode.

With the collapse came the stoppage of all existing infrastructure projects. This in turn caused overcrowding in a variety of institutions from hospitals to kindergartens. And not only that, but state workers are now facing salary cuts of up to 60% as the government's budget deteriorates. Mongolia’s budget deficit through July increased 32.6% over a year ago. And foreign exchange reserves in particular have fallen all the way to $1.3 billion at the end of June, which is a 23% decline from last year.

What’s worse is that the ratio of government debt to GDP is projected to reach 78% this year as Mongolia continues to borrow to try and manage their crisis. Numbers like these are causing investors to run.  

Direct investment has collapsed, while demand for Mongolia’s bonds have also fallen off a cliff.

And no where are Mongolia’s woes more obvious than in its beaten down currency. The Mongolian tugrik fell over 18% this year alone, making it one of the worst performing in the world. The slide isn’t over yet either, even after the central bank hiked rates by a staggering 4.5% in August to 15%.

With this much going against them, it’s no surprise that most analysts believe Mongolia will eventually require a bailout from the IMF.  

Our strategy is to play the currency pair USDMNT. The trend is obvious, especially with recent dollar strength.