For over a decade, The Wall Street Journal and The Heritage Foundation, Washington's preeminent think tank, have tracked the march of economic freedom around the world with the influential Index of Economic Freedom. The Heritage Foundation and the Wall Street Journal published the 2012 Index of Economic Freedom on January 12, 2012. The statistics measured on a scale of 1-100 (with 100 reflecting perfect economic freedom) with 5 categories: Free, Mostly Free, Moderately Free, Mostly Unfree and Repressed.
Mongolia’s economic freedom score is 61.5, making its economy the 81st freest in the 2012 Index. Its overall score is 2.0 points higher than last year, mainly reflecting increased scores in fiscal freedom and government spending. Mongolia
is ranked 12th out of 41 countries in the Asia-Pacific region, and its overall score is above the regional average.
The Mongolian economy registered one of the 10 largest score improvements in the 2012 Index, regaining the status of a “moderately free” economy. Renewed progress in advancing economic freedom has restored momentum for institutional reforms that are critical to ensuring long-term economic vitality. Economic reforms in recent years have supported economic expansion and reductions in poverty. Mongolia’s developing entrepreneurial sector has benefited from increased access to financing, following banking reforms. Competitive tax rates and an open trade
regime are also promoting the emergence of a vibrant private sector.
Although Mongolia experienced no decline in any area covered by the Index, corruption and the weak rule of law remain drags on economic development. Accelerating judicial reforms, along with continued efforts to streamline public administration, will help to sustain economic growth and broaden the improvement of living standards.
Mongolia emerged from the shadow of the former USSR with the adoption of a multi-party system and a new constitution in 1990. Political tension between the Mongolian People’s Party, which has a majority in parliament, and the Democratic Party, which holds the presidency, has been considerable since 2009 and heightens the potential for parliamentary deadlock. Mongolia is a primary conduit for trade between Russia and China. At $2.4 billion, trade with China constituted 47 percent of Mongolia’s total trade in 2009. Livestock herding employs a majority of the population, but the services and industry sectors account for about 80 percent of GDP
. Mining continues to attract the largest portion of foreign investment, contributing to strong economic growth.
Rule of Law
Property and contractual rights are recognized, but enforcement is weak. The judicial system remains inefficient and vulnerable to political interference. The government lacks the capacity to enforce intellectual property rights laws. Pervasive corruption continues to undermine the foundations of economic freedom and adds to the cost of conducting business. Anti-corruption measures are not enforced effectively.
Property Rights 30.0
Freedom From Corruption 27.0
The individual income tax rate is a flat 10 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and an excise tax, and the overall tax burden amounts to 20.6 percent of GDP. Government spending is equivalent to 35 percent of total domestic output. The budget balance
has turned to a surplus after recording deficits over the past two years, and public debt stands at around 40 percent of GDP.
Government Spending 62.8
Fiscal Freedom 88.5
The regulatory framework continues to evolve. The minimum capital requirement for launching a business and the cost of completing licensing requirements have been reduced. Employment regulations are relatively flexible, but the labor market lacks dynamism. Inflation has been volatile, although stability is improving. Most price controls and subsidies have been phased out, but the state influences prices through the public sector.
Business Freedom 67.7
Labor Freedom 74.5
Monetary Freedom 74.3
The trade weighted average tariff rate is 5.1 percent, and costly non-tariff barriers further constrain the freedom to trade. Foreign investment is officially welcome, but the legislative framework regarding investment is still developing in an effort to enhance efficiency. Despite the challenging global financial environment, the financial system
has undergone rigorous modernization. The banking sector remains relatively well capitalized and stable.
Trade Freedom 79.8
Investment Freedom 50.0
Financial Freedom 60.0