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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Mongolia Ranked 81st in Economic Freedom Index

Jan. 23 – Mongolia’s economic freedom score is 61.5, making its economy the 81st freest in the world according to the recently published 2012 Index of Economic Freedom released by The Wall Street Journal and The Heritage Foundation think tank.

The nation’s overall score is 2.0 points higher compared with last year’s score of 59.5 which, according to the report, is mainly reflecting increased scores in fiscal freedom and government spending. Fiscal freedom received a score of 88.5, while government spending has been given a 62.8 rating.

Mongolia is ranked 12th out of 41 countries in the Asia-Pacific region, and its overall score is above the regional average.

The national economy registered one of the ten largest score improvements in the 2012 Index, regaining the status of a “moderately free” economy. The statistics are measured on a scale of 1-100 with five key groupings: free, mostly free, moderately free, mostly unfree and repressed. Renewed progress in advancing economic freedom has restored momentum for institutional reforms that are critical to ensuring long-term economic vitality.

Mongolia’s developing entrepreneurial sector has benefited from increased access to financing following banking reforms. The individual income tax rate is a flat 10 percent, and the top corporate tax rate is 25 percent. Other taxes include a VAT and excise tax, and the overall tax burden amounts to 20.6 percent of GDP. 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.

Economic reforms in recent years have supported economic expansion and reductions in poverty. However, the percentage of people living below the poverty line has remained the same for the last 13 years at 36.1 percent, according to the indexmundi.com.

The judicial system of the nation remains inefficient and vulnerable to political interference. Pervasive corruption continues to undermine the foundations of economic freedom and adds to the cost of conducting business, while anti-corruption measures are not enforced efficiently.

The most telling statistic from the Mongolian Poverty Strategy Paper is the mere 1 percent of government workers living in poverty compared with 35 percent of private sector workers and 26 percent of public sector employees.

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