Banking sector review - 2026Q2

Ready to be shocked?

Individuals primarily took out salary and pension loans. Bank lending continues to play an important role in supporting the recovery of economic sectors. In particular, business lending, especially loans to the mining, manufacturing, construction, trade, and services sectors, has continued to increase. Driven by rising prices for livestock-derived raw materials and fuel, inflation has increased continuously over the past three months and has doubled compared with three months earlier.

Economic growth reached 7.7% in the first half of the year. Since the beginning of the year, sustained growth in the mining sector and, consequently, in the transportation and storage sector has made an important contribution to economic growth. The recovery of the agricultural sector after a prolonged period of weakness also supported economic growth. The gradual recovery of the construction and manufacturing sectors had a positive impact on economic growth. Mongolia’s foreign exchange reserves increased by 47% compared with the previous year, reaching a record high.

The budget deficit is approaching levels seen during the pandemic. Increases in both current and capital expenditures are fueling inflation and creating conditions that could constrain economic growth. At a time when Mongolia’s economy is vulnerable to a major supply shock due to external factors, the impact of a sharp increase in government spending is likely to be borne by households through higher inflation. Therefore, is the currently proposed budget prepared to withstand a shock to the economy?