Mongolia’s economy has posted solid headline numbers. Real GDP grew around 5.1% in 2024 and 5.5% in 2025. Per capita GDP now exceeds $7,000, pushing the country into upper-middle-income status. Mining, services and public spending have delivered macro success. Yet nearly one in four Mongolians—26% according to the 2024 multidimensional poverty pilot—live in poverty or deprivation. When we add those just above the line and in vulnerable rural households, the true figure approaches one-third. This is not statistical failure; it is policy failure. Growth benefits the few while the many emigrate abroad for better wages, trust in the state collapses, and public discontent simmers.
This paradox can be understood as an incentive failure rooted in institutional economics. When political financing remains not transparent, it creates rents that distort resource allocation. Firms compete for access rather than productivity, reducing private investment and job creation. In such a system, economic growth can coexist with persistent poverty because the transmission mechanism of growth at the household level is structurally weakened.
The reasons are not mysterious.
First, the tax-and-contribution burden is crushing. High social insurance fees—comparable to developed nations but levied on far lower wages—make formal hiring expensive. Employers stay small or informal; young people stay unemployed or leave.
Second, the public sector keeps expanding while private job creation lags. Many join political parties hoping for a state post rather than building businesses.
Third, state-owned enterprises (SOEs) now number in the dozens; roughly one-third run losses, drain the budget and crowd out private capital. Energy subsidies keep prices artificially low, distort investment signals and widen fiscal deficits.
Fourth, and most corrosive, is corruption rooted in secrecy of political party financing. Large undisclosed “donations” buy tenders, projects, subsidized 6% mortgages and public jobs. As Lord Acton famously warned, “Power tends to corrupt, and absolute power corrupts absolutely.” When party coffers operate in darkness, elites capture the state, courts bend, and ordinary citizens stop believing in fair rules. The result is a vicious circle: weak private incentives, patronage politics, emigration and persistent poverty.
As an economist, I see these not as isolated problems but as a single incentive trap. The mechanism can be understood as a sequential distortion: opaque political financing facilitates rent allocation; rent allocation undermines competitive neutrality; distorted competition suppresses firm productivity and growth; and weak firm dynamics constrain job creation. The result is a structural disconnection between macroeconomic growth and household welfare, manifesting as persistent poverty.
What must be done?
Three concrete steps, starting today.
- Disclose political party financing and its assets. Mandate full public disclosure of all donations above a modest threshold, impose strict spending caps and introduce partial public funding tied to votes received. Transparency kills the “pay-to-play” market that fuels judicial capture and tender rigging.
- Create jobs and reduce pressure. Gradually lower employer social insurance contributions for small firms and new hires, offset by tighter targeting of social programs. Replace blanket energy subsidies with direct, means-tested support. Privatize or professionalize loss-making SOEs under clear governance rules.
- Build merit over connections. Convert subsidized loans and public jobs to transparent, competitive processes. Independent judicial appointments and anti-corruption courts with real teeth must follow.
These are not radical ideas; they are basic rules. Mongolia does not lack growth. It lacks institutions that translate growth into dignity and opportunity for the average family. The choice is clear: continue the old path of secret deals and subsidies for the connected, or build a clean, competitive system where hard work and ideas—not party envelopes—determine success. The people are watching. The next decade will show whether we chose prosperity for all or prosperity for the few.