Mongolia's overall balance of payments was largely favorable dur­ing 2002-2003 As demand in major export markets slackened and world copper and cashmere prices declined, export performance was lackluster over the last years. With import growth remaining buoyant, the trade deficit widened from about 15 percent of GDP in 2000 to more than 20 percent of GDP in 2003..

A sharp in­crease in official transfers helped fi­nance the surge in imports associated with dzud relief efforts during 2001. The balance of payments continued to be underpinned by buoyant emigrant's remittances, increasing foreign direct investment and other private influxes. At the end of 2003, the net international reserves held by the Bank of Mongolia were USS 275 million, which was equal to 17.4 weeks of imports.

In order to enable a complete transformation into a market economy, in September 1996, prices of the State-controlled electricity, energy , heating, fuel as well as some selected consumer products and ser­vices were totally liberalized.

 Fol­lowing price liberalization and tight fiscal and monetary policy pursued over the decade, the inflation rate has declined from triple digits to single digits. Inflation has declined gradu­ally since 1993; it reached 66.3 percent in 1994 and averaged 27 per cent between 1995 and 1999. The year-on-year rate of inflation, after having been restrained to 8 per cent as of end-2001, fell to 4,8 per cent in 2003, re­flecting mainly the stabilization of food prices, and the strong currency.

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