Charting the Budget

October looks to be a month for discussion on the budget and monetary policy.

The Minister of Finance has introduced the draft law of next year’s budget to Parliament, while the president of the Bank of Mongolia has presented the directions of the 2013 monetary policy. 

The government will start 2013 with a budget of MNT 7 trillion for expenditures. It projected that a tonne of copper would cost USD 6,328.90 and coal USD 131.50. However, its projection of expenses in relation to revenue bears little resemblance to those of the past. With a projected income of MNT 7.88 trillion, expense are set for MNT 7.44 trillion. In that case total budget loss would be MNT 360 billion, 2 percent of gross domestic product (GDP), thus fulfilling the requirements of the Law on Budget Stability, said Chultem Ulaan, the Minister of Finance.

It is time that the State Great Khural think hard about how to correctly approach next year’s budget. The budget plan is very specific: Budget expenditure must not exceed 2 percent of GDP while reducing expenses, local administrations must be allowed to compose their own budgets, and sustainable salaries and pensions must be maintained. 

Elections are over and the government has settled down. Local elections will take place soon. The expanded structure of the government and its activities has brought change that could add slight pressure to budget spending.

The budget has allotted MNT 9.4 billion for the reduction of air pollution in Ulaanbaatar. The draft has also included spending of 44.4 percent of total investment into infrastructure, and 24.4 percent on education, culture, health and human development. The remaining 32 percent will be devoted to agriculture and industrial purposes.

However, a worrisome global economy has caused raw material prices to fall. As a result, revenue could decline. 

“Income from taxes have started to drop. Last year 56 percent of tax revenue derived from mining”, said B. Erdenebat, professor at the School of Economics at the National University of Mongolia.
He added, “This year, an estimated 60 percent was planned for collection from this sector. However, this goal might not be met”. 

But the Ministry of Finance has a very different view on this matter. Copper and gold production at the Oyu Tolgoi mine will begin next year. Also, the exploitation of coal at Erdenes Tavan Tolgoi is expected to double. In addition, coal production throughout the country is projected to rise as well.

Apart from mining, agriculture is expected to expand approximately by 4.5 percent. That would bring Mongolia’s GDP to MNT 17.6 trillion. Economic growth could slow down due to confusion regarding budgetary limitation put in place by the Law on Budget Stability. 

“Budget losses have reached MNT 1 trillion”, said the Minister of Finance Ch. Ulaan. “But the government seems not to care about it”. 

The Bank of Mongolia points to “social subsidiaries such as cash distribution” as having unfavorably impacted the economy. Apparently, the new government has decided to ignore the risks and continue the social welfare policies of the previous government. Economists warn that its plan to distribute USD 5 billion worth of bonds could trigger pressures on the budget and increase debt. 

“The step to release bonds worth so much money without any spending plan is dangerous. Both the International Monetary Fund and the World Bank have been warning of the risk”, wrote columnist B. Baabar.

With revenue of MNT 7 trillion, mining will contribute 40.2 percent of GDP. Mining production will be a major contributor to government revenue. Oyu Tolgoi believes it will be one of the biggest contributors. The Ministry of Finance hopes to collect MNT 1.257 trillion from the mining industry. Oyu Tolgoi is set to extract 382,000 tonnes of copper, 424,000 tonnes of gold and 802,000 tonnes of silver next year, which would result in MNT 151 billion in direct payments to the government.
Estimates for total revenue have been made which considers the possible risks of price fluctuation in minerals, noted from Ministry of Finance. In addition, MNT 103.8 billion of the planned MNT 169.76 billion in the Stability Fund would be derived from copper production, while MNT 66 billion from coal. 

The General Department of Taxation will supply MNT 3 trillion to the State budget and the Mongolian Customs General Administration MNT 2 trillion. These two organisations will have to compose 75.8 percent of the state budget. As written in the draft law, the budget expense reaches close to MNT 5 trillion. 

Meanwhile the government has plans to distribute MNT 20,000 monthly allowance to children under 18, in addition to the 21,000 monthly cash allowances from the Human Development Fund.

Comments

Popular posts from this blog