Deputy Finance Minister Kh.Bulgantuya discusses 2019 budget

Deputy Minister of Finance Kh.Bulgantuya sat down with Unuudur to clarify a few issues on the 2019 state budget...

Deputy Minister of Finance Kh.Bulgantuya sat down with Unuudur to clarify a few issues on the 2019 state budget.

Analysts are saying that the 2019 state budget draft bill was very optimistic about the economy. How accurate do you think the fiscal projections will be? Expenditure and revenue have both risen. What was the economic factor in expanding the fiscal budget?

The 2019 budget draft bill has a 3.2 trillion MNT increase in terms of revenue compared to the state budget in 2018.

In 2019, the budget projects revenue to be 11.1 trillion MNT. The basis for the increase in the projection of revenue was predicated on Cabinet’s policy support for manufacturers, creation of a business-friendly environment, increase in mining production and exports.

Expenditure in the 2019 draft bill compared to the 2018 state budget is 770.2 billion MNT more. The main factors for the large increase include 720 billion MNT allocated for increasing salaries and pensions, 146.2 billion MNT allocated to reduce air pollution, and 89.3 billion MNT allocated to improve inclusivity of education. Students at the Vocational Training and Production Center (VTPC) will receive a 100,000 MNT grant every month, which will require an additional 41 billion MNT. For loan services, 285 billion MNT was allocated in the budget.

Investment from the state budget increased twofold compared to previous years. What was the reasoning for the large increase in fiscal

investment?

In the 2019 fiscal year, 1.3 billion MNT was allocated to invest in projects. For previous projects that are already being implemented, 465.3 billion MNT was allocated.

In terms of new projects, in the education sector, the project “Every child in kindergarten” will take pressure of kindergartens that are over capacitated in order to improve inclusivity of education.

In the healthcare sector, funding will go towards alleviating the workload of hospitals. Additional projects include reducing air pollution in the capital, supervising and managing the exports and imports of Mongolia, and necessary funding in the rural areas. All of the aforementioned projects will have a collective 686.9 billion MNT in funding from the budget.

In addition, Mongolia will invest 65.3 billion MNT in projects that are being implemented with foreign aid or loans, and 144.7 billion MNT will be paid to those carried out projects through concession agreements.

The Ministry of Finance said it will not issue a bond to make up for the fiscal deficit. What funding will be used to reduce fiscal deficit?

Cabinet is maintaining a policy to reduce the fiscal deficit step by step. The deficit of the equilibrated balance is 1.9 trillion MNT, equal to 5.4 percent of GDP. Around 1.2 trillion MNT of that deficit is attributable to external concessional loans. Concessional loans will mainly be used to finance projects in the environmental sector, improve the wastewater treatment plant, increasing inclusivity of schools and hospitals, and infrastructure development.

In addition, the 322 billion MNT in the Fiscal Stabilization Fund and the 515.4 billion MNT in the Future Heritage Fund will be used to compensate for the fiscal deficit. Beginning next year, the government will be enacting better management of the budget and will not finance the fiscal deficit with government bonds with high interest rates.

How much is the government debt currently? How much of it will be repaid this year?

In the Law on Fiscal Stability, it states that the government must reduce debt to GDP ratio to 88 percent by 2016, 85 percent by 2017, 80 percent in 2018, 75 percent in 2019, 70 percent in 2020, and finally below 60 percent by 2021. Cabinet’s debt at the end of 2017 was 22.7 trillion MNT and equal to 74.4 percent of the GDP ratio, as of the first half of 2018, debt has decreased to 21.1 trillion MNT or equal to 58.9 percent in comparison to the GDP ratio.

In 2018, Cabinet will pay 2.6 trillion MNT in principal payments and 1.15 trillion MNT in interest payments. As of August 2018, Cabinet has paid 2.2 trillion MNT in principal payments and 639.5 billion MNT in interest payments, a total of 2.9 trillion MNT.

How much were commodity prices projected to be when drafting the 2019 budget? How realistic is it?

The global economic situation has changed a lot since August 2018. The escalating trade war between the US and China, the Iran sanctions, and Brexit have caused the mid-term growth prospects of the global economy to slow down.

Even though market analysts have calculated commodity prices differently, the main theme is that it will likely go down. When drafting the 2019 budget, we took the projections of major international banks and financial institutions into account.

For example, one ton of copper was projected to be 6,272 USD and one ton of coal is projected to be 80 USD. We drafted the budget based on these projections of the commodity prices.