Mongolian PM on mission to halve budget deficit ratio to 9%
“We will review overall government spending to reduce the ratio of the deficit to 9% from the current 18%,” he told The Nikkei while visiting Japan, declaring his determination to shore up fiscal health quickly. Amid rising concern about a Mongolian default on foreign currency debt, he said he would formally ask the International Monetary Fund for financial assistance.
Mongolia’s legislative election in June triggered a power shift. Voters wanted a change amid a rapid economic slowdown, due to falling prices of natural resources. Under Erdenebat, the new government has made rebuilding public finances a top priority.
Erdenebat said it is impossible to keep the national budget at the levels seen when resource prices were soaring. He indicated that the government would scrutinize all expenditures for fiscal 2017 other than those directly related to national welfare.
Austerity could further strain the economy, but Erdenebat has reason to push for it. The maturity of foreign currency-denominated bonds is close at hand, and default fears are swirling. On accepting support from the IMF, Erdenebat said, “I would like to accept an IMF research team later this month and promote a concrete support project.”
Japan could also lend a hand. “I am hoping for the provision of yen loans, as at the time of the previous IMF support [in 2009],” Erdenebat added.
At the same time, he said attracting investment from foreign companies will be crucial to increasing government revenue. The government intends to take swift steps to lure foreign capital, such as permitting large projects in gold and copper mining — possibly later this year.
Erdenebat stressed the importance of regaining investor trust. He suggested he would clear up opaque regulations and ensure the government adheres to the rules. “Mongolia’s legal environment for investment and its taxes are not bad, but there have been problems in the implementation of laws.”
The Mongolian government has been criticized for applying laws arbitrarily in recent years. For example, it urged British-Australian mining giant Rio Tinto, which was developing a copper mine in the country, to accept an increase in license fees after the fact. This made companies think twice about doing business in Mongolia, and once resource prices plunged, direct investment dried up fast.
In an effort to get back in investors’ good graces, the government has set up an office under the prime minister’s direct control. Foreign companies that run into problems can lodge complaints through this office.
Meanwhile, Mongolia is keen to strengthen economic ties with neighbors China and Russia. Erdenebat showed his support for Chinese President Xi Jinping’s Belt and Road infrastructure initiative, which links China with Europe through Central Asia.
“We will create an economic passageway through Mongolia under tripartite cooperation and play a role in connecting Asia and Europe,” he said.
Public wariness of China runs deep in Mongolia, but for now, the prime minister signaled that economic revitalization takes precedence.