The look of 2014 budget investment
When parliament discusses the budget, the arrangements and construction funded by the budget attract public attention. The Government of Mongolia has developed a project to boost construction with 1.1 trillion MNT from the state budget.
The government has submitted the 2014 draft budget to parliament, with an expenditure of 7.2 trillion MNT and an income of 6.8 trillion MNT. The loss is 410 billion MNT. The expenditure of the state budget is equivalent to 35.5 percent of the country’s GDP. As much as the economy grows, the contribution of the state budget to GDP decreases.
The laws on budget consistency and the Human Resource Fund should be ratified, in compliance with the budget. The draft budget completely complies with the law on the Human Resource Fund, as well as meeting the law on budget consistency, which states that budget defecit should not exceed two percent of GDP. However, the condition has risen, which breaks the provisions of the law on budget consistency, which states that the foreign debt of the government shouldn’t exceed 40 percent of GDP in 2014. The Government of Mongolia issued the Chinggis Bond, loaning 1.5 billion USD from the foreign market, which brought the country’s foreign debt to 60 percent of GDP. Accordingly, the government has developed draft amendments which will change the foreign debt provisions of the law on budget consistency from 40 to 60 percent. The members of the opposition party in parliament have expressed their opposition to the changes.
The government will spend 1.1 trillion MNT of its expenditure of 7.2 trillion MNT on construction for state service organizations and on the supply of equipment and facilities. In 2012, the government made an investment of 1.5 trillion MNT, while in 2013 an investment of 1.4 trillion MNT was made. It looks as if the government has short-handed the 2014 budget investment compared to previous years, but there is no doubt that construction and investment in 2014 will be more than previous years altogether with the state budget investment and the investment of the Chinggis Bond. The investment of the government has been divided into two different lines since the Chinggis Bond was presented in the international market. The right to spend the Chinggis Bond was granted to Minister of Economic Development N.Batbayar. The other line of Chinggis Bond investment is overseen by the Development Bank of Mongolia. The government has announced that it will pursue policy focused on infrastructure and industrial projects.
The Economic Development Minister has settled negotiations to sell off the Japanese yen-dominated Samurai Bond in Japan’s capital market.
The government used to finance all infrastructure and industrial construction projects with investments from the state budget before the Chinggis Bond. It used to issue more money to infrastructure projects such as the building of roads, than it did to social construction projects such as schools and kindergartens. The draft budget shows that state budget investment is now only being spent on social construction and development.
Most of the investment is to be spent on the construction of facilities in urgent demand, including schools, kindergartens, hospitals, and energy supply network buildings.
According to the 2014 draft budget, the Minister of Education and Science, L.Gantumur, will undertake the largest construction project of 197.7 billion MNT, building 155 schools, dormitories and kindergarten buildings. Some 158 billion MNT will be issued to the energy sector in 2014, 109.9 billion MNT to the health sector, 99.5 billion MNT to the road and transportation sector and an investment of 85.1 billion MNT will be spent on the culture, sports and tourism sectors, in accordance with the draft budget. The smallest investment will be made in the mining sector, which will total 4.01 billion MNT. The investment issued to the mining sector will be spent on building the exterior infrastructure of an oil processing factory and constructing a loading terminal for liquid fuel in Zamyn-Uud. Half of the state budget investment will finance the education, health, culture, sports and demography sectors. The 2014 draft state budget submitted to parliament shows that it focuses on social construction and creation.
In 2012, the investment in kindergartens was halted because the layouts of the kindergartens were not complete. Taxpayers hope that the layouts of the kindergartens are complete now, as two whole years have passed. Even though the construction projects have become more clear, it is doubtful whether we have enough financing, as the state income of Mongolia is directly dependent on the price of copper and coal in the world market.
The planning of the budget income is estimated on the basis of the stable pricing of these raw materials. In developing the 2014 draft state budget, the Finance Ministry speculated that a ton of copper will be 6,242 USD, a ton of processed coal 115.2 USD and coking coal will reach 81.6 USD in 2014. If the price of copper and coal will be less in the world market than the government’s speculations, budget financing will decrease and some projects will be postponed until 2015.
The Finance Ministry speculated that a ton of copper would cost 6,328 USD, processed coal 131.1 USD, and a ton of coking coal would be 80.5 USD in 2013. However, the coal price has dropped twice, making a shortage of one trillion MNT in the state budget income. Accordingly, parliament is discussing the postponement of some investments and projects.
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