Finance minister says Mongolia is completely out of default risk

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During the Cabinet meeting on January 11, Minister of Finance B.Javkhlan presented the preliminary performance of the 2022 state budget and the measures taken to regulate the government’s external debt. 

Minister B.Javkhlan noted that the measures implemented by the government in accordance with the New Revival Policy have yielded results, before saying, “The budget deficit has decreased by 60 percent, and investors’ trust has increased. Exports and foreign trade are improving. As a result of the implementation of the government measures, the economy, which fell to 3.9 percent in the first quarter of 2022, improved to about 4 percent at the end of the year. The economic outlook for 2023 is becoming more positive.”

“On December 5, 136.8 million USD of the Chinggis bond was repaid by issuing the Nomad bond in 2020 and the Century bond in 2021. As the work for intensifying the repayment of loans taken from the Development Bank, 994.7 billion MNT was collected in 2022. In this way, 100 percent of the funds to repay the government-guaranteed Samurai bonds have been formed, and the capital adequacy ratio (CAR) of 1.3 percent was brought to an appropriate level at the beginning of 2022. Therefore, the bank is completely out of the risk of bankruptcy,” he explained.  

To regulate the bond debt payment, the Ministry of Finance, the Ministry of Economy and Development and Mongol Bank jointly took urgent measures and issued a bond to collect 650 million USD with an 8.65 percent interest rate on January 9. They held e-meetings with 138 international investors from Asia, America and European countries and received orders worth about 4 billion USD, according to the finance minister. 

The bond was issued to regulate the debt repayment of the Gerege bond, which is 530 million USD scheduled to be paid in May, and the Khuraldai bond, which is 600 million USD scheduled to be paid in 2024. From the total 1.1 billion USD debt, 650 million USD will be repaid from the new bond and the rest is planned to come from the state budget in 2023 and 2024.

International credit rating agencies Fitch, S&P, and Moody’s evaluate Mongolia’s credit rating every year. In this context, Fitch and S&P agencies made the 2022 credit ratings in May and July. They concluded that despite the tight monetary policy, measures taken to recover from COVID-19, high inflation, Russia-Ukraine war, and the zero covid policy of China, Mongolia has managed to keep its credit rating at B, or stable.

Minister B.Javkhlan emphasized that the government took measures to revive the economy, increase exports and foreign trade, improve the balance of payments, and raise foreign currency reserves. By taking measures to regulate the foreign debt or pay off the government’s large bond debt this year, Mongolia has been able to avoid default, he stressed.

He also reported on a report on the preliminary implementation of Mongolia’s 2022 state budget. 

The nominal GDP reached 48 trillion MNT in 2022, a 10 percent rise from the previous year, and the real GDP calculated at the 2015 value reached 28 trillion MNT. Looking at economic growth by sectors, agriculture and mining sectors and net tax on products contributed to the real growth, the minister informed.  

As a result of the government measures to restore exports, the export of coal, which was 8.1 million tons in the first half of 2022 or 12.7 percent less than the previous year, reached 31.6 million tons at the end of 2022 and immediately doubled from 2021. A total of 1.4 million tons of copper concentrate were exported, an increase of 11.7 percent from the same period last year. As a result, royalties income reached 2.7 trillion MNT, mining income reached 4.1 trillion MNT, an increase of about 750 billion MNT compared to the same period last year.

At the end of 2022, the balance of payments showed a deficit of 1 billion USD, and the official foreign currency reserves reached more than 3.3 billion USD. In October 2022, the government issued and implemented Resolution No. 362 on some measures to be taken to increase the state reserves of foreign currency, which affected the increase in the inflow of foreign currency, as Erdenes Tavan Tolgoi JSC, Erdenet Mining Corporation, Mongolrostsvetmet SOE, Darkhan Metallurgical Plant, and Oyu Tolgoi LLC collected more than 1.1 billion USD in the state budget. For example, Erdenes Tavan Tolgoi sold 6.6 million tons of coal worth about 588.5 million USD from October until December 31 after the resolution was approved.

Last year, commercial banks attracted several long-term funds from foreign banks and financial institutions, which contributed to the increase in foreign exchange reserves.

In terms of major outflows, last year MIK HFC LLC paid the balance of 130 million USD of the USD 300 million bonds issued in 2019, Minister B.Javkhlan said.

Highlighting that as a result of the government measures to reduce the negative effects of the COVID-19, the economy is moving into a recovery state, which has a positive effect on the increase in budget revenues, he mentioned, “In the preliminary performance, the 2022 state budget income reached 18.9 trillion MNT, which is 11.3 percent of 1.9 trillion MNT surpass of the estimated income and 25.5 percent or 4.3 trillion MNT more than the same period of the previous year.”

According to the preliminary performance, the balanced revenue of the state budget reached 17 trillion MNT, exceeding the estimate by 7.8 percent or 1.2 trillion MNT, an increase of 4.5 trillion MNT or 35.3 percent compared to the same period of the previous year.

The government paid particular attention to increasing exports by improving the throughput capacity of border ports, introducing automated guided vehicles (AGV) at key ports such as Gashuunsukhait and Shiveekhuren ports, and increasing the number of vehicles. For example, as a result of taking measures to increase the export of coal through Bulgan, Khangi, and Zamyn-Uud ports, the export of coal reached 31.7 million tons from 8 million tons in the first half of the year, an increase of 90.5 percent from the same period last year. A total of 1.4 million tons of copper concentrate were exported, which is an increase of 11.7 percent from the same period last year. As a result, the total amount of exports reached 12.5 billion USD, which immediately increased by 3.5 billion USD from the estimate. These results mainly contributed to the increase in income of royalties and corporate income tax, the minister continued. 

Tax revenue reached 15.5 trillion MNT, exceeding the target by 1.7 trillion MNT or 12.3 percent. The total expenditures of the consolidated budget and net loans amounted to 18.2 trillion MNT. Capital expenditure was 445.7 billion MNT, goods and services expenditure was 348.3 billion MNT, interest expenditure was 74.7 billion MNT, the subsidy was 41.2 billion MNT, and current transfer expenditure was underspent by 146.6 billion MNT.

Parliament approved the first Law on State Austerity on April 29, 2022, limiting the investments for monuments, reducing positions of deputy heads, and strengthening fiscal discipline.

As a result of the implementation of the Law on State Austerity, in 2022, 189.1 billion MNT from current expenses and 156.4 billion MNT from investment expenses were saved. .

Out of the 1,376 projects and measures worth 1.6 trillion MNT approved for 2022, seven had build-transfer conditions in the repayment concession contracts worth 303.6 billion MNT, while the rest was invested from the state budget. As of December 31, 2022, the performance of state budget investment reached 90.7 percent with the allocation of 1.5 trillion MNT.

Amarjargal Munkhbat