Mongolia's recently elected deputy finance minister, Khurelbaatar Bulgantuya, tells Stefania Palma how the country will finance a $2bn budget deficit before the end of the year.

Khurelbaatar Bulgantuya

Khurelbaatar Bulgantuya is short of time. The Mongolian deputy finance minister’s phone rings repeatedly during our meeting and her glance often lands on the clock above the office door. She will soon be off to parliament to debate amendments to the country's 2016 budget. The new government needs to find a way to fill the $2bn hole in its books before the end of the year. What is more, the state does not even have sufficient funds to pay all debt principals and interest payments for the next two years.

The Mongolian People’s Party (MPP) won elections with a landslide victory in June, replacing a coalition government led by the Democratic Party. Since then, the MPP has scrambled to put government accounts in order.

Tough baptism

Mongolia’s budget deficit for the first six months of 2016 was 8.1% of gross domestic product (GDP) – but once the MPP took off-budget spending into account, the deficit shot up to 20.6% of GDP overnight. In mid-September, parliament approved the amended 2016 budget with a consolidated deficit of 18%.

Between January and June alone, the state spent Tg700bn ($312m) to 800bn off-budget in social programmes. “In the past four years, we became a country that liked to spend a lot,” says Ms Bulgantuya. During this time, budgets were approved with about Tg1000bn in losses being rolled over every year. Worse still, Mongolia had four different unconsolidated budgets up until 2015.

Overborrowing is another part of the problem. Just in March 2016, Mongolia priced a $500m Chinggis bond with a hefty 10.875% coupon despite deteriorating growth and swelling government debt, now at 90% of GDP. “The government was too hasty. It did not have projects lined up and it invested [the bonds’ proceeds] in projects, such as roads, that generate returns five years down the line. These were almost social projects,” says Ms Bulgantuya.

Now Mongolia needs to find a way to finance its Tg4400bn deficit before the end of 2016 and to service government debt in the next two years. The MPP has proposed austerity measures, including eight tax hikes and pay cuts for senior state officials, to raise government revenue. In September, the MPP caucus shot down these proposals, but the government will try to introduce progressive taxation again in 2017, according to Ms Bulgantuya. In response to critics, she says only a small proportion of the taxpayer base would be affected as the proposed 25% income tax would affect only 1.6% of the workforce and the proposed 0.3% real estate tax would apply to only 2.6% of all Mongolian apartments.

External help

With tax hikes not currently on the table, Mongolia needs external help to finance the 2016 deficit. Ms Bulgantuya says: “We have a $540m [Development Bank of Mongolia] bond maturing in March 2017. We need to act swiftly. We have had meetings with the International Monetary Fund but parliament still needs to decide if we’ll go for this type of programme or not.” 

The country is also considering other parties, including China. But official talks have not taken place and no Mongolian official has paid an official visit to China yet, according to Ms Bulgantuya. 

What is more, she is keen to continue talks the previous government had started with India, which signed an agreement to finance a $1bn infrastructure project, and with Beijing-based Asian Infrastructure Investment Bank (AIIB). “The government may have changed, but our position [with the AIIB and India] is the same,” she says.

2017 and beyond

After dealing with the 2016 deficit, one of Ms Bulgantuya’s priorities will be to attract foreign investors back to Mongolia. Having a coalition government of five different parties slowed down mining projects such as Tavan Tolgoi (TT) and Oyu Tolgoi (OT), which built distrust among international investors, according to Ms Bulgantuya.

“The government was unable to get parliament’s approval on these projects. For the OT agreement, there was friction from local communities every step of the way. Now, people realise this is an engine of growth,” she says. The OT gold and copper mine has now reopened but TT remains one of the world’s largest untapped coking and thermal coal deposits.

Now, the MPP has 65 out of 76 seats in parliament, the cabinet comprises a single party and the MPP won elections in 20 out of 21 Mongolian provinces. “This is one thing that was lacking in the past four years. If a plan is in place, it can now be implemented all the way through,” says Ms Bulgantuya.

Time is up – our meeting has run over. Outside the office, three people are waiting expectantly for the busy minister.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter