Mongolia Mulls Privatizations, Tax Hikes to Fill Budget Deficit

  • Budget shortfall seen reaching $500m by the end of 2015
  • Power plants, coal mines and the stock exchange may be sold

Mongolia’s growing budget deficit is forcing the government to consider the sale of state-owned enterprises, tax hikes on petroleum imports and other measures to boost income.

The shortfall in revenue may reach 1 trillion tugrik ($500 million) by the end of the year, up from 600 billion tugrik in the first eight months of 2015, according to comments by Minister of Finance Bolor Bayarbaatar, posted on a government website.

The nation’s economy and the government budget has been hit hard by the end of the commodity boom, a slowdown in China and a drying up of foreign investment. Tax revenue dropped as Mongolia’s growth slowed to 3 percent in the first half of 2015 compared to 8.2 percent in the same period a year ago.

“We need to conserve our spending and tighten our belts during this time of decreasing income,” said Prime Minister Saikhanbileg Chimed, according to comments posted on the same website. Raising duties on petroleum imports and the privatization of state-owned entities are two options for Mongolia to plug its budget deficit, he said, adding that spending cuts could come through decreasing the wages of senior government officials during the final three months of the year.

Layoffs Needed

“The government will need to hike taxes on certain fronts and will need to lay off bureaucrats,” Bilguun Ankhbayar, chief executive officer of Mongolian Investment Banking Group, said by e-mail. Cost cutting, the sale of SOE’s and more efficient tax collection proposed by the prime minister are “unlikely to resolve the situation," he said.

A statement on the Mongolian Stock Exchange website Tuesday announced a tender offer to select underwriters for the sale of five state-owned power plants. Power plants, coal companies and the stock exchange are on the block, according to comments made in June by stock exchange chief executive Angar Davaasuren.

The finance minister blamed weak commodity prices for the budget shortfall. Mongolia’s exports fell 9.1 percent in the first eight months of the year compared to a year earlier, including a 22 percent decline in coal exports. Eighty-five percent of Mongolia’s exports go to China, which is experiencing slowing growth.

Any decision must come soon. Amendments to the 2015 budget are required prior to approval of the 2016 state budget, according to the posting on the government website. The budget for the new year must be submitted by October 1.

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