WB: HIGHLIGHTS OF THE 2013 BUDGET AND THE FISCAL OUTLOOK OF MONGOLIA

Ulaanbaatar /MONTSAME/ The 2013 budget approved by the Parliament on November 15 has an important implication as the first annual fiscal plan prepared under the fully effective Fiscal Stability Law (FSL). It was published on the World Bank’s website on Monday. The budget proclaims that the Government will be committed to the FSL by setting the structural fiscal deficit at 2 percent. While this is a progress toward a more sound fiscal policy, the budget also has significant potential risks of undermining the goal of the FSL with optimistic revenue projections and expansionary spending plans. The recent involvement of the Bank of Mongolia (BoM) in the Price Stabilization Program and the ambiguity on the use of sovereign bond proceeds are adding to concerns on growing tendency to bypass the FSL. Participation of the BoM in the Government’s price stabilization measures through providing a subsidized financing is beyond the traditional role of monetary authorities. Clear plan for the exit of the central bank needs to be drawn up to disconnect the possibility of it turning into another off-budget financing vehicle. While it is a sign of growing interest from global financial markets in Mongolian economy, the new bond issue could become a significant fiscal risk without prudent plans to use the proceeds. It must be noted that the recent bond issue cannot be an off-budget financing channel and that the receipt and the use of the proceeds need to be properly recorded in the budget. The Government also needs to take adequate time and extra caution to select and appraise projects to be financed by the proceeds, considering the financial cost of the external borrowing and economy's capacity constraint.