💰 STATE BUDGET 2023 | NEW U.S. AMBASSADOR | TOP UNDERWRITERS

POWERED BY

Happy United Nations Day! Today marks the 77th anniversary of the UN Charter’s entry into force and celebrates everything that the organization has achieved since its establishment in 1945. May the UN continue to unite people across all nations and spread a message of peace!

And, by the way, you’re reading our 40th edition. 😎 Thank you for reading us and feel free to send your feedback by replying to this email.

🤔 DID YOU KNOW?

🤝 U.S.-MONGOLIA: NEW AMBASSADOR

The history of diplomatic relations between the U.S. and Mongolia started in 1987 and has now seen two charge d'affaires and 12 ambassadors representing America’s interests in our country. Richard Buangan, the newly appointed ambassador, is therefore the 14th high-ranking diplomat to directly lead the American Embassy in Ulaanbaatar.

More about Richard Buangan

Born to a Filipino family in San Diego, Buangan earned a BA degree in Political Science and Economics from St. Edward’s University in Austin and speaks French, Spanish and Mandarin. He joined the U.S. Department of State in 1999 and has had overseas assignments to Israel, China, France and Côte d'Ivoire. Richard also served as an executive assistant to then Secretary of State Mike Pompeo and more recently as the Acting Assistant Secretary to the Bureau of Global Public Affairs.

• Take a look at Buangan’s opinion piece for The San Diego Union Tribune that touches upon his Asian American background.

The busy 2022

The appointment of Richard Buangan also falls on a special year - 2022 marks the 35th anniversary of the establishment of diplomatic relations between the two countries. The occasion was celebrated during the American Days held in Ulaanbaatar in June that included a series of cultural and educational events. Various Mongolia-themed events have also been organized in the United States.

In the end

Amid all the global economic and political developments in this busy year of 2022, Mongolia’s relationship with its “third neighbors” has conspicuously deepened as the country tries to voice its independent stance in a more confident way. America definitely remains one of our most important strategic partners and we hope that the new ambassador will contribute a lot to the process of reaching even deeper bilateral cooperation.

🏛️ DATA STORY

Ulzii & Co Capital and Golomt Capital hereby receive the title of top underwriters accounting for almost half of all the offerings on the Mongolian Stock Exchange that have taken place for the past five years. Mongolia’s first public securities company BDSec, which acted as the underwriter for the historic “ETT Bond”, placed third with 2 IPOs and 1 bond offering.

💰 STATE BUDGET 2023

Our Editor-in-Chief E. Zolbayar held another talk on twitter last week, this time with the leaders of the opposition party, the HUN Party. Here are some important snippets from the conversation.

A little background

The draft budget for 2023 is currently under rigorous discussion. The budget revenue for the coming year is projected to be ₮19.6 trillion, which is 78% more than in 2019 before the pandemic, and 20.4% more compared to this year. By the same token, the budget expenditure is set at ₮20.5 trillion - 71% more than in 2019 and 14.3% more than this year.

Zolbayar: The state budget draft includes an expenditure of ₮20.5 trillion for the coming year. This amount has doubled over the last 4-5 years. What accounts for the largest share of our budget expenditure? Can you share with us your position on the matter?

Dorjkhand: Mongolia’s state budget currently equals 40% of the country’s whole economy. Internationally, this ratio usually stands at 20%. Out of that ₮20 trillion expenditure, ₮5 trillion is capital expenditure and ₮15 trillion - current expenditure. Half of the latter - welfare. In other words, the 2023 state budget is mainly dedicated to social security benefits. Harshly speaking, the ₮15 trillion will be spent on basic needs and 80% of the remaining ₮5 trillion - on flashy houses (construction) instead of actual development and infrastructure projects. No wonder budget efficiency is so low in Mongolia - it's been like that for the last 30 years.

Munkhsoyol: Welfare is the most questionable of these expenditures. The state budget released in May provided for social security benefits in the amount of ₮604 billion, but this number has been increased by 3.3 times to ₮2 trillion in the 2023 budget draft. We are highly critical of such a “promising” budget, of its ineffectiveness and unnecessary expenditure increases. Considering the social insurance fund is expected to have a deficit of ₮545 billion next year - which will also be taken from the budget - and other manifestations of the said inefficiency, it’s hard not to mention that the fiscal stability law has been changed 12 times. This is another matter that we’re concerned about.

Zolbayar: The budget revenue for the next year is set at an unprecedented amount of ₮19.6 billion. How realistic is it? How will this revenue be raised?

Dorjkhand: Revenue projections are based on budget expenditures. In other words, depending on the amount of expenses, the revenue is set so as to meet the five indicators of fiscal stability and keep the deficit no more than 5% of the GDP. This means that the budget revenue for the coming year does not align with reality. For instance, it’s been projected for the last two years that coal exports will increase to 36 million tons per year, but this has never happened. Despite this, the 2023 budget still expects coal exports to rise to the same 36 million tons, which is, again, unrealistic. In addition, due to the global economic crisis, the prices of our five main mining products are falling. It will continue falling in 2023 because demand for raw materials is decreasing everywhere. So, not only will the revenue from our exports not increase, but its quantity will also fall. We need to plan our expenses in accordance with our revenue, not the other way around.

Zolbayar: The budget deficit for 2023 is expected to be ₮1 trillion. At this point it’s even become usual for Mongolia’s state budget to be in deficit every year. Is it right or wrong to run at a loss like this? What policies should our country implement regarding the matter?

Dorjkhand: For a developing economy, a budget deficit essentially supports investment and covers the demand for infrastructure. So, in some ways, running at a loss is not a bad thing, but not in the case of Mongolia. Pensions and benefits alone make up ₮4 trillion out of the ₮20 trillion provided for in the budget. As you may remember, the minimum pension was increased from ₮350,000 to ₮500,000 during the last Lunar New Year. Due to this populism, the budget will now have a deficit of ₮1 trillion - the avoidance of the pension reform and the temporary pleasing of the population have now resulted in pensions accounting for as much as 20% of the total expenditure.

Zolbayar: While monetary policy is tightening, the budget is expanding. Can you explain why this contradiction is taking place?

Dorjkhand: The whole world is experiencing the aftermath of gifting money during the pandemic. Central banks are withdrawing money from circulation by increasing interest rates, but some governments are taking measures that have the exact opposite effect. In the case of Mongolia, the upcoming elections have a big role in this. The government wants to fulfill its promises without having to cut on expenditures, which shows that there’s a policy conflict between politicians and professional institutes. Countries with established governmental bodies already have mechanisms that prevent such situations, but our central bank lacks the independence it must have and is essentially existing in the shadow of the government.

🏃‍♀️ QUICK STORIES

📌 T. Ayursaikhan appointed as new Minister of Labor and Social Protection. Former Minister of Labor and Social Protection D. Sarangerel was dismissed last month as she was deemed to have violated the Constitution and made an ethical mistake. Prime Minister L. Oyun-Erdene signed an ordinance on appointing T. Ayursaikhan on October 21.

📌 APAC Insider names Mongolia’s URECA Best Climate-Tech Start-up in Singapore. URECA is a Mongolian company based in Singapore that applies a combination of IoT engineering, machine learning and blockchain technology to provide a transparent and accessible marketplace for verified, high quality carbon credits.

📌 Khan Bank to receive $70 million funding from EBRD. 87.5% of the package will be spent on the green economy program and the remaining $10 million, provided under the EBRD’s Women in Business program for Mongolia, will be dedicated to promoting women’s entrepreneurship and business activity.

📌 Foreign crypto exchanges in Mongolia still not regulated. Before the adoption of the Law on Virtual Asset Service Providers, 24 crypto exchanges were operating in the country. 13 of them submitted the necessary documents to the Financial Regulatory Commission, out of which only 9 were officially registered. No foreign exchanges applied for registration.

🟦 TOP NEWS

1. Digital Transformation in Mongolia: Insight From The Ministry of Digital Development (The Fintech Times)

2. Mongolia post-COVID-19: Risks to an inclusive recovery (World Bank Blogs)

3. Turquoise Hill Announces Third Quarter 2022 Production and Oyu Tolgoi Mine and Funding Update (Yahoo! Finance)

4. Erdene Renews Local Cooperation Agreement And Provides Environmental, Social And Governance Update (GlobeNewswire)

5. UN Committee on Economic, Social and Cultural Rights issues findings on El Salvador, Guatemala, Italy, Luxembourg, Mongolia and Tajikistan (OHCHR)