Mongolia copper price
Copper price fall troubles Mongolia State Budget Next year's State Budget is likely to be in difficulties due to the drastic decrease in the world market copper price directly influencing Budget revenue. The Budget was planned by guesstimating a per-tonne copper price of USD 6,700, however, at its current USD 4,100 value there is no way to project the future price. This will cause a decrease of over Tgs 300 billion in next year's Budget revenue. Parliament is discussing Budget allocations in a difficult economic and financial situation. During the first discussion of the Bill on the 2009 State Budget on November 7, Prime Minister S. Bayar, in his introduction underlined that Government would adhere, to a policy to conserve State Budget and develop a structure for budgetary responsibility during 2009. This policy is directed to: monitor, the release of resources; finance price growth on regular expenditures; and provide social welfare services only to people in need; contain expenditure by means of not increasing State workers' salaries or the number of State positions, and reducing ongoing operating costs and investments. The total revenue for the 2009 State Budget is estimated at Tgs 1,968,005,000,000, with expenditure at Tgs 2,131,006,700,000. However, it has been planned that Mongolia's Centralized Budget (formed from the State Budget), local budgets, the Mongolia Development Fund and the Social Insurance Fund budget will not be in deficit. It has also been planned to decrease the GDP proportion of total expenditure from the Centralized Budget to 37.7 percent in 2009. State Budget income from the Mining Sector has increased year by year due to extensive development in the Sector during recent years. For instance, Budget income from the Sector was around 17 percent in 2005, 32 percent in 2006, but could be about 40 percent for 2007-2009. Since income from copper, as a mineral resource, has a direct impact on the Budget, the Ministry of Finance therefore drew up seven versions of the estimated copper price, calculated budget revenue in each version and described these to the MPs. With a copper price fall below USD 3,200, the Mongolia Development Fund will not be able to earn income. In response to a suggestion by MP Z. Enkhbold to base the Budget discussion oh .the actual version in view of the excessive decreases shown in the copper price, Finance Minister S.Bayartsogt said, "A copper price at USD 4,200 could be a realistic prediction. I believe it will be more effective to discuss the revenue issue the Budgetary Standing Committee meeting and finances should be listed according to increased income volumes before the second budgetary discussion. At present it is impossible to talk about revenue and expenditures simultaneously." About an urgent need to build a. copper smelting plant because end-product prices do not change often on world markets, the Finance Minister said that the Government Action Plan has included this issue but, if smelted copper is exported, the 68- percent windfall tax will not be paid and we are, therefore, encouraged to build the smelter and rely on stable end-product prices to provide Budget revenue. Proposals to construct a copper smelting plant relying on an Erdenet Enterprise Mongolian-Russian Joint Venture have been discussed by three Governments and Minister Bayartsogt undertook to try to accelerate the matter. Although the copper price has dropped, growth is predicted for coal and metallurgical production. During the Budget discussion, MPs were very critical about reducing expenditure. Some MPs wanted to know how a proposal by the Auditor General to cut operational expenditure would be implemented. As explained by the Auditor General, L.Javzmaa, there is potential to increase Budget revenue for 2009 by Tgs 30 billion and reduce operating expenditure by about Tgs l50 billion. Every year, the Auditor General proposes increasing budget revenue and reducing expenditure, but Parliament and Government do not always implement his proposals. Finance Minister S. Bayartsogt said, "Every year, the National Audit Office submits its annual Budget conclusions and the Budgetary Standing Committee should discuss these. The National Audit Office often puts important policy suggestions forward. I hope that Parliament will discuss proposals, including decreasing the number of soums, and I will work to implement Audit Office conclusions. Further, we should revisit the legal environment in order to improve effectiveness." As the Budget is regulated by some laws, and expenditures on social welfare and other items are financed from the State Budget are legislated, it is not possible to cut ineffective expenditures and make regulations in regard to these. The Finance Minister asserted that, for this reason, it was time to review laws allowing resources to be released by taking advantage of the current political situation in which the joint-government has been established. The Finance Ministry plans to submit its proposal to have only one law relevant to the Budget to Parliament at the end of this year. Government announced a change in the current practice in which social welfare services are provided on too extensive a scale with almost all people receiving such services. The Social Insurance and Welfare Fund and the Mongolia Development Fund dispense Tgs 627.6 billion directly as cash and a total of 2.1 million people, according to repeated counting, are involved in the Social Welfare Service, covering 81.5 percent of the total population. Allowances for newborn babies and allowances for every child are also included in the Service and, besides this, many types of non-cash services are provided, such as, the 'Lunch' program for children at general education schools and the distribution of stationery to children in vulnerable social groups. Tgs 12 billion is to be allocated to pay for food given to State-run kindergarten children from January 1, 2009, following a State decision. MP N. Ganbyamba claimed, "Despite talk of reducing operating expenditure, administrative costs are not decreasing. Last year, it had been decided to spend Tgs 1.4 trillion on administrative requirements, but is likely to reach Tgs 1.74 trillion for next year. In spite of price rises for products and services, officials' businesses continue to improve as evidenced by chairmen of standing committees driving six cylinder vehicles only useful for high-speed roads. Such things are no longer needed." Finance Minister S. Bayartsogt stated that administrative costs could possibly be reduced substantially following amendments to laws on management and finance for budgetary organizations and on State Budget, and regulating unnecessary expenditures by law to reduce these as much as possible. Mongolians commonly budget for domestic expenses and investment. State Budget investment increased, on average by 10 percent per year from 2003-2005 with a 2.2 fold increase-in 2006. However this component for 2009 shows a 7.3 fold increase against 2005. One of Government's larger targets is to increase investment by private sectors. Even so, private businesses have difficulties to create financial resources for themselves and. for this reason. Government and the Bank of Mongolia will hold to a policy of giving guarantees and encouraging businessmen by increasing investment by way of on-lending. Л working group has been set up at the Ministry of Finance and is to be responsible to administer planned investments to the value of Tgs 456 billion during 2009, using resources from the State Budget and Mongolia Development Fund. This is lower by 10.2 percent, or Tgs 51.8 billion, than the anticipated performance in 2008, but higher by 24.5 percent than in 2007. Income estimated at Tgs 18 billion should be collected by way of foreign assistance and aid during 2009. Mongolia has already agreed with the Asian Development Bank to implement a social welfare program to provide food for people in vulnerable groups from 2009-2011 with an inflow of USD 9 million into the Budget in 2009. In addition, during 2009 it is planned to privatize State-run companies, Autoimpex, Mongol Shuudan, Mongolbulgargeo, and Cement Shohoi, in Hotol, expecting to bring a further Tgs 15.2 billion into the Budget. B.Ooluun THE MONGOL MESSENGER |
