A new World Bank Economic Brief suggests the need for measures to moderate the rapid rise in government spending. The country’s budget deficit is widening rapidly due to a large revenue shortfall and rising expenditures.

The Mongolia Economic Brief released today said the country’s budget deficit in the first three months reached two-thirds of the annual deficit target. Budget revenue collections fell by 11 percent, compared with the same period last year, because of falling mining export earnings, and sluggish economic activity. Meanwhile, capital spending nearly doubled in the first three months of 2016, compared with the same period last year and overall expenditures rose by 25 percent.

“Mongolia needs to strengthen its fiscal position now to remain within the sensible limits of the Fiscal Stability Law,” said James Anderson, World Bank Country Manager for Mongolia. “Mongolia’s long-term growth prospects remain strong, but its resilience is being tested by the deteriorating external environment.”

The report says Mongolia’s recent external borrowing helps ease the pressure on the balance of payments, and reduce domestic financing needs.  This comes at the cost of high interest payments and exposure to exchange rate risk, the report said. “The underlying pressure on the balance of payments is expected to remain high for 2017, due to falling exports and large public debt repayments due the coming year,” said World Bank Senior Economist Taehyun Leewho is also lead author of the study. 

The expected second phase investment in the Oyu Tolgoi gold-copper mine should gradually support import-related taxes in the second half of the year, the report said, but overall revenue collections will likely be weaker than budgeted unless the key commodity prices significantly improve in the near future.

In a special section, the Economic Brief welcomed the recent transfer of subsidized mortgage program to the government and urged that the costs of the program be properly recorded in the government budget. 

Source: World bank