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The Budget Modification will be amended

Written on October 30, 2008 – 5:14 pm | by Amarsanaa |

Further 205 billion MNT was cut off from the budget expense
The budget modification predicted that copper price will be 6700 US$ in the next year. But, sudden fall of copper price made copper price at 4128 as for October 28 2008. According to this, the Ministry of Finance will amend the budget modification and it is ready to propose to the Cabinet. Mr. B.Batjargal, head of the Budget Policy and Management Department of the Ministry of Finance, has his word regarding the issue.
Q: What kind of amendments will be made in the budget proposal?
B.Batjargal: According to the law, the budget draft of Mongolia 2009-2011 was proposed to the Cabinet. During its drafting, the copper commodity price was predicted to be 6700 US$ in the next year. But since October 1 2008, internal and external factors are changing rapidly. The copper price fell down to 3721 US$. Therefore, we are drafting the budget based on 3200 US$ in the next year. In doing so, we made close research based on the predictions of many international organizations. Also we calculated the expense of making one ton of pure copper in Erdenet JVC. There will be high risk of loosing windfall tax. The copper income, which forms 20% of the Mongolian budget, was updated and budget income will be decreased by 422.8 billion MNT. Therefore, expense must be decreased by 205 billion MNT. Investment expense will be decreased by 58 billion MNT and current expense by 145 billion MNT. As for the investment, we have to provide fund for the project that are under implementation. But the new projects will be postponed. This will be proposed to the Government.

Q: Some economists say that shrinking budget extensively will harm the economy growth…
B.Batjargal: If there is no money, what can we do? If we try to raise fund from outside, then there is a crisis. Bond will not be sold in home. Therefore, we are drafting the budget according to our capacity and potential.
Also, we predicted the copper price will be 6400 US$ in the rest of this year. So, we are going to be in deficit of 179 billion MNT at the end of this year. Therefore, we have to cut off this amount of expense. Regarding this issue, we should use 290 billion MNT that was collected in the Mongolia Development Fund. We are going to do whatever needs to provide the expenses such as pension and salary.

Q: Economists think that gold price will be increased further. Can this profit recover copper loss?
B.Batjargal: You can see one number and find out it is impossible. 95% of windfall tax income is from copper and only 5% is from gold. Actually gold price is falling together with copper. It is very unusual situation. In every crisis gold price increased. Because gold is the capital that can convert easily. If gold price decrease is temporary, then the budget income from gold will be 52 billion MNT. If copper price will be lower than 3200 US$, windfall tax will be removed. All in all, Mongolia Development Fund income will be decreased drastically. Also two expenses from it, children money and investment will be decreased according to the law.