S.Bayartsogt, Minister of Finance: Of inflation, 70 percent is an administrative cost

Sep 25 • Finance • 553 Views • No Comments on S.Bayartsogt, Minister of Finance: Of inflation, 70 percent is an administrative cost

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Foreign market conditions affected on inflation growth up to 34 percent this year, though budget waste accounts for not less portion of it. The Ministry of Finance formulated a draft on budget clarification and expense cut. The Government discussed the draft and decided to re-discuss it finally on next Wednesday. Budget income of this year went up by MNT 210.3 billion thanks to gold and copper prices in the world market, domestic activities and services, and increase in petroleum export and import. On the other hand, the income might be cut by MNT 204.5 billion due increasing tax refund and decreasing tax on some domestic goods. Current expenditures go up by MNT 124 billion. The Ministry of Finance has developed a calculation of cutting MNT 41 billion by decreasing expenditures for actions not to be completed or implemented. On the basis of first eight month execution, the draft also says to cut MNT 147.5 billion by transferring investments not to be implemented this year to next year. We got some details from S.Bayartsogt, Minister of Finance.

– How is the budget income and expenditure accomplishment?
– MNT 90.3 billion which is expected to be paid by Tavantolgoi and Oyutolgoi to this year’s budget didn’t paid at all. Also MNT 26.5 billion should be paid by Altandornod Mongol company as windfall tax did not received. Due to these reasons income dropped down unexpectedly.
– It is time to approve next year’s budget. What directions do the Ministry adheres to/
– Thanks to positive socio-economic situation for the last three years, budget expenditures have been increased dramatically. In addition to it, annual inflation rate reached 34 percent. Of inflation growth, 30-40 percent depends on international markets and 60-70 percent on increase in administrative costs. In this regard, draft budget with strict policies shall be submitted in coherency with these conditions. Focus shall be paid on freezing administrative costs at today’s level, not increasing the number and wages of public servants.
– Your Ministry proposed to cut investment expenses by MNT 85 billion. Do you think it would be sufficient for reducing inflation?
– Investment of MNT 350 billion from state budget and MNT 200 billion from Mongolia Development Fund has been planned. We shall minimize investments from state budget and operate on the basis of State Development Fund money.
– Why are you planning to reduce investment expenditures? Couldn’t it be another one?
– We decided so because there are investments of which scheme is incomplete and bids are not announced this year. I think they will be continued in the next budget year. There are approximately 220 objects.
– Last week a price of ton copper fell down to USD 6780 in the world market. Our country budgeted it would be USD 6800. It can be viewed that the budget is close to risk.
– I see that USD 6800 for ton copper is quite groundful for this year. We are taking copper price USD 6500 in the budget clarification. So I think it is reasonable.
– Why USD 6500?
– According to executions of the first eight months, copper price was USD 8100. If we assume that it would fall down to USD 6700 in the coming 2-3 months, average price will be USD 7500. This is a real estimation. According to research results of major international banks and organizations, average copper price would be app. USD 7500 for 4 to 6 months. And gold price tends to go up.
– There are MNT 200 billion in risk fund or Mongolia development fund. Is it sufficient for preventing risk?
– Risk prevention fund has been created since 2006 when windfall tax was imposed. Not less money has been accumulated for the last two years. It depends on copper and gold price growth. Therefore it is difficult to ay that it would be sufficient for preventing risks.
– Economists guesstimate that copper price would freeze in the future. Then Motherland share and Treasure share is impossible, isn’t it?
– Providing everyone MNT 1 million and MNT 1.5 million would exceed our state budget and boost the inflation, therefore we ought to seek alternatives to provide those money in non cash forms. Our main trade partner-Chinese economy is stable and its central bank decreases policy rates. Thus we could be affected less by the world economic crisis.
– Would the next year’s budget be higher than that of this year?
– A policy on freezing costs shall be adhered to.
– How much money did the former Minister leave you?
– Ch.Ulaan left me MNT 547 billion.

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