Speech of Prime Minister S.Bayar: To pursue policy to shrink the budget (brief version from the main speech)
His Excellency the Speaker of the State Great Khural and Member of Parliament!
Here I present you the draft modification to the Mongolian State Budget of year 2008 in order to provide the implementation of the laws and resolutions of the State Great Khural and the Government of Mongolia, to calculate the fixed expense of the state entities, fund the most necessary investments, since the adoption of the state budget of year 2008.
As for the first 8 months of the Mongolian State Budget, the total income was 1 trillion 405 billion and one million MNT and total expenditure was 1 trillion 401 billion 8 million MNT. The state budget balance was positive with 3.6 billion MNT. But the state budget income was 895.8 billion MNT and expense was 1 trillion 73 billion 8 million MNT and the state budget balance has deficiency of 178.0 billion MNT. After the approval of budget law of year 2008, the tax waver laws and resolution were adopted and it was the main reason of the decrease of budget income. Also the construction of Oyu Tolgoi and Tavan Tolgoi mines was planned to be commenced this year, but it was postponed and leading to cancelation of state budget income of 90.3 billion MNT.
The pure copper commodity price was drastically increased at the beginning of this year, reaching 8985 US$ per ton, but it was decreased down to 6401 US$, by September 30 2008, due to the financial crisis in the international markets. The crisis, originated from USA affected in European and Asian market, leading hindrance in the growth of the production and economy of the world and creating the reason of decreasing commodity price.
As the result of the analysis of the above-mentioned situation, the copper price is not stable and it could be decreased further. This affects in our budget income and creates the risk of failure in financing central current of expenditure and investments expenditures.
Recent internal and external favorable situation of the Mongolian economy leads increase of the budget expenditure has increased. This was the burden and load on our macro economics. Policy to carry out new measures of social welfare, encouraged by the sudden increase of copper and gold commodity price and increasing investment are fueling inflation and this inflation creates negative impact on people’s living, consumers’ capacity and deepens poverty.
The Government of Mongolia took several measures to stabilize the price and instant increase of supply through subsidy and tax waive and redemption and it showed certain positive result. But in order to stabilize the market, Government prefers to take complex measure to sustain supply in the long run.
Due to the high rate of inflation, the pressure of demand to increase salary is rising and it creates the risk of widely spreading price increase.
Bank of Mongolia took systematic measures and set its interest rate by 10.25%, but the inflation, fueled by the wheat, crude oil price increase and Government’s excess expenditure, doesn’t seem to stop. Therefore, the Government of Mongolia has the challenge to pursue the policy of shrinking budget in order to decrease inflation rate, decelerate the price soaring and improve the harmony of the budget and monetary policy.
Within the framework of shrinking the budget, in relation with the strict monetary policy, when projecting the budget modification of year 2008, we predicted the total loss of the general budget will be 0.5% of GDP with measures of not to increase the salary of the state organizations, to free the sources by suspending not vital investments, to fully utilize the potential sources of the budget income,
According to the budget modification project, total income is increased by 54.6 billion MNT and total expenditure is decreased by 53.9 billion MNT and the total balance of the budget is improved by 107.9 billion MNT.
Due to the increasing import of cars and vehicle, the traffic is increased and it influences the pollution of Ulaanbaatar City. In order to increase the budget income source and decrease the air pollution and traffic of the city, the Special Tax rate is increased twice and the draft law is proposed to the State Great Khural of Mongolia. Also due to the decrease of the crude oil price in the world market, tax on gas and diesel is resumed starting from October 15 2008.
According to the budget modification of year 2008, the budget income is 2 trillion 481 billion 2 million MNT, total expenditure is 2 trillion 510 billion 9 million MNT and the budget balance 29.7 billion MNT or budget loss is 0.5% of GDP of Mongolia.
Thank you for your attention.