This report was prepared during a technical assistance mission in March 2001 by a team consisting of Mr. William Allan (Head) and Mr. Vincent Moissinac of FAD. Contributions were also made by Mr. David Pritchett and members of the Asian and Pacific Department team led by Mr. Lazaros Molho. Earlier draft material was prepared by Ms. Catriona Purfield.
In 2000, there were 13 ministries and 49 executive agencies, of which 17 were regulatory and 32 implementing agencies (as per State Information 2000 No. 34 (171)).
Total ownership equity in 1999 is presented as TGR 663 billion (around 72 percent of GDP), and in 2000, TGR 682 billion (around 61 percent of GDP); a detailed listing by company, showing percentage ownership and economic sector is given. It is intended that the report on FY 2000 be available in English. Currently, only some elements of the tables are in English.
The Privatization Program for 2001, available in English, highlights key proposed sales (70 percent of shares in the Trade and Development Bank, 70 percent of Gobi JSC).
A revised Law Prohibiting Unfair Competition of May 2000 represents a step in this direction,
However, the state-owned banks are increasingly adopting commercial lending practices, and it has become more difficult for loss-making public enterprises to obtain loans.
Administered coal, electricity, and heating tariffs were raised by 15 percent, 15 percent, and 35 percent, respectively, in December 2000.
Similar problems are associated with the provision of petroleum products at subsidized prices to rural areas by the Neft Import Concern (NIC), the provision of coal for power-generation by state-owned mines at less than cost, below-cost pricing by Mongolian International Air Transport (MIAT) on domestic flights, and the pricing of urban public transport services.
Under Article 18 of the central bank law, the amount of temporary credit for government activities is limited to 10 percent of the average revenues over the previous three years. Independently, a 1995 amendment to the Budget Law allows deficits that arise in the quarterly implementation of the budget to be financed by BOM borrowing if it is repaid within the year (Article 13). No reference is made to the ceiling. The current government and central bank have agreed that bank restructuring bonds were not included in the ceiling on government credit because these bonds have long-term maturities.
The BOM has recently facilitated foreign borrowing for export prefinancing by domestic gold mining companies by offering guarantees to the foreign lending institution, and it also conducts off-balance sheet hedging operations, some of which may have quasi-fiscal implications. The latter operations could be more closely examined in the context of monetary and banking ROSC modules in due course.
The city of Ulaanbaatar has a special status under the Law on the Legal Status of the Capital City of June 1994 whereby, among other things, it can levy certain taxes, is allowed to accumulate resources in a development fund, and the governor can attend cabinet meetings and has direct access to the Prime Minister for policy coordination purposes.
Including Ulaanbaatar city.
If foreign-financed expenditures are excluded, the lower levels of government account for 40 percent of total state expenditure.
For example, Ulaanbaatar City has withheld revenues collected from entities recently reassigned to the central budget.
For instance, serious difficulties were experienced in enforcing the derivation rule prevailing for sharing domestic VAT receipts between central and local government, resulting in substantial arrears in payment from local to central government in 2000. Decentralization of the VAT in 2001 has, in effect, transformed the tax into a cascading sales tax in all aimags.
For instance, clarification of implicit liabilities created by a recent protocol agreement between the governments of China and Mongolia allowing for future Chinese loans to a Mongolian-Chinese joint-venture.
Confusion in the treatment of IMF purchases in domestic liabilities may have originally arisen from the fact that the MOFE is the fiscal agent for the IMF.
The proposed PSMFL will establish a legal requirement for all enterprises to report, with the implication that the MOFE would prepare a consolidated financial statement including such assets.
Expenditure in some cases has exceeded legal authority. The Annual Report for 1999 of the SAIC cites several instances of expenditure exceeding authority, and also notes instances of procurement of fixed assets from recurrent budget allocations.
Total cash expenditure plus net lending has been only marginally above original appropriation for 1998 and 1999, and estimated at 4 percent less in 2000, but this has been achieved by sharp reductions in capital spending and accumulation of arrears. In all years recurrent spending has exceeded original appropriation.
The present criteria for membership of the SAIC, however, does not avoid potential conflicts of interest and these are being reviewed.
The independence of the NSO vis-à-vis the government allows for greater external scrutiny on the making of fiscal policy because it secures the integrity of all national statistics, including national accounts statistics. In the first half of 2001, the MOFE’s disapproval of the NSO’s preliminary national accounts estimates for 2000 and other expressions of discontent about the quality of NSO surveys led to proposals to make the NSO directly answerable to the Prime Minister. The IMF staff strongly recommends to maintain the legislative independence of the NSO, while the quality of the NSO’s data is being improved through further technical assistance projects.