The vast mineral deposits of Mongolia, if properly managed, could make available large budgetary resources, which would help address a wide range of its economic challenges. This report focuses on Mongolia’s selected issues in the mining sector, government employment and wages, and saving and credit cooperatives. The attractiveness of Mongolia’s mining sector has been eroded in recent years with the introduction of the windfall profit tax (WPT). The high wage bill mainly reflects the large size of government employment and the recent rapid real wage increases.


The vast mineral deposits of Mongolia, if properly managed, could make available large budgetary resources, which would help address a wide range of its economic challenges. This report focuses on Mongolia’s selected issues in the mining sector, government employment and wages, and saving and credit cooperatives. The attractiveness of Mongolia’s mining sector has been eroded in recent years with the introduction of the windfall profit tax (WPT). The high wage bill mainly reflects the large size of government employment and the recent rapid real wage increases.

IV. Presentation of Mongolia’s Fiscal Data Using the Framework of the GFSM 2001, Preliminary Results38

53. At the Executive Board seminar on November 16, 2005 Directors agreed that the use of the Government Finance Statistics Manual (GFSM 2001) framework would lead to greater transparency and consistency in the presentation of country fiscal data in staff reports (Box IV.1). This paper reports on the preliminary results for the Mongolia pilot study—one of two Asia and Pacific Department (APD) countries39—which aims to incorporate the GFSM 2001 operating statement, integrated balance sheet, and cash statement in the Article IV consultation report. The GFSM 2001 analytic framework is based on the premise that all changes in stocks of assets and liabilities result from flows, which can either be transactions or other economic flows. The resulting statements contain four core fiscal indicators (the net operating balance, net lending/borrowing, net worth, and the cash surplus/deficit) that can help member countries strengthen their capacity to formulate fiscal policy and monitor fiscal developments. Equally important, the framework fully conforms with the Fund-wide effort to promote the Balance Sheet Approach within a streamlined surveillance program while also fostering international standards of transparency in fiscal reporting.40

54. The pilot study demonstrates that using the GFSM 2001 as a basis for compiling and analyzing data for the general government sector is feasible for Mongolia in the short-term. Although adjustments to the official data are necessary to conform to GFSM 2001 concepts and definitions, the areas in which changes are needed can be clearly identified and the required detailed data can generally be provided by the government accounting system and reporting formats. However, a full migration to the GFSM 2001 framework would involve a sustained coordinated effort—led by senior staff at the Ministry of Finance—to ensure an integrated approach to achieve timely improvements in source data and GFS outputs.

55. This paper concludes that enhanced analytical value results from the main fiscal aggregates and balancing items derived from the GFS tables constructed for the general government sector. Data consistency is enhanced—and data gaps revealed—as a result of integrating detailed information on flows for 2006 with corresponding information on stocks of nonfinancial assets and financial assets and liabilities for fiscal year 2005/2006. The preliminary results lay the foundation for the development of a comprehensive measure of the evolving net worth of the consolidated general government commensurate with GFSM 2001 principles.41 Moreover, the statistical tables developed provide a sound basis for extending the coverage of the fiscal accounts to include the wider range of units that make up the nonfinancial public sector. The institutional coverage of the Mongolia pilot study and the data sources used for compiling the statistics are described further in Section A. Section B reviews the main findings using data for 2006. Additional follow-up actions are outlined in Section C.

Background for the Pilot Studies

The November 2005 Executive Board seminar endorsed the joint Statistics/Fiscal Affairs Departments paper “Using the GFSM 2001 Statistical Framework to Strengthen Fiscal Analysis in the Fund.” Directors noted that use of the GFSM 2001 framework (see Annex I) will lead to greater transparency and consistency in the presentation of country fiscal data in staff reports and agreed on the following:

  • In principle, that the Fund should move in a phased way to present fiscal data using the GFSM 2001 framework in staff reports.

  • To conduct pilot studies to include the GFSM 2001 operating statement, integrated balance sheets, and cash statements in Article IV consultation reports. The pilot studies should be done for volunteer countries, over the course of two years and within the Fund’s budgetary envelope, to map out more fully the process involved in moving to the GFSM 2001 framework, while also drawing references from countries (nearly 100) that have begun to compile and report fiscal data using the GFS system.

  • That the staff should report to the Board in 2008 on the experience with the pilot studies, together with migration path proposals to fully implement the GFSM 2001 methodology as the basis for the Fund’s operational work.

For a more complete summary of the discussion, see the paper, available online at and the Public Information Notice (PIN) No. 05/167 available online at http:/

A. General Issues

56. Mongolia was selected for a pilot study in consultation with APD and the national authorities against a background of the increasing importance of natural resource (mineral) wealth and the challenges of managing and measuring these nonfinancial assets for fiscal performance. Mongolia’s basic fiscal data are viewed by APD as being broadly adequate for the Fund’s surveillance exercise that focuses mainly on the cash flows from the operating activities of the government. While Fund staff have focused on compiling the NPV of public debt, the full integration of available data on stocks of assets and liabilities in the GFS framework could further support staff’s analysis of fiscal sustainability. Moreover, determining the liquidity constraint of government and the reconciliation of fiscal and monetary statistics, a key element of the cash-based statistics produced under GFSM 2001 framework, has been problematic.

57. The derivation of a reliable overall measure of the general government’s net worth has been facilitated by the authorities’ recent advances in terms of the recording of accounting data and the focus on financial statements that are more closely aligned with international accounting standards. The authorities have recognized that aligning policy analysis with the full GFSM 2001 methodology would provide an integrated framework for assessing the long-term fiscal sustainability of Mongolia’s fiscal policies and a sound basis for evaluating the management of the country’s subsoil assets, expenditure restructuring (including capital projects), and privatization activities.42

58. The institutional coverage in this pilot study is the consolidated general government sector (budgetary accounts, extrabudgetary funds, social security funds, and the local government subsector). The Ministry of Finance (MoF), Treasury Department, compiles detailed data on the cash-based transactions pertaining to above-the-line items for each of these sectors.43 Separately, accrual based end-of-period data on stocks of nonfinancial assets, financial assets, and liabilities are also compiled (national accounting practices are discussed in Box IV.2. These data serve as the basis for computing the underlying transactions for each subsector except social security.

B. Results

59. Existing data sources support the development of a largely integrated and consistent set of fiscal statistics that facilitates the analysis of fiscal activities. Implementing the GFSM 2001 framework allows staff to refocus its work on the evolution of the government of Mongolia’s fiscal sustainability—along with changes in key underlying balances—and on better assessing the liquidity of the general government sector. The findings presented in this section—described in terms of horizontal (flows and stocks) as well as vertical (net lending/net borrowing and financing) integration—should be considered illustrative due to unresolved data issues. Box IV.3 provides a description of the main aggregates and balances of analytical significance presented in the attached statistical tables (Tables IV.1, IV.2, IV.3, and IV.4).

Table IV.1.

Mongolia: Evolution of the General Government Balance Sheet (2004–06)

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Sources: Mongolian authorities; and Fund staff estimates.
Table IV.2.

Mongolia: Integrated Balance Sheet for the General Government, 2006

(In millions of togrogs)

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Sources: Mongolian authorities; and Fund staff estimates.
Table IV.3.

Mongolia: Statement of General Government Operations (GFSM 2001), 2006

(In million of togrogs)

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Sources: Mongolian authorities; and Fund staff estimates.
Table IV.4.

Mongolia: Statement of Sources and Uses of Cash (monthly) for General Government (GFSM 2001), 2007

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Sources: Mongolian authorities; and Fund staff estimates.

Summary of Accounting Practices in Mongolia

As noted in the 2007 Article IV Staff Report, Mongolia’s fiscal framework has evolved significantly since the beginning of 2006. This is reflected in, among other developments, new personal and corporate income tax laws, VAT laws, and the imposition of a “windfall” tax that is intended to capture a higher share of revenues accruing to mining companies from higher export prices. The latter is reflected in the establishment of a Development Fund to which the proceeds of the tax are allocated as follows: (i) one third of total for saving; (ii) one third for capital expenditure; and (iii) one third for social programs aimed at households. Owing to the evolving fiscal framework, the authorities have indicated their intention to move toward adopting accounting and data classification and compilation practices that conform to international standards.

Fiscal data compiled by the MoF (Treasury Department)—on a cash basis only—and reported to APD do not fully follow GFS standards. This set of data is the primary source for the fiscal data presented in Fund staff reports, including forward looking projections. Given the absence of a complete set of accrual based accounts, the bridge table developed in the pilot study uses accrual based stock data compiled by the MoF to derive the financing and cash-based accounting records to calculate revenue and expense transactions. The availability of a measure of net worth along with supporting detail in the MoF stock data sources have facilitated the derivation of preliminary fiscal statistics that largely conform to the GFSM 2001 analytical framework. However, stock data are presented in a way that combine subsectors while data on revenues and expense normally are shown for each subsector separately. This has hampered obtaining a GFSM 2001 compliant consolidation of general government operations.

60. The authorities are well advanced in terms of developing accurate data on stock positions of assets and liabilities, as illustrated in Table IV.1, which highlights the evolution of the Balance Sheet over the period 2004–06. Even without taking into account the abundant nonproduced assets owned by the government of Mongolia, which are not currently incorporated into the balance sheet, the increase in general government’s net worth during the period was pronounced (from 18.4 percent to 37.3 percent of GDP).44 This was brought about by significant reductions in debt liabilities—particularly the stock of foreign currency denominated loans outstanding—from 75.7 percent to 44.0 percent of GDP. Reflecting these developments, the net financial worth (financial assets minus liabilities) improved from a net borrowing position of -29.1 percent of GDP in 2004 to -4.8 percent of GDP in 2006.

61. However, integrating existing data for 2006 on stocks and flows—horizontal integration—resulted in a less than fully consistent dataset, as illustrated in Table IV.2. The GFSM 2001 framework, when properly applied, clearly identifies the separate impact of price and volume changes (holding gains/losses and other volume changes) on the stock of assets and liabilities. In the case of Mongolia, where stock and flow data on nonfinancial assets are at an early stage and where weaknesses in the compilation of data on transactions in financial assets and liabilities over the accounting period still exist (see also the discussion in paragraph 13), the authorities rely on differences in year-end stock positions to determine the relevant transactions affecting net worth. As illustrated in Table IV.2, the increase in nonfinancial assets through transactions—particularly in terms of acquisitions of fixed assets and inventories—cannot be reconciled with the closing balance for 2006, resulting in a residual amount. Conversely, transactions data on financial assets and liabilities, which are derived from the stock positions include a “foreign currency translation difference” (e.g., holding gains/losses) that, while included in the authorities calculation of net worth, is not separately identifiable.

62. The Statement of Government Operations (Table IV.3) shows that the consolidated general government registered strong financial performance during 2006. General government savings, as measured by the gross operating balance (GOB),45 equal 15.2 percent of GDP, were greater than the government’s investment in nonfinancial assets, which amounted to 9.3 percent of GDP (as measured by the net acquisition of nonfinancial assets). As a result the Net lending/borrowing (NLB)46 was positive at 5.9 percent of GDP. This outcome is reflected in the general government Balance Sheet where the gross operating surplus contributed to the increase in the net worth of the general government sector in 2006. This continuation in the trend of increasing net worth (2004–06) is indicative of the sustainability of fiscal policies.

63. For virtually all subsectors, discrepancies found between NLB and financing data—vertical integration—suggest that further work is needed to confirm data results and to fill gaps identified by this study. It is worth noting that, for 2006, changes in net worth and in net financial worth from transactions in Table IV.2 differs from the gross operating balance and the net lending/borrowing derived in Table IV.3. Nonetheless, the general consistency of the source data is evidenced by the fact that the statistical discrepancy for the general government sector in Table IV.2 fully corresponds to that calculated in Table IV.3. In recasting the data on general government operations (revenue and expense) and financing (net acquisitions of financial assets minus net incurrence in liabilities), which are compiled using different procedures, it was necessary to make adjustments to the source data on expenditures in order to more closely approximate the gross operating balance (GOB) reported by the authorities. Overall, the consolidated general government data (Table IV.3) shows that the statistical discrepancy amounts to 1.8 percent of GDP, indicating that the correspondence between existing internal financial reporting systems and their application to compiling GFSM 2001-based statistics could be improved. This is further evidenced by outstanding issues pertaining to the consolidation of transactions across general government units that have resulted in total revenue and expense figures that differ from the amounts reported by the APD.47

64. As an ongoing developmental exercise that extended the analysis of stock and flow data, the pilot study also constructed a Statement of Sources and Uses of Cash using subannual data for 2007 (Table IV.4). The purpose of this statement is to compare how the overall surplus derived from cash transactions compares with the net lending/borrowing which takes account of all non-cash (accrual) commitments. The cash surpluses of the general government for both 2006 and 2007 indicate that the government is not cash constrained and that fiscal performance, calculated on either an accrual or cash basis, is broadly comparable.48 Nonetheless, the authorities have recognized that long-standing weaknesses in accounting practices have limited their capacity to better understand the evolution of one of the main financing items affecting the government’s liquidity position, the change in the stock of cash, on a subannual basis.

65. Efforts to independently determine the net change in the stock of cash on a monthly basis, as illustrated in Table IV.4, have had limited success. Currently, for both internal monitoring of Treasury operations and for reporting to APD, the authorities calculate both cash balance movements and the net credit from the banking system simply as a residual to achieve a balance in the monthly data reporting systems. When recast into the GFSM 2001 analytical framework, data pertaining to monthly cash-based transactions for 2007 show an overall net change in the stock of cash of zero for the fiscal year. This implausible result highlights shortcomings in the classification of financial transactions that directly impact upon the capacity of the authorities to undertake liquidity analysis—and reconcile fiscal and monetary data—during the fiscal year, a key feature of GFSM 2001 cash-based reporting. The ongoing exercise should help to provide definitive conclusions regarding the size of the cash surplus while addressing shortcomings in accounting practices and the availability of data on the main components of financing. 49

C. Next Steps

66. The Mongolian authorities broadly agreed to work toward improving the compilation of fiscal data for operational and reporting purposes in accordance with GFSM 2001. In this regard, the authorities plan to strengthen efforts to improve the consistency of the annual and subannual fiscal data. To this end the authorities have embarked on a program aimed at compiling the Statement of Sources and Uses of Cash on a monthly basis for the consolidated central government and reconciling the result with the monetary and financial statistics reported to STA for publication in International Financial Statistics. In turn, this Statement may be used for the purposes of reporting to the Fund for operational purposes and to support the authorities’ stated goal of subscribing to the Fund’s Special Data Dissemination Standard.

67. The authorities are considering revisions to the chart of accounts for budget preparation and reporting purposes that would support implementing the GFSM 2001 framework for compiling cash and accrual-based statistics. Linking existing Treasury account codes to the GFSM 2001 classification structure would facilitate this work. Developing an accrual measure of the consumption of fixed capital for use in the Statement of Government Operations should be facilitated through collaboration with national accounts staff at the National Statistics Office.

68. Additional work is needed to better delineate institutional sectors and improve the identification and consolidation of transfers between general government units. The authorities currently present data on budgetary central government together with the social security subsector that have been partially consolidated. Stock data are also shown for the consolidated general government although separate sources, albeit less complete, are also maintained for extrabudgetary funds and local governments. This practice complicates deriving an accurate measure of the financial performance of the individual subsectors of government and consolidating inter- and intrasectoral financial flows using GFSM 2001 principles.

69. Commensurate with APD’s need to more fully incorporate the nonfinancial public sector corporations into its fiscal analysis, the authorities are working to further expand institutional coverage to include the nonfinancial public sector. A thorough analysis of the Mongolian government’s financial impact on overall economic activity requires extending the coverage of the statistics to include public corporations controlled by the central government. The national authorities have recognized the merits of extending the statistical framework—particularly the balance sheet of government—in this area and are seeking to increase the availability of pertinent source data.

The GFSM 2001 Statements and Core Balances

The Statement of Government Operations (Table IV.3) records transactions on an accrual basis. The statement distinguishes between the following transactions:

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The Integrated Balance Sheet (Table IV.2) focuses on an assessment of the sustainability of government operations from a fiscal perspective. It shows the government’s net worth at the beginning and end of each fiscal year, as well as the related transactions and other economic flows. The sustainability of fiscal policy depends in part on how the government’s net worth changes over time. Changes in net worth can be explained not only by government’s transactions but also by other economic flows attributable to gains or losses resulting from changes in the prices of assets and liabilities, as well as other changes in their volume.

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The Statement of Sources and Uses of Cash (Table IV.4) shows purely cash flows associated with revenue and expense transactions and transactions in nonfinancial assets, which yields the cash surplus/deficit. The assessment of the government’s level of cash holdings and its determinants is a key element in analyzing fiscal policy, its interrelationships with the monetary policy and liquidity analysis.

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1/The NOB/GOB excludes net acquisition of nonfinancial assets. The latter does not affect net worth because it represents only an accumulation of assets in exchange for an accumulation of liabilities or use of existing assets.

Table 1.

Mongolia: Basic Data, 2002–07

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Sources: Data provided by the Mongolian authorities; and Fund staff estimates.

Based on period average exchange rate and population.

Data in 2002-05 are slightly different from those in the Staff Report due to revisions received from the authorities in May 2008.

Total GDP minus mineral GDP.

The overall CPIs in 2002–05 are slightly different from those in the Staff Report due to changes in the consumption basket starting from December 2005.

Yield of 14-day bills until 2006 and of 7-day bills for 2007.

Includes IMF loans, guarantees, and arrears.

Table 2.

Mongolia: Gross Domestic Product by Sector at Current Market Prices, 2002–07

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Sources: Data provided by the Mongolian authorities; and Fund staff estimates.

Total GDP minus mineral GDP.