Mongolia - Consolidating the Gains, Managing Booms and Busts, and Moving to Better Service Delivery : A Public Expenditure and Financial Management Review - Annexes
Mongolia's external economicoutlook is dramatically changing as it faces sharpreductions in the copper price, caused by the financialcrisis and global downturn. This compels the government nowto drastically cut spending to prudently manage the budget.The budget is extremely dependent on mining revenues.Government is taking the right step in proposing a balancedbudget for 2009. But further adjustments will be neededgiven the continuing fall in copper prices. A prudent fiscalstance will also be needed to manage inflation, whichaccelerated in the past year to over 30 percent. The currentsituation highlights the need to manage mining revenuesbetter than in recent years. Mongolia saved little duringthe boom years, but instead dramatically increasedexpenditures on wages and salaries, and poorly-targetedsocial transfers. Adopting a multi-year fiscalframework-which enforces saving during the boom years, setslimits to expenditure growth and debt, and ensurestransparency to the public-can help. Since much of the pastwindfall revenues have been spent, the country enters thedown-turn with little savings and high inflation, forcing itto cut expenditures with every drop in the copper price. Toavoid such situations in the future, the government has theopportunity to adopt a transparent, multi-year budgetframework for expenditures and investment. This includesadopting a new fiscal responsibility law. It will ensurethat the government saves during the 'boom' years,so that it can continue to spend during the 'bust'years. It will also set limits to expenditure growth andpublic debt. Within the limits set by this framework,parliament can then exercise its constitutional rights toamend the budget.
PDF
download
878987797
028-85220240
