Development Bank to fund major investments

Development bank funding could accelerate development
On November 12, Parliament discussed a Bill on Centralized State Budget for 2011 that was redrafted by the government after being returned for essential amendment. In the redrafted Bill, total revenues of the centralized budget was estimated to be Tgs 3,284,300,000,000, expenditures to be Tgs3,955,000,000,000 and the total budget loss to be Tgs670.7 billion or equating to GDP’s 8.6 percent. In other words, the total revenue estimated in the amended Bill increased by Tgs227.3 billion and expenditures by Tgs705 billion from the previous Bill, causing the total loss standing at 2.5 percent to reach 8.6 percent. To a question by a MP who was interested in how the budget revenue increased, Finance Minister S. Bayartsogt answered, “When we first submitted the budget bill, the report of third quarter had not yet been released. A recently issued report showed positive indications.
Value-added tax is raised for customs and imported goods because a huge volume of imported goods is received at Oyu Tolgoi, Tavan Tolgoi, MAK and Khoshoot mines. It will bring an additional Tgs70.8 billion to the State budget. Also, Tgs100 billion will come to the budget from debt collections from businesses. That’s why, Olon Ovoot deposit’s license is now kept at court in connection with the insolvency of Anod and Zoos banks.
The license will be immediately sold after the issue is resolved.” Concurrently, gold price per tonne was estimated to be USD 1350 per tonne, raisen by USD100 while drawing up the budget and it was calculated to accumulate Tgs8.8 billion from gold export, Tgs12 billion from dividends of State-run enterprises,
Tgs7.9 billion from income duties imposed on micro mines and private businesses, Tgs70.5 billion from VAT on customs and imported goods, Tgs23.4 billion coming under an evaluation made by National Auditing Office, Tg3.9 billion from an increase of budgetary organizations’ income, and there was potential to add a total  of Tgs227.3 billion to the budget.
Earlier, many MPs held the position that investment expenditures need to be raised. It was included in the amended Bill. In the previous Bill, the volume of budgetary investment was stated to be Tgs76.1 billion, but it increased by Tgs456.1 billion in the amended Bill, reaching total investment to Tgs532.2 billion. Inside, the previous Bill included Tgs560 million, on average, to every aimag for investment. However, it raised to Tgs800 million. Tgs20 billion that was budgeted for Ulaanbaatar increased to Tgs68 billion.
MPs consider that the increase of investment is good; however, it is not sufficient and investment should be funded through establishment of the Development Bank. That’s why, if investments are funded by the State budget, the budget loss compared to GDP will go beyond 100 percent. If the investment is funded through the Development Bank under government’s guarantee, it will be possible to handle this issue without increasing the budget loss and not making much change in inflation policy. This matter has been deliberated at the meeting of the DP group in Parliament. “If approximately Tgs600-650 billion is annually invested by the budget, development will go at the speed of a turtle. Also, Tgs650 billion is not enough for all the required investments. Therefore, major construction that can be fruitful after 20-30 years may be resolved if the funding comes through the Development Bank,” said Ch. Saikhanbileg, MP and head of DP group in Parliament. 
DP group considers that as Mongolia has a sparse population density, it will be unsuitable for sectors, especially the infrastructure sector if the Development Bank implements a commercial-purpose program. It needs to form a special legal environment for the Development Bank because its mechanism of making decisions and supervision should be regulated differently due to its operational features.
According to the government, the Development Bank may be funded with domestic and foreign bonds, advance payment to come from major mining projects and agreements and the Mongol Bank’s reserve of roughly USD1.8 billion. Members of MPP Group in Parliament also believe that funding investments with the State budget alone cannot move at the speed of development and that it’s necessary to exploit other sources.
The “Year of 2011 is a most responsible year in connection with implementation of the manifesto of the 2008 election and also the 2011 Budget has to be a Budget for Mongolia’s Development. Members of MPP Group talked about issues regarding to an increase of salary, pensions and allowances. They are critical that it is not effective, although salaries and pensions were raised by 30 percent on October 1, 2010. Therefore, they consider that the salary system should be reformed. Matters about sufficiency of schools and kindergartens were the focus of discussion,” said D. Lundeejantsan, MP and head of MPP Group in the Parliament. Moreover, MPs claimed that it was stated to regulate construction of paved roads being constructed between aimags with consession so as to improve infrastructure, however it works too slow.
It is planned to allot Tgs 21,000 monthly to every citizen and Tgs500,000 to every student, a total of Tgs805 billion from Human Development Fund beginning in 2011 within a framework to fulfill 2008 election’s promises. However resource for this funding makes MPs doubtful. “Tgs432.2 billion will be accumulated in the HDF by the forms of loans and advance payments, Tgs132 billion from Oyu Tolgoi, and some parts from advance payments or product sales of Erdenes Tavan Tolgoi.
It will be separate from budgetary investment. Actually, a huge amount of money will come after establishing an agreement with a strategic investor for Tavan Tolgoi early in 2011. The Tgs310 billion that HDF lacks will be gained from Erdenes MGL Company,” explained Finance Minister S. Bayartsogt.
In connection with the budget bill, Government proposed to amend laws on Excise Duty, Treasury Fund, Banks and Stamp Duty. Government’s proposal to raise rates of imported used car’s tax and stamp duty by two-fold faces the disagreement of MPs that it may bump up tax loads of citizens and add trouble to their lives.
At last, a majority of MPs backed the government’s proposal while discussing the Bill on Excise Duty at the standing committee meeting on November 16. There are about 306,000 vehicles throughout the nation, of which nearly 80 percent of vehicles are used longer and most vehicle merchants commonly import old cars. It causes an increase in air pollution and negative effects on the safe operation of cars, explained the Finance Minister


source: The Mongol Messenger newspaper
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