Five major projects will be moved forward this fall www.gogo.mn

Western-educated, young Mongolian Deputy Minister of Finance Kh.Bulgantuya briefed public on difficult fiscal situation. Amended 2016 budget was approved with consolidated fiscal deficit of 18%, reduction from expected execution of 20.6% by original 2016 budget. Budget had large shortfalls due to aggressive fiscal projections including ones on major projects such as Gatsuurt (not delivered). Some of Government’s (GoM) proposed cuts and all tax hikes have been rejected by Parliament, however, Ministry of Finance continues to plan tax system reform.
Government of Mongolia wants to recover FDI by moving forward 5 major projects, specifically:
OT Underground project,
TT project, 
TT power plant,
TT railroad and
Gatsuurt.
IMF Standby Program: The Deputy Minister acknowledged that quickly and successfully implementing IMF Standby Program as in 2009 would not be easy.
World Bank said, “Recent announcement of the accurate fiscal situation was a significant step toward a credible fiscal consolidation. The revised revenue projections of the government seem largely realistic, based on conservative assumptions. Projected high budget deficit and rapidly rising government debt, however, urgently call for a comprehensive and strong fiscal consolidation plan, including spending adjustment based on priorities and revenue mobilization measures.” The Bank also stated that there is a strong need for prioritizing expenditures to protect the vulnerable and improving public expenditure efficiency.
SUMMARY OF THE DEPUTY MINISTER’S INTERVIEW
Mongolian Deputy Minister of Finance Kh.Bulgantuya (MA Economics from Yale University, ex-OT, ex-Petrovis, former MPP Secretary) has said in an interview on Friday, September 16
"Amended 2016 budget has been approved. Fiscal revenues have been revised downward by ~MNT1.7t (~US$850m) to MNT5.3t (~US$2.65b). Fiscal expenditures were adjusted upwards by MNT1.7t (~US$850m) to MNT9.7t (~US$4.85b), resulting in consolidated budget deficit of MNT4.3t (~US$2.15b) or 18% of GDP. We had to proactively amend budget to reflect ongoing decline of the revenues and increase in the expenditures since shortfall of fiscal revenues was likely to reach MNT4-5t (US$2-2.5b) and deficit was expected to reach 20.6% of GDP by execution of original approved 2016 budget. Secondly, we consolidated Mongolia’s four, five budgets. Due to consolidation, fiscal deficit increased ~4x from MNT1.2t deficit in 2015. Offbudget spending of MNT1.4t (US$700m) particularly had impact in this respect. We reduced deficit to 18%. Economy, as a whole, is in decline, for example, only import revenues declined 30% y-o-y. Also, Economic Transparency law did not result in significant tax revenues.
Very optimistic projections, including ones on several major projects such as Gachuurt, were reason for decline in fiscal revenues. Also, navigation revenues projections were too aggressive at 30% increase. Further, privatization of several large SOE-s was not executed as planned.
Some fiscal cuts proposed by Government were declined by Parliament. The legislature did not support paycuts for senior state officials. Severance subsidy for state officials was not reduced from 36 months pay. We attempted to cut all noncritical expenses, such as fuel, postal, conference and events expenses by 50%. Children’s cash transfers of MNT 21,000 per month have run out of funding and were stopped since July. We reflected it in the amendment; children monies will be issued till end of 2016. Children of targeted group or ~60% of total children will receive cash, remaining 40% will be opened accounts on their names and they will be able to cash out since 2019. We have stopped indefinitely mutual retirement benefits because Social Insurance Fund (SIF) does not have necessary ~MNT50b funding. Student’s monthly subsidy of MNT70K per month will be issued till end of 2016, however on condition of fulfilling all previous requirements. Only SIF is burdening budget by requiring subsidy from budget of MNT400-500b (~US$200-250m) per year. Four years later, the SIF fiscal burden is expected to reach MNT1t (~US$500m) per year.
Government proposal for tax hikes on very minor part of population and certain sectors were not approved by Parliament. But we are researching several options. Tax hikes proposed by Government will not impact ordinary citizen. Tax hike will only impact 1-2% of taxpayers. Majority of Mongolian people do not own gold deposits, do not live in apartments more than 150 sq. meters, do not have salary more than MNT2.5m and do not own liquor and tobacco businesses. Going forward, it would be proper to implement income level based tax. Countries with same GDP per capita have income taxes with 5 levels from 5% to 35%. Further, Mongolian economy has grown in size.
We have no right to continue another 4 years funded by external debt at any cost and pretend that everything is fine. Mongolian economy is in really difficult shape and Ministers, who are also MP-s, are working under great pressure. In 2017 and 2018 budget has not sufficient funds to pay all debt principal and interest payments even if we don’t pay salaries to anyone and don’t fund current expenses of any kindergarten. In another words, we have more debt than our income.
We will restore trust of foreign investors by moving forward OT Underground project, TT project, TT power plant, TT railroad and Gatsuurt project. Negotiations on major projects will be done this fall. Investors don’t trust Mongolian authorities because previously even projects approved by Parliament were returned.
It will be hard to quickly and successfully implement the IMF program like in 2009. Last time Mongolia was in IMF Standby Program in 2009, Mongolian economy was relatively small. We had no debt of more than US$20b as we do now. Consumption of Mongolia has hugely expanded; it is not easy to reduce it. In particular, in last 4 years because of unlimited luxury consumption, Mongolian state has eaten and borrowed our future, said “it is ok, our children will pay it”. We must now to use all our internal resources and capabilities in union of state, private sector and citizens, all together for the country’s good. Some foreign country or some good soul somewhere will not fund Mongolian state".
WORLD BANK FISCAL COMMENTARY
According to National Statistics Office of Mongolia, fiscal deficit reached MNT 1.8 trillion in Jan-Aug, ~2.34x increase from MNT769b in the same period last year.
In Mongolia Economic Brief released on September 6 (before approval of amended 2016 budget), World Bank has said that
“Weaker commodity prices and import contraction were reflected in budget revenues felling by 3.3 percent (yoy) in the same period. Mining revenues sharply dropped, with royalties almost halving from one year ago. Customs duties declined by over 10 percent due to weaker imports. Non-tax revenues also declined by 4.3 percent, reflecting a 33 percent drop in oil revenues, and minimal collection of dividends and privatization revenues. “
“Unbudgeted spending programs and loose spending controls largely contributed to budget expenditures jumping by 33 percent (yoy) in Jan-July. Government programs were launched in the first half. These programs included three policy loan programs (Good Herder/Student/Fence Programs) and a buyback program of the ETT shares owned by Mongolian citizens (Good Share Program). In Mar-July, over MNT 500 billion was spent for the four Good Programs. These programs were not recorded in the budget execution report until July, and have been funded by the BoM. Many of the on-budget expenditures also exceeded the original budget plan, including the Child Money Program, interest payments, and public investment spending. In addition, the government spent over MNT 400 billion in Mar-July for the Housing Mortgage Program that was previously undertaken by the BoM. The mortgage program spending, however, is yet to be recorded in the budget execution report. “
“Corrective measures have been taken by the government. The proposed budget, however, excluded the Housing Mortgage Program that was transferred to the government in March. The commercial portfolio of the DBM still remains off the budget. A revised Medium Term Fiscal Framework for 2016-18 was also submitted to the parliament. The consolidated overall budget deficit—which adds DBM’s off-budget commercial portfolio to the government’s definition—is expected to reach over 19 percent of GDP by end- 2016.

World Bank’s projections for budget deficit in 2016

The recent measures taken by the new government are welcome, but further actions are urgently needed. The immediate challenge facing the new government was to contain the sharp rise in budget deficit and consolidate unbudgeted expenditures. The recent announcement of the accurate fiscal situation was a significant step toward a credible fiscal consolidation. The revised revenue projections of the government seem largely realistic, based on conservative assumptions. Projected high budget deficit and rapidly rising government debt, however, urgently call for a comprehensive and strong fiscal consolidation plan, including spending adjustment based on priorities and revenue mobilization measures. The fiscal consolidation plan should also include all of the remaining off-budget programs such as Housing Mortgage Program and DBM’s off- budget corporate lending programs that would likely increase fiscal burden.”
Nominal value of general government debt, including the sovereign-guaranteed TDB debt and the outstanding debt of the Build-Transfer (BT) projects, is projected to reach over 90 percent of GDP due to the high deficit and exchange rate depreciation, a sharp rise from 66 percent of GDP in 2015.
There is a strong need for prioritizing expenditures to protect the vulnerable and improving public expenditure efficiency. Weakening growth and declining household consumption, despite the large increase in government spending this year, suggests that public expenditures may not be productive enough to support growth and jobs, underscoring the need for proper assessment of public expenditure efficiency and effectiveness. Particularly, the most recent poverty analysis showed that poverty closely tracks growth and consumption. The recent high unemployment rate and a sharp drop in household consumption indicate that many households near the poverty line may be sliding back to poverty, putting a drag on growth. Strengthening the social safety net, particularly targeting the vulnerable groups near or below the poverty line, would help mitigate the social costs of fiscal adjustment and support growth.
Source: Mongolia Metals & Mining

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World's gold miners stick close to home in hunt for more metal www.reuters.com

The world's biggest gold miners are taking a cautious approach in their hunt for bullion, spending more money to explore around existing mines rather than new territory in a strategy that may have short-term gains but risks future production growth.

Top producers are relying more than ever on small companies to do the heavy lifting of searching for new deposits and increasingly taking 10 to 20 percent equity stakes in the junior miners.

Exploring close to home is more cost efficient and improves the odds of discoveries. But the chances of making major new finds are limited, diminishing global gold output, which is expected to decline by nearly 9 percent in the next three years.

"It only makes sense to be looking in your own backyard first before exploring elsewhere," said Paul Rollinson, Chief Executive of Kinross Gold, which spends about 90 percent of its exploration budget around existing sites.

"We focus on areas we already know, with existing infrastructure nearby, in jurisdictions we are comfortable with."

The world's 10 biggest gold miners are bumping up the share of exploration budgets earmarked for land around existing mines, or brownfield exploration, increasing the spending to 56 percent in 2015 from 45 percent in 2013.

In the meantime, they curbed spending on greenfield exploration in new territory to 21 percent from 25 percent of their budgets, data from SNL Metals & Mining, a unit of S&P Global Market Intelligence, shows.

"They say the best place to discover a mine is in the shadow of a headframe," atop mine shafts, said Maria Smirnova, portfolio manager at Sprott Asset Management.

"The rate of failure in exploration is staggering, so it is always better to try and improve what you have already."

SCREWS ON SPENDING

Barrick Gold, the world's largest producer by output, looks to near-mine discoveries because plants and equipment are already in place and the deposit is well known, said its president, Kelvin Dushnisky.

Finding affordable and reliable deposits became vital in the last three years as miners slashed spending amid a slump in gold prices. Miners have kept a lid on spending this year despite a partial recovery in bullion prices and income.

Exploration spending by the world's 10 biggest gold miners, such as South Africa's AngloGold Ashanti, sank 37 percent to $1.075 billion between 2013 and 2015, the last year for which data is available, SNL Metals & Mining data shows.

Newmont Mining the world's top gold miner by market valuation, cut its exploration budget by nearly 40 percent in 2013 and prioritized areas expected to deliver higher-margin ounces, said Chief Executive Gary Goldberg.

"That's first of all around our existing operations," he said, adding that Newmont has earmarked about 80 percent of its approximately $200 million budget in 2016 for brownfield exploration.

Longer-term, Newmont is eyeing Ethiopia, Cote d'Ivoire and Queensland, Australia for greenfield exploration, he said.

"Any management team in the industry would consider brownfields expansions first," before committing to big new projects, given capital is still limited, said David J. Christensen, CEO of mining fund ASA Gold & Precious Metals.

Goldcorp Chief Executive David Garofalo said there was little available to throw even that limited capital at.

"We are a supply-challenged industry," he said. "We've had a very poor track record over the last few years of exploration success."

Global gold mine production peaked in 2015 and is estimated to fall nearly 9 percent by 2018, to 2,903 tonnes, Thomson Reuters GFMS data shows.

Big gold miners have always relied on small exploration companies for discoveries, acquiring them to access their big finds. But they are increasingly hedging their bets with 10-20 percent equity stakes in juniors, said RBC Capital Markets analyst Sam Crittenden in a report earlier this year.

Barrick plans to be more active partnering with juniors going forward, Executive Vice President for Exploration and Growth, Rob Krcmarov, said in June.

Mid-tier producer Agnico Eagle Mines, which has bucked the industry trend by boosting its drilling budget over the past five years, plans to continue investing in juniors even as it adds to its drilling budget.

Agnico last week increased its gold estimate for its Amaruq project, a new deposit close to its existing Meadowbank mine in Canada's Arctic, by 13 percent to 3.71 million ounces.

"Greenfields is tough. I think the general consensus amongst gold producers is that the real greenfields is best left to the juniors," said Chief Executive Sean Boyd.

(Editing by Chris Reese)