/The Mongolian Mining Journal. October.2022/
That there is a balance of payments crisis is evident from the imposition on 26th October of a six-month special regime by JSC Erdenes Tavantolgoi. This was unexpected. The company’s director-general, B. Gankhuyag was dismissed from his post and an investigation into the group’s alleged stealing from coal exports that Prime Minister L.Oyun-Erdene mentioned last spring, has been launched. The government believes that the special regime imposed by Government Decree No. 362 of 2022 will help increase the flow of foreign currency into Mongolia. The government states that the core business, management, organization, and balance of payment of Erdenes Tavantolgoi JSC will be improved, and revenues increased. The Ministry of Finance will be in charge for this work.
Journalist Ts.Elbegsaihan describes in his article how Mongolia’s balance of payments crisis is developing for the third time. In any case, D. Amarbayasgalan, Chief Cabinet Secretary, has clearly expressed his position that all the offtake contracts of Erdenes Tavantolgoi JSC will be made public. The government has put under its direct control the coal and barter sale activities organized by Erdenes Tavantolgoi under offtake or preliminary sales agreements and is preparing to disclose all agreements from next month. Most importantly, offtake contracts make up most coal sales contracts and, allows the government to sell coal for cash.
Experts noted that the government’s decision to stop signing offtake contracts to address the balance of payments crisis was in line with the recommendations of international organizations. It was clear that the issues surrounding offtake contracts would one day become a ‘sensation”.
In this regard, read an interview in MMJ with D. Tegshbayar, independent consultant to Transparency International Mongolia. State-owned Erdenes Tavantolgoi, the largest coking coal exporter, transferred about $587 million to Mongol Bank in September, with total sales reaching $1.86 billion. The government entrusted Erdenes Tavantolgoi company with the task of bringing these funds to Mongolia. The company explains that it is realistic to accumulate around $300 million in expected funds by the end of the year. Therefore, if we take a comprehensive approach to this issue, start negotiations with the partners, properly manage the distribution, sale, and shipment of coal, it would be possible to raise $500 million in cash.
The CEO of Erdenes Tavantolgoi (ETT) JSC, who resigned a day after the government’s decision, told the media that the company plans to make a net profit of 1 trillion MNT and collect more than 800 billion MNT in taxes in 2022. “There are all kinds of different information about Erdenes Tavantolgoi projects, decisions, amount of investment and sales. It is necessary to check and have the right information,” said the CEO. It may become clear in six months whether or not ETT has actually committed coal theft, as senior government officials claim.
Under this difficult economic situation, the state budget for 2023 is being discussed by the legislative body. For the first time ever, a budget in excess of 20 trillion MNT was presented and the Ministry of Finance stated that this cannot be cut. However, it is difficult to conduct an effective monetary policy when the budget is overinflated and accounts for 30-40% of gross domestic product. Of course, the most difficult part is the balance of payments mentioned above. If we cannot pay our bonds, Mongolia will face the risk of default. In 2023, Mongolia is scheduled to pay around $3 billion in bonds. Mongol Bank will be responsible for its preparation. Currently, our country has only $2 billion in foreign exchange reserves.
If it decides to refinance the bond, the refinancing rate will be 35%. A total of $2 billion is needed to finance the budget deficit (2 trillion MNT), the New Revival Policy (2-3 trillion MNT), and government guarantees worth 1.5 trillion MNT. If we add the Mongol Bank loan of $3 billion, then almost $5 billion is needed.
Instead of issuing another bond, it would be better to participate in the International Monetary Fund program. Read the interview with economist G. Batzorig on next year’s economic outlook in The Mongolian Mining Journal. There was also an article by Ts.Baasansuren on Mongolia’s economic outlook. If the budget adopted supports monetary policy, the economy will survive. But if not, more difficulties lie ahead.