THE WEALTH FUND IS NOT A FINANCIAL RESERVE FOR EASING BUDGET PRESSURE

By O. Dulguun

By establishing the "Chinggis Khaan Sovereign Wealth Fund," Mongolia has taken the first step toward addressing this question at the institutional level. However, as the Fund's assets grow, questions are also emerging over whether using dividends from state-owned enterprises (SOEs) and Fund assets to finance recurrent budget expenditures is consistent with the Fund's primary purpose of building up national wealth.

HAVE THE FUNDS' BALANCES INCREASED?

As of the end of last year, the balance in the Future Heritage Fund's deposit account had reached $1.336 billion, or 4,762.6 billion MNT. This was approximately 15% higher than the $1.162 billion (3,974.5 billion MNT) recorded in 2024.

As of April 30 this year, the amount transferred to the Fund from mineral royalties paid by mining companies had reached US$1.7 billion. However, although the National Wealth Fund Law requires a fixed share of mineral royalty revenues to be fully transferred to the Fund, a law governing its implementation gradually reduced this share during 2024–2025.

As a result, the Fund's revenue decreased by 45% in 2024 and by 25% in 2025, respectively, effectively reducing the amount of wealth being accumulated.

The Fund's assets are being managed through the Bank of Mongolia until 2030, and as of 2025, the interest rate on its foreign-currency deposits was 3.78%. While the Fund's assets increasing by 15% in foreign-currency terms may appear to be substantial growth, the way these assets are invested and managed falls short of international quality standards.

For example, under the relevant laws and policies, the Future Heritage Fund is legally permitted to invest in government securities rated AA or higher, bonds issued by international financial institutions, and exchange-traded funds (ETFs).

Therefore, as required by law, the Fund's assets should be managed by an internationally qualified institution under a principal agreement.

THE SAVINGS FUND IS ADDING TO BUDGET PRESSURE

Although the law places specific restrictions on the use of the Fund's assets until 2030, these restrictions are temporary, and the risk of legislative changes remains. The use of Savings Fund resources to finance subsidized housing loans is a clear example of this.

Of the 495.6 billion MNT accumulated in the Fund in 2024, 480.2 billion MNT, or 96.8% of the Fund's assets, was directed to mortgage loan financing. Similarly, of the 484.2 billion MNT accumulated in 2025, 462.3 billion MNT, or 95.5%, was again allocated to mortgage lending.

By law, the Fund's return should be no lower than the policy rate. However, the current yield on mortgage-backed bonds is only 2%, which does not meet the requirement under the Sovereign Wealth Fund Law that the return be no lower than the policy rate. The interest-rate gap resulting from this is being financed from the state budget, creating a financial burden of 35.5 billion MNT in 2024 and 43.9 billion MNT in 2025. Concentrating the Fund's assets in such 30-year products will clearly place a heavy burden on recurrent budget expenditures over the long term.

The main source of the Savings Fund consists of dividends of up to 34% from state-owned legal entities in the mining sector that are subsidiaries or affiliated companies of the Erdenes Mongol group. The law also provides for additional funding from mineral royalties on strategic deposits and royalties on radioactive minerals.

For example, under the Zuuvch Ovoo uranium mining project, which began operations in January 2025, the state's 34% ownership was structured not as a direct cash contribution but through a combination of a 0–5% mineral royalty and 10% preferred shares.

The Government has submitted to Parliament a proposal to receive 3 trillion MNT in dividends from Oyu Tolgoi in 2027 and allocate the funds through the state budget. Regarding how the dividend would be used, Finance Minister Z. Mendsaikhan said, "Of the 3 trillion MNT in dividends to be received in 2027, 1 trillion MNT will be deposited into citizens' individual accounts in the Savings Fund. The remaining 2 trillion MNT will be used for recurrent budget expenditures, including increases in pensions for senior citizens and salaries for public servants."

In other words, if the Government's current plan is implemented, 1 trillion MNT of the Oyu Tolgoi dividend would be added to the Savings Fund.

DEVELOPMENT FUND HAS YET TO RECEIVE ANY FUNDING

Of the three specialized funds under the Chinggis Khaan Sovereign Wealth Fund, the Development Fund has yet to receive any assets. Although the law assigns the Ministry of Finance responsibility for developing the Fund's asset management policy and submitting it to the Government, this has still not been approved.

While the law specifies the Fund's funding sources, these are not regular revenue sources. Instead, funding is provided only when certain conditions are met. Specifically, the law stipulates that 50% of additional budget revenue generated when the consolidated budget records a surplus and the prices of key mineral commodities exceed the benchmark prices used in the annual budget should be transferred to the Development Fund.

As a result, the amount of funding available to the Development Fund is directly linked to commodity price cycles and the state budget balance.

In other words, the law does not guarantee regular funding for the Fund unless favorable mineral prices and a budget surplus are in place.

ACCUMULATING ASSETS IS NOT ENOUGH; MANAGING THEM MATTERS

It is worth noting that the legal and information foundations are now beginning to take shape. For example, a unified database containing 26 types of information has been established, covering financial and tax information, production, reserves, extraction and state ownership of holders of strategic and prospective mineral deposits. It also includes calculations for replacing state ownership with a special mineral royalty, as well as comprehensive assessments of overall project benefits and risk-return ratios. This will provide an important basis for bringing negotiations between the Government and private-sector companies to a level based on detailed calculations and reliable evidence.

In addition, the 2025–2030 roadmap systematically distinguishes and defines the activities of the three funds, each with its own objectives, ability to adapt and risk assessment characteristics.

The plan is to initially invest the assets in secure and flexible instruments, and then gradually shift them into diversified asset classes such as international bonds and equities, including ETFs. This is a sound approach that helps avoid the risk of locking up the assets in a single type of investment, such as short-term deposits or low-yield mortgage bonds.

As the Fund's assets grow, the proposal to strengthen domestic capacity while also engaging professional international investment managers is significant. It would help overcome the limitations of keeping the Fund's assets solely in deposits at the Bank of Mongolia and create opportunities to earn higher returns from global markets.

Today, Mongolia has established a wealth fund framework, but it is still too early to say that the economic discipline of this institution has been fully established. On the one hand, the Fund aims to build up savings and grow its assets, while on the other, there is also a tendency to use accumulated assets to address current social and budgetary needs. If this contradiction persists, the Wealth Fund risks becoming a financial reserve to be used when budget pressures increase, rather than a long-term investment mechanism separate from the state budget.

In addition, the next challenge for the Wealth Fund is not simply accumulating money, but managing those assets professionally. Mongolia may have the potential to accumulate several billions of US dollars in assets, but if returns on asset management, risk allocation, the ability to adapt, and competitiveness in international markets remain inadequate, accumulation itself cannot become a mechanism for creating wealth. In other words, in the years ahead, the success of the Wealth Fund is likely to be measured not by "how much has been saved," but by "how effectively those accumulated assets have been managed and grown."