Mongolian
economics 2017
At
the early of 2017, Mongolian and some external economists supposed that
Mongolia will be declared its default because of facing three urgent finance
issues /please see Mongolian GDP growth 2017 projection from table 1/ even
though Mongolian budget implementation of 2016 was over its projection /table
2/. And, foreign investors investment had dramatically dropped since 2013
/table 3/.
First
reason of announcing of Mongolian default was that U.S. $ 580.0 million of
“Euro” bond of being issued from Development bank of Mongolia is ending up its
agreement term on March 21, 2017 and it has five years and its annual return
was 5.75 percentages. However, Mongolian government, Ministry of Finance
Mongolia, issued totally new bond “Khuraldai” with U.S. $ 600.0 million of
seven years and 8.75 percentage for U.S. $ 475.9 million which was replaced for
82.5 percentages of “Euro” bond owners and 7.625 percentages for the remaining
of U.S. $ 124 million of “Khuraldai” bond was cashed out then paid for “Euro”
bond rest shareholders of U.S. $ 104.1 million /17.5 percentages of “Euro” bond/[1].
Second
financial risk was what “Swapping agreement from MNT to RMB” entered between
Mongolia’s central bank and the Bank of China also ended on July of 2017. This
agreement with RMB 5.0 billion and three years initially signed in 2011 and its
amount was doubled in 2012, 2014 then extended its term by 2014, 2017. The
result of successful negotiation, this swap agreement maturity will be in 2020[2]. RMB currency rate is directly
influenced for Mongolian daily life because 31.0[3]
percentages of Mongolian total import of 2016 was from China.
Third
issue is near future financial burden. It is “Chinggiss” bond with U.S. $ 500.0
million 5 years returning yearly 4.125 percentages ending its term in January
2018 and U.S. $ 1.0 billion 10 years returning annually 5.125 percentages
ending its term in December 2022[4].
We
can tell Mongolian economics are gradually growing and above mentioned three
international organizations’ projection will be changed after those events.
Plus, “Erdenes Tavan Tolgoi” JSC, natural resources have 70.0 million ton coal
deposit and it is strategically significant mineral deposit of Mongolia, had
been paid about U.S. $ 70.0 million remaining of U.S. $350.0 million loan
agreement of “Coal purchase and sale” entered with China’s state – owned
aluminum corporation Chalco LLC. By July 31 of 2017, “Erdenet Tavan Tolgoi” JSC
had totally exported 5.9 million ton coals which measures 50 percentages of one
of the two Mongolian border port named “Gashuun Sukhait” port. At the last
year, “Erdenet Tavan Tolgoi” JSC had managed its debt and being sold its
produced raw coal by U.S. $ 72.5 on around first season of 2017 what price is
tripled its sale compared with U.S. $ 27.0 on September 2016[5]. As presented on the “Erdenes Tavan Tolgoi”
JSC, it has been gained MNT 255.7 billion net profit and MNT 149.2 billion,
which is about 6 percentages of total taxes income[6],
paid for General Department of Taxation in first half year of 2017.
Fortunately,
Mongolia is rich of minerals. Its symbol is “Oyu Tolgoi” LLC which is owned by
34 percentages of Mongolian government and others are hold by “Turquoise Hill
Resources” of Canadian company. Its last year revenue is almost equals
Mongolian total revenue /table 4/.
And,
Mongolian government made a negotiation with International Monetary Fund /IMF/ for
participating in “Extended Fund Facility” program. For the funding under the
program, total funding amount is U.S. $ 5.5 billion and consists of U.S. $
434.3 million from IMF, RMB 2.0 billion from “Swapping agreement from MNT to
RMB” and remaining funding from Asian development bank, World bank, and other
donor countries /table 5/. As reported from Mongolia’s central bank, IMF is
planning to fund U.S. $ 1.6 billion in 2017 and up its amount to U.S. $ 4.0
billion in 2020. As negotiated the contract of IMF with Mongolian government,
IMF some analysts come in Mongolia and check the funding implementation. Mongolian
government approved to add seven type taxes /table6[7]/,
increase pension age from 2018 by six months, and distribute child money to
60.0 percentages of only due to participating IMF “Extended Fund Facility” program.
The
initial review of IMF funding implementation was resulted on August 2 of 2017
and IMF analysts concluded that Mongolia passed its funding inspection. On
September of 2017, the analysts will present their audit result into its board
then seasonal funding is provided to market[8].
Listing
why we are supposing that Mongolian economy is grown. I could not see bad
economics situation, however, everything is depending on Mongolian government
and Development bank of Mongolia expenditure.
First
bright news is IMF “Extended Funding Facility” program[9].
The scope of IMF program, Mongolian tax revenue had been over went by MNT 658.6
billion at the first half year of 2017[10]. Also,
world metal markets prices is growing /table 7/ and 86 percentages of Mongolian
export revenue was consisted of metal exports /graph1/. And, Mongolian
government is paying attention on Mongolian key grown – driving projects /table
8/.
While
Mongolian bank lending has decreased by 5 times compared between 2013 and 2017,
Mongolian government internal and external debt’s ratio of 2013 and 2020 will
be 2:1 and 8:1. The highest point of gross debt will be in 2018[11]. In
conclusion, Mongolian economy is not in crisis, however, its real economy
crisis depends on corruption.
Appendixes
Table
1a. Mongolian GDP growth 2017 projection
International
Monetary Fund /IMF/
|
Asian
development bank
|
World
Bank
|
Ministry of Finance Mongolia
|
-0.2%
|
0.5%
|
2.7%
|
3.0 %
|
Resource: websites of
Ministry of Finance Mongolia, World Bank, International Monetary Fund, Asian
development bank
Table 1a. IMF projection of Mongolian GDP growth
2017
|
2018
|
2019
|
-0.2%
|
1.8%
|
8.1%
|
Resource:
http://eagle.mn/r/24821
Table 2 Mongolian FDI inflows and net sales
2011
|
2012
|
2013
|
2014
|
2015
|
2016
|
|
FDI inflows
|
4571
|
4272
|
2060
|
337
|
94
|
-4072
|
Net sales
|
88
|
82
|
-58
|
-80
|
15
|
-
|
Resource: UNCTAD, World
investment report 2017
Table
3 Mongolian preliminary budget implementation of 2016
2016 /million/
|
Projection by MNT
|
Implementation by MNT
|
Implementation by USD
|
Balanced revenue and donors
|
5,347,244.70
|
5,852,075.90
|
2,727.57
|
Total expenditure and net loan
|
9,693,415.90
|
9,519,906.10
|
4,437.10
|
Resource:
https://mof.gov.mn/wp-content/uploads/2017/01/Medee-12.pdf
Table 4. Funding some details of “Extended Fund Facility” program of IMF
Donors
|
IMF program USD million
|
Funding in 2017
|
China
|
2,000.0
|
Swapping MNT to USD agreement
|
Japan
|
850.0
|
300.0
|
Korea
|
500.0
|
|
IMF
|
434.0
|
|
World Bank
|
600.0
|
79.0
|
Asian Development Bank
|
1,350.0
|
250.0
|
Recource: http://www.montsame.mn/read/56302
Table
5 Oyu Tolgoi LLC’s financial indicators and Mongolian total revenue
2016
|
2017
|
|
Copper in concentrates
|
201,300.0 tonnes (actual) 175,000.0 - 195,000.0 tonnes
|
130,000.0 - 160,000.0 tonnes
|
Gold in concentrates
|
300,000.0 ounces (actual) 255,000.0 - 285,000.0 ounces
|
100,000.0 - 140,000.0 tonnes
|
Operating cash costs
|
$ 840.0 million
|
$ 720.0 million
|
Capital expenditures
|
$ 200.0 million (open pit)
|
$ 100.0 million (open pit) $ 825.0 million - $ 925.0
million (underground)
|
Total revenue
|
$ 1,203.3 million
|
|
Mongolian balanced revenus of 2016
was $ 2,727.57 million
|
||
Resource:
http://www.turquoisehill.com/i/pdf/ppt/Investor_presentation_Feb_2017.pdf
Table 6. Increasing seven tax rates
№
|
Taxes
|
Remarks
|
1
|
To
increase excise tax rate on diesel
|
|
2
|
To
increase personal income tax rate by step
|
10,
15, 20
|
3
|
To
increase social insurance premium
|
Adding
1 rate from 2018
|
4
|
To
increase excise tax rate on automobile
|
Adding
3-15 percentages depending on automobile’s age and 20-250 percentages into
automobile with 4500 engine capacity depending on its age
|
5
|
To
increase excise tax rate on tobacco and alcohol
|
Adding
10 percentages in 2018 and 5 percentages in 2019, 2020 respectively
|
6
|
To
tax from saving interest from 2018
|
To
be performed in April, 2017
|
7
|
To
increase excise tax rate on imported tobacco up to 30 percentages
|
Now,
its tax rate is 5 percentages.
|
To
improve general department of taxation management and review the tax
collection realistic
|
||
Resource:
http://eagle.mn/r/24821
Table
7 Copper metal’s LME average price and dollar’s average rate /copper is 40.9
percentages of exported metals/
Thousand ton
|
345,400.0*
|
a
|
c=a*bi
|
d=c*2250
|
Diff market price
|
d=c*2433.2
|
USD diff
|
Total diff
|
Balanced USD
|
$4,599.0
|
b1
|
$1,588.5
|
$3,574,112.9
|
$3,865,125.1
|
$291,012.2
|
$291,012.2
|
|
Projection USD
|
$4,800.0
|
b2
|
$1,657.9
|
$3,730,320.0
|
$156,207.2
|
$4,034,050.9
|
$303,730.9
|
$459,938.1
|
average of I-VIII months
|
$5,781.0
|
b3
|
$1,996.8
|
$4,492,704.2
|
$918,591.3
|
$4,858,510.1
|
$365,806.0
|
$1,284,397.3
|
Note: *Mongolian united
budget introduction 2017 projection of copper export and U.S. $ 1 equals to MNT
2250.0.
Graph 1. Mongolian gross export 2016
Recources: IMF
website
|
Table 8 Key Growth – Driving Projects
Project
|
Highlights
|
Expected investment
|
Expected Completion Date
|
Oyu Tolgoi phase II
|
US $ 825.0 - 925.0 million
investment in underground, US $ 100.0 million investment in open pit mining
within 2017
|
US $ 6.4 billion
|
2020
|
Oyutolgoi railway
|
Commenced in May 2013 and 75%
completed as of May 2014; US $ 200.0 million invested in the project
|
US $ 1.3 billion
|
2019 - 2020
|
Tavan Tolgoi mining
|
Shenhua - MMC - consortium
continues negotiation with Government
|
US $ 1.0 billion
|
2020
|
Tavan Tolgoi power plant
|
Marubeni / MCS Power signed
investment contract in June 2016
|
US $ 1.0 billion
|
2020
|
Gatsuurt gold mining
|
Government expected to grant
permission by April / May 2017
|
US $ 0.6 billion
|
2017
|
Grand total
|
US $ 10.3 billion
|
2017 - 2020
|
|
Source: Government of
Mongolia, Ministry of Finance of Mongolia, National Statistics Office of
Mongolia
[1]
Bloomberg TV Mongolia website
[3] Mongolian Customs website
[4] Development Bank of Mongolia introduction presentation
of “Chinggis” bond and its implementation
[5] http://www.erdenestt.mn/?p=1954
[6]
https://mof.gov.mn/wp-content/uploads/2017/01/Medee-12.pdf,
and own calculation
[8]
http://www.imf.org/en/News/Articles/2017/08/02/pr17313-mongolia-imf-reaches-staff-level-agreement-on-first-review-of-extended-fund-facility
