Two Percent Interest or Pensioners Go Without. Thanks RIO. Minister of Finance J.Erdenebat spoke to News.mn, and said that it is impossible to increase pensions and wages in 2015. The previous cabinet reported that the 500 billion MNT for increasing wages and pensions was cut due to budget-saving amendments.
The Minister said, “The economy has expanded, we don’t have the ability to increase the budget. We can’t finance additional expenses, so it’s impossible to increase wages and pensions until the economy has recovered.”
J.Erdenebat also said that the budget’s revenue and expenses are both being reduced by 905 billion MNT following amendments to the 2015 budget. The Mongolian People’s Party (MPP) and the Democratic Party (DP) agreed to not increase national debt when they established a coalition government, and now the law on budget sustainability is being amended, which means that the nation’s debt will reach 70 percent of GDP.
The Finance Minister explained, “When the two parties were establishing a coalition government, the total amount of national debt was 49 percent of GDP. When I became finance minister, it was 53 percent of GDP, and currently the debt is 55.2 percent of GDP.”
J.Erdenebat said that the Cabinet decided to increase the debt ceiling to 70 percent of GDP, because short term commercial loans make up the largest percentage of debt structure, and added that it will be difficult to finance big projects through short term loans.
“The Cabinet decided to issue a loan guarantee to entrepreneurs under the Parliament’s control, to support economic expansion policy and business, if the debt ceiling was increased. But the final decision will be made after a discussion with the parties and coalitions in the Parliament,” said the Finance Minister.
“The debt ceiling and budget deficit have already exceeded their limits in accordance with the law. Currently, the deficit is at 3.4 percent, but if we add bonds out of the budget and the financial investments of the price stabilizing program, the budget deficit will reach nine percent,” said the Minister.
The Minister added that the foreign financial organizations and countries have suggested taking long term concessional loans with up to two percent interest over 20 years.
“If we want to expand the economy, we have to use long term concessional loans, because it might take a long time until the projects financed by short term, high interest loans will benefit the economy. This year we planned to provide project financing of 400 billion MNT from the state budget, but the debt service payments have reached 700 billion MNT, so we need to change debt structure and change the short term commercial loans into long term concessional loans, but the parties will decide this issue,” said Erdenebat.
In order to amend the law on budget sustainability, two-thirds of MPs have to vote in support of the change, but according to some sources, the majority does not support amending the law.
The Finance Minister said, “The law on sustainability has to be amended, we will just have to decide if it should be amended as it is now – namely, having a debt ceiling of 55 percent and budget deficit of five percent, or to increase the debt ceiling. But we have no other choice than amending the law. If we don’t amend the law, all submitted projects will violate the law.