Mongolia government collapses as budget deadline looms

By bne IntelliNews November 5, 2014


Mongolia's parliament is fast approaching the deadline to pass the budget for next year, but one would hardly know it with the political drama unfolding as Mongolia's parliament voted on November 5 to remove Prime Minister Norovyn Altankhuyag amid concerns about the economic downturn.

Lawmakers had been preparing to vote on appointments for a government reshuffle that was largely motivated by economic concerns. 

Mongolia's flagging economy has hit a political breaking point after over two years of declining foreign investment. Mongolia's central bank reported a 59% decline in foreign investment for October from the year before, which is a large reason why growth of the mining-based economy has yet to come close to 2011's stellar 17.5%. Troubles in the mining sector, particularly with the giant Oyu Tolgoi copper-gold mine that should drive the economy over the next decade, are no help either.

“We first got an inkling that there would be trouble ahead for our commodities' exports in the second half of 2011, which was the peak year economic growth,” says Badral Munkhdul, head of the Ulaanbaatar-based market intelligence firm Cover Mongolia.

China, the main consumer of Mongolia's coal and copper resources, has reduced its consumption as its economy also slows. That has contributed to a price decline of 21.7% for coking coal in the year to November, according to data from Mongolia's Khan Bank. “We can see now that Mongolia is one of the most-impacted economies from the China slowdown, if not the most affected,” Munkhdul says.

In 2011, new jobs were being created as money poured in from around the world into Mongolia-based businesses. Today, however, companies are scaling back and introducing cost-cutting measures to keep afloat. The World Bank has predicted 6.3% economic growth for 2014 – still buoyant but nowhere near the stratospheric growth rates of a few years ago.

The now-outgoing Prime Minister Altankhuyag's solution has been a complete government overhaul. Seven ministers were kicked out in October, including the ministers of finance and mining, when parliament approved Altankhuyag's proposal to consolidate government ministries to 13 from 16, and replace key positions in his cabinet.

With three less ministries now in play, the parliament had been scheduled to vote on the new appointments proposed by Altankhuyag shortly after he began announcing candidates on October 15. But the coalition government twice delayed the vote and then a no-confidence vote called against the government on November 5 ended up with 34 of 66 members of parliament voting in favour of ousting Altankhuyag, Mongolian television showed. Eight members of his own coalition government failed to vote.

Altankhuyag had hoped to turn the economy around with measures such as a new investment regime, a cut in the royalty tax for gold, and new laws for mining and pumping oil that he hoped would entice back investors. But little has changed.

“The opposition is doing what oppositions do, laying down the blame on the events that led up to the current economic woes,” said Munkhdul.

The budget, meanwhile, is being held hostage to the political battle. The deadline is November 15 for parliament to pass a budget that pegs foreign debt below 40% of GDP. The debt ceiling is a new restriction for next year that Altankhuyag had attempted to raise, but parliament wouldn’t budge. Mongolia currently has a debt/GDP ratio of about 49%, a civil servant familiar with this year's budget-making process tells bne.

The budget is way behind schedule, too, because the parliament has rejected two proposals.

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