China is about to receive its first Russia LNG via the “Power of Siberia“ pipeline on December 1st. That transports gas from Yakutia to the Russian Far East Province of Primorsky Krie at Blagoveshchensk and then heads south into Northern China as well as Japan.

The order to examine the Mongolia route came from direct discussions between Russian President Vladimir Putin and the Gazprom CEO Alexei Miller, where Putin is said to have stated:
“I would like to refer to the issue that we have repeatedly discussed with you and with Chinese partners, I mean the possibility of using the resources of the Irkutsk and Krasnoyarsk regions. Also, have a look at the reserves in Yamal for supplies to China via the western route through Mongolia. That is a challenging route, though the preliminary consideration of the issue has shown that it is quite realistic, and Chinese partners also tend to agree.”

Such pipelines are hi-tech. They need to be able to withstand temperatures as low as -62 °C (-79.6 °F). Nanocomposite coatings are used to increase the lifetime of the pipelines, which must also be able to withstand earthquakes by incorporating materials that will deform under seismic activity. Internal coatings ensure energy efficiency by reducing the friction of the pipeline’s inner surfaces. The Mongolia pipeline can be expected to run alongside the Trans-Mongolia railway, which enters Mongolia from Irkutsk and heads across the country, exiting at the Chinese border city of Erlian. Russia agreed last week to upgrade this route.

The cost is likely to run into several billion dollars, and will also be a boost to Mongolia as the country will receive transit fees in addition to providing maintenance and support services. Should it go ahead, completion would be in the region of about five years as pipelines already exist between Yamal and Irkutsk.

At the end of August 2019, the national currency in circulation reached MNT 925.7 billion, showing a decrease of MNT 9.3 billion (1.0%) from the previous month and by MNT 1.8 billion (0.2%) from the same period of previous year.

At the end of August 2019, the amount of outstanding loan to entities, enterprises and citizens amounted MNT 18.3 trillion, showing a decrease by MNT 23.0 billion (0.1%) from the previous month, while it shows an increase of MNT 2.3 trillion (14.5%) from the same period of previous year.

At the end of August 2019, the principals in arrears amounted MNT 982.4 billion, showing an increase by MNT 103.8 billion (11.8%) from the previous month, while it shows a decrease by MNT 36.1 billion (3.5%) from the same period of previous year. The principals in arrears makes up to 5.4% of total loans, showing an increase of 0.6 points from the previous month, while it shows a decrease of 1.0 points from the same period of previous year.

At the end of July, the outstanding loans to individual in arrears amounted MNT 12.1 trillion, decreased by MNT 8.0 billion (0.1%) from the previous month, but increased by MNT 1.8 trillion (17.7%) from the same period of previous year. From the total loans to individuals 37.2 percent was mortgage loans, 27.4 percent was salary loans, 13.1 percent was small and medium enterprises loans, 10.1 percent was consumer loans, 6.7 percent was pensions and 5.5 percent was other loans.

At the end of August 2019, the non-performing loans in banking system amounted MNT 1.9 trillion, decreased by MNT 19.8 billion (1.0%) from the previous month, but increased by MNT 545.6 billion (39.9%) from the same period of previous year. The non-performing loans in the banking system makes up to 10.5% of total loans, showing an increase of 1.9 points from the same period of previous year.

Source: National Statistics Office of Mongolia

In August 2019, equilibrated revenue and grants of the General government budget reached MNT 841.2 billion, decreased by MNT 293.4 billion or 25.9% from the previous month whereas, total expenditure and net lending reached MNT 826.8 billion, increased by MNT 35.3 billion or 4.5% from the previous month.

In the first 8 months of 2019, tax revenue reached MNT 6.2 trillion, increased by MNT 1104.8 billion or 21.5% compared with the same period of previous year. This growth was mainly affected by increases of MNT 362.9 billion or 28.1% in income tax, MNT 267.1 billion or 26.9% in social security revenue, MNT174.9 billion or 13.0% in value added taxes, MNT 116.4 billion or 24.1% in other tax, MNT 89.3 billion or 18.0% in excise taxes and MNT 80.7 billion or 18.7% in revenue from foreign activities.

General Government budget revenue was comprised of 81.3% of tax revenue, 8.2% of non-tax revenue, 10.0% of the future heritage fund and 0.5% of the stabilization fund.

In the first 8 months of 2019, total expenditure and net lending of the General government budget increased by MNT 920.3 billion or 17.0% compared with the same period of previous year. This increase was mainly due to MNT 532.1 billion or 11.7% increase in current expenditure and MNT 460.4 billion or 69.1% increase in capital expenditure.

General government budget expenditure and net lending was comprised of 80.1% of current expenditure, 17.8% of capital expenditure and 2.1% of net lending.

Source: National Statistics Office of Mongolia

In August 2019, the gross industrial output reached MNT 1.6 trillion and increased by MNT 135.5 billion (9.3%) compared to the previous month.

In August 2019, the seasonally adjusted industrial production index was 176.2 (2010=100), increased by 11.5% from the same period of previous year, whereas, it is decreased by 1.6% from the end of previous year and by 0.5% from the previous month.

In the first 8 months of 2019, in mining sector, extraction of zinc concentrate, crude oil, copper concentrate, fluorspar, gravel, coal and iron ore are increased by 0.4-36.0% compared to the same period of previous year, which in manufacturing sector, production of wooden products, horse meat, vacuum windows and doors, cashmere products, buuz and dumpling, wooden window and door are increased by 2.2% to 2.7 times more.

On the other hand, in mining sector, extraction of molybdenum concentrate and gold are decreased by 4.7-20.5%. In manufacturing sector, productions of beer, sausage products, alcoholic beverage, copper cathode, combed cashmere, and fodder are decreased by 2.7-35.6% compared to the same period of previous year.

In the first 8 months of 2019, the sales of industrial production reached MNT 13.5 trillion, increased by MNT 2.0 trillion (17.7%) from the same period of previous year. From the total sales of industrial production, MNT 9.5 trillion (70.4%) were export.

Source: National Statistics Office of Mongolia

In the same period of 2019, total foreign trade turnover increased by USD 1.0 (11.9%) billion, of which exports increased by USD 715.8 million (15.3%) and imports increased by USD 289.2 million (7.6%) compared to the same period of previous year.

In the first 8 months of 2019, foreign trade surplus reached USD 1.3 billion, which increased by USD 426.6 million from USD 869.2 million in the same period of 2018. In August 2019, foreign trade surplus reached to USD 231.6 million. Compared to the previous month, foreign trade surplus increased by USD 212.5 million. The 715.8 million increase in exports from the same period of previous year was due to the increases of USD 294.8 million in bituminous coal and USD 199.8 million in gold, unwrought or in semi-manufactured forms exports.

The USD 289.2 million increase in imports from the same period of previous year was mainly due to USD 57.2 million increase in mineral products imports, especially, USD 99.0 million increase in diesel imports and USD 176.0 million increase in transport vehicles and its spare parts.

Exports of mineral products, textiles and textile articles, natural or cultured stones, precious metals jewelry make up to 95.7 percent of total export. On the other hand, 68.6 percent of imports are mineral products, machinery, equipment, electric appliances, transport vehicle and its spare parts and food products.

Source: National Statistics Office of Mongolia

However, exports were higher in the first half of 2019, but supply dropped 14-15 percent only in August from a year earlier. Zinc price is expected to increase in September and October, according to the Director-General of Tsairt Mineral LLC.

Tsairt Mineral LLC supplies about 75 percent of Mongolian zinc exports and Chinese invested Xin Xin LLC accounts for the remaining 25 percent. Experts believe that zinc extraction in China has increased, as reserves in the London Metal Exchange (LME) grew. However, the prices are expected to decline, according to the analysts of Deutsche Bank and Morgan Stanley. The reserves in LME dropped to the lowest level since April, with zinc price recovering and reaching the highest level in one month. The price of zinc per ton stands at USD 2,357.

Joining the Inter-American Convention on Serving Criminal Sentences Abroad, conditions will be created to build relations reflected in the convention with 21 countries such as the United States, Canada, Brazil and Mexico, which are member and non-member states of the Organization of American States. The convention is consisted of 19 articles and It reflects main issues such as procedure for transfer, refusal of transfer request, rights of the sentenced person who is transferred and manner of serving sentence, review of sentence and effects in the receiving state.

Mongolia has established bilateral agreement on the Transfer of Sentenced Persons with 11 countries and joined Berlin and COE Conventions on Transfer of Sentenced Persons respectively. In frames of the Conventions, some Mongolian citizens who are serving sentence abroad have been transferred to their home country and transfer operation of one citizen each from Russia and Japan is running underway now.

-The European Bank for Reconstruction and Development is one of the major investors of Mongolia. What further projects EBRD is planning to implement in the country?

-I am happy to say that we have projects across all sectors in Mongolia. We started working with SME’s but now expanded to infrastructure, especially renewable energy sector. And of course, we invest quite a lot in financial institutions as well. Across the board, we have now quite a balanced project activities in the country.

-Could you mention a few successful projects in specific?

-I would like to focus on something that we have done now in Mongolia for a while, which is not strictly focused on only investments. We invested over EUR 1.6 billion in the economy of Mongolia. What we also do a lot is to combine our investments with policy engagement, so that we can cooperate with a number of sectors, government agencies, and institutions. It’s interesting that we can reach a client and make a real difference with that client. For example, Gobi JSC, one of our clients who are demonstrating other investors to invest in the cashmere sector. What we are doing now with policy engagements is important. If we take the learnings from the projects, we talk to the government about changing regulations and laws, so that the changes and experience of that project can become law across the sector. In other words, the impact of our projects is really systemic.

-EBRD has been a long term partner of Mongolia since its transition to democracy. Is Mongolia a good partner, including both the SME’s and the government?

-Well, Mongolia has been an excellent partner for EBRD. There are three reasons to assume so. Firstly, SME’s have the growth aspiration. There are companies that want to grow and improve their standards. Secondly, Mongolia has the freedom of democracy, where people can say what they want freely. And the third reason is that state entities always try to solve the problems and cooperate with us, even though there are some obvious difficulties.

The government paid MNT 702 billion to debt in the first half of this year. Of these, MNT 265 billion were principal payments and MNT 437 billion were interest payments, according to the Ministry of Finance. As a result, the volume of government debt in the gross domestic product has decreased.

The Government aimed to reduce the debt to 55.3 percent of GDP when approving this year’s budget. Also the Government managed to reduce interest expense by raising equity management and redeeming higher-rate securities over time. As estimated, one out of MNT 13 of 2019 budget expenditure will be spent on interest rate payment. In the upcoming years, high-yield foreign debt is expected to be a major challenge for the Government and the Bank of Mongolia (BoM). For example, the Government and the private sector will pay a total debt of USD 14.4 billion in 2020-2024. The government and BoM will pay a debt of USD 6.7 billion.

Mazaalai, Chinggis, Gerege, and Khuraldai are Mongolia’s main international bonds. These bonds are worth USD 2.9 billion and payable by 2024. In specific, Mazaalai bond which is worth USD 500 million is due in 2021, Chinggis bond worth USD 1 billion in 2022, Gerege bond worth USD 800 million in 2023, and USD 600 million of Khuraldai bond will expire in 2024. According to market data, Gerege bond price has increased by 7 percent, to USD 102 since the beginning 2019. The rate of return to investors was reduced by 27 percent, to 5.035.

The Parliament approved a strategic document of government debt management 2019-2022. “The payment of foreign securities is due to be paid from the cash deposit, repurchase, repayment, and repayment of long-term debt to try to use the resources,” the document included.

As a result of the Government’s “Online, Transparent and Effective” budgetary policy carried out in recent years to revive the economy, heal the budget and financial environment and tighten the discipline, the economic growth reached 7.2 percent in 2018 and the expected growth to be around 8 percent for 2019, which is the highest increase in the past four years. The budget performance for 2018 showed that the general budget surplus amounted to MNT 27.8 billion. Moreover, the improved business environment brought about 30 percent increase in investment volume and 16.9 percent drop in loan interest rates.

Next year, the aforementioned budgetary policy will continue in scope of ensuring sustainable growth of economy and comply with such principles and goals as preservation of budget disciplines, reduction of deficits in several stages and reforms in the tax laws supporting business environment and employment. The modernization in the customs will allow increased foreign trade turnover and refined tax collection of natural resources. The investment works launched last year will be fully completed and new projects addressing pressing social issues will begin.