A STRONGLY DEVELOPMENT-FOCUSED BUDGET

I. Otgonjargal  

The Ministry of Finance asserts that the 2025 budget focuses on development and reflects significant reforms in budget planning. In this context, three key updates have been made: 

1. Over 4% of GDP will be allocated to finance development projects. 
2. Current budget expenditures will be capped at no more than 30% of GDP. 
3. More than 2% of GDP will be designated for repaying the principal amount of government debt (calculated at nominal value).
The Joint Government, guided by the motto “Courage for Rapid Development,” highlights that it has allocated budget investments specifically for development. Over the four-year period from 2024 to 2028, a total of 149 projects are planned, including 14 mega projects.

The 2025 budget is structured around the concept of regional development, with plans for growth in the following six regions:

•    Western Region: Focused on sustainable development.
•    Northern Region: Emphasizing tourism and industrial development.
•    Central Region: Designated as a hub for healthy food production and export.
•    Khangai Region: the heartland of the world’s nomads, fostering creative cultural production.
•    Eastern Region: international trade, transportation, and logistics.
•    Gobi Region: creator of the national wealth fund.
In these regions, 220 projects are planned to be implemented in three stages, funded by the state budget from 2024 to 2050.

The government’s action plan has also subdivided these regions into sub-regions to promote regional and human development, as well as to enhance the economy and governance. For example:
•    Western Region: Diversified energy and natural tourism sub-region.
•    Northern Region: Specialized natural tourism and industrial sub-region.
•    Central Region: Specialized agricultural and industrial sub-region.
•    Khangai Region: Traditional livestock farming and urban development sub-region.
•    Eastern Region: Specialized historical tourism and intensive agricultural sub-region.
•    Gobi Region: Diversified industrial and green energy sub-region.

The following projects are classified as development initiatives: the ‘Five Circles for Rural Revival’ auto road, renovation of border crossings, the ‘Go Mongolia’ steel cable-stayed bridge, the Tuul River highway, the ‘New Ring Road’ project, the New Kharkhorum city, the Khushig Valley Tunnel, a new energy source, the Erdeneburen hydropower station, and the One Stop Service Center.

The 2025 budget allocates a total of 10.3 trillion MNT for infrastructure and regional development. Of this amount, 38%, or 4.3 trillion MNT, will be financed by the state budget. Additionally, 27% of the funding, equivalent to 2.6 trillion MNT, is expected to come from foreign loans. Lastly, the remaining 35%, totaling 3.4 trillion MNT, will be sourced from local budgets to address key issues facing Ulaanbaatar, fund small community projects, and support initiatives essential for the ongoing operation of public services.

In addition, an investment of 10 trillion MNT from the state budget, along with foreign loans and assistance, will be allocated to the following sectors:

•    24% for road and transportation.
•    10% for infrastructure and housing.
•    9% for education.
•    8% for public services.
•    8% for the energy sector.
•    7% for industrial development.
•    35% for other sectors.

Thus, it can be said that the 2025 budget is substantial and aligns with the Development Policy of the Joint Government. For instance, the budget expenditure in 2023 was 22 trillion MNT, and  projected to increase to 36 trillion MNT in 2025.

Recently, information about the draft budget has been shared with the public by journalists, and economists have been analyzing it from various perspectives. According to them,  budgetary spending is excessively high. While the primary focus is on infrastructure development, they caution that this budget could also increase imports, potentially contributing to rising inflation.

You may have noticed that the action plan of the Joint Government includes several large heavy industry projects, such as steel smelters. However, these projects are not part of those financed by the state budget or foreign loans and assistance. 

The implementation of heavy industry projects is planned exclusively through private investment. Therefore, to encourage the private sector to invest in these large-scale projects, the government is focusing significantly on attracting foreign investment.

It is  important to highlight a key aspect of the current budget: the implementation of the Law on the National Wealth Fund. The Future Heritage Fund will be managed by the Ministry of Finance, the Savings Fund by the Ministry of Family, Labor and Social Protection, and the Development Fund by the Ministry of Economy. For instance, 499.5 billion MNT has been accumulated in the Savings Fund in 2024.

The Savings Fund will finance projects in three areas: health, education, and housing. In the 2025 fiscal year, the government will prioritize building housing to reduce air pollution over spending on health and education. As a result, 507 billion MNT has been allocated for housing in 2025.

In terms of development projects, the government is placing greater importance on the renovation of border crossings and the construction of export roads, followed by tourism roads. The private sector, a key pillar of the economy, is encouraged to participate in these large projects. The government will focus on investing in infrastructure while allowing the private sector to take care of other things.

As of the first half of 2024, 68,000 new jobs have been created as a result of economic activity. According to initial projections from the Ministry of Finance, an additional 30,000 jobs are expected to be created in the fiscal year 2025.

Finally, the budget for 2025, which will finance many unprecedented projects, is projected with greater optimism than before. The average price of coal in the budget is estimated to be $105 per ton, with expectations to export at least 80 million tons. If the railway is finally connected to the Chinese side, it is believed that coal exports could increase by an additional 20 million tons, bringing the total to 100 million tons.

The draft budget was submitted to Parliament on August 30. As a result, the public will have the opportunity to discuss the budget from various perspectives until it is approved. In the next issue, we will provide more details about the budget that is set to be approved soon by Parliament .