Beruflich Dokumente
Kultur Dokumente
________________________________________________________________
________________________________________________________________
Ministry of Finance
Government of Mongolia
Ulaanbaatar, Mongolia.
January 2008
.
1
Formerly Economic Adviser, Ministry of Finance and Planning Commission of the
Government of India, and Professor (Public Policy), Institute for Integrated Learning in
Management (IILM), New Delhi. For any clarifications contact das.tarun@hotmal.com
CONTENTS
Part-1: Methodology
Selected References
Part-2: Policies
Selected References
Rule of Law and Integrity –It must be subject to equitable enforcement of fair
and transparent laws, regulations and codes, so that the basic culture in the
public sector supports ethical behavior and strict actions to fight corruption.
When anticipated resources fall short of budgetary targets due to some internal
and external shocks, it is customary for the government to resort to pro-rata
reduction in the operating expenditures or to have cross-the-board cuts in the
capital expenditure. However, cross-the-board cuts are less desirable than the
tougher choice of reallocating among line ministries and budgetary agencies.
Planning by definition deals with the future. But, annual budget and financial plan
often ignore the long-term objectives and sustainability. Therefore, financial
planning must have the medium term panning horizon, just as the Medium-term
or multi-year budget frameworks. Although, multi-year allocations may not be
legally binding due to change in government or unanticipated events, medium-
term plans help to overcome the following difficulties:
It may be emphasized here that in planning one should not focus on absolute
magnitudes and nominal numbers. On the contrary, the focus should be on the
direction of change and on real numbers (generally expressed as percentages of
or ratios to Gross Domestic Product at current market prices), because when
nominal economic growth falls or inflation rate accelerates, revenues and
expenditure forecasts expressed as ratios to GDP are automatically adjusted.
Thus the Fiscal Responsibility Acts of various countries fix targets for fiscal
deficit, revenue deficit, outstanding public debt and contingent liabilities,
incremental debt or incremental contingent liabilities in terms of percentages of
GDP (and not in absolute numbers).
It is now generally recognized that the central bank must be independent with
adequate power to use monetary instruments for inflation targeting and to sustain
growth prospects. Government should not manipulate monetary policy for
political purposes. While government will have independence to determine tax
rates, impose new taxes and allocate resources, monetary authority should have
independence to maintain low inflation rates and stability in real interest and
exchange rates. However, certain parameters for financial and fiscal planning,
notably forecasting of major economic parameters such as growth rates, inflation,
balance of payments, private savings, private investment etc., deserve
agreement by both monetary and fiscal authorities.
Public Financial Management covers the institutions and processes related to the
management of public resources. This process consists of three stages.
Determination of policies and priorities
Allocation of public resources in accordance with the specified policies
Establishment of financial control, accounting and audit mechanisms to
ensure the economical, effective and efficient acquisition and utilization of
public resources
Financial controls include both Internal Control and External Control, and there
could be both ex-ante control (before disbursement of funds) and ex-post
control (after disbursement of funds).
The same accounting system and standards are used in all budget entities within
the scope of the general government.
The Ministry of Finance determines the accounting and reporting
standards and frameworks, Chart of Accounts and the format, period and
type of the reports that will be applied by all budgetary bodies within the
scope of general government.
MOF provides guidelines for preparation and public announcement of the
fiscal statistics.
MOF also determines rules and regulations for Ex ante control over the
payments, procurement, control over public revenues and expenditures
and mechanism to prevent irregularities and fraud.
approved budget for the budget entity. However, budget entities have the power
to save finances under certain heads and utilize the surplus for development
purpose. But the proposal needs be examined and scrutinized by the Financial
Adviser. Thus the Financial Advise/ Financial Control Officer helps the line
ministry for the following functions:
allocating appropriations
approving financial commitments
holding tenders and concluding contracts
overseeing purchase of goods or services
overseeing execution of public works
approvals for payment orders
Such Ex ante control mechanism is based on the principle that compliance audit
is performed before the payment is made at various stages of the spending
process. In the event that the transactions not approved are realized, the
authorizing officer shall be deemed to have personal responsibility.
3.2 Public Sector Management and Finance Act (PSMFA June 2002)
It is well known that the Government of Mongolia enacted the Public Sector
Management and Finance Act (PSMFA) on the 27 June 2002 in order to
modernize budget planning and budgeting systems as per international best
practices. The complete implementation of the provisions of the Act requires the
following activities on the part of the government:
(6) To conclude Performance Agreement between the Portfolio Minister and the
General Managers (GM) of a budgetary body within one month from the date of
the approval of the State Budget by the State Great Hural7. The Act also
specifies systems for the Assessment of Performance Agreement8 .
Despite these efforts and good results during the last five years, progress
towards full implementation of the PSMFA remains slow due to some structural
problems. Assessments made by the IMF and ADB experts have indicated the
following constraints:
(b) The issues and activities involved in budget modernization are complex,
but the international experiences for transition from the classical budget
techniques to the modern framework were not studied carefully and in a
timely manner.
In recent years Mongolian economy has performed very well. In fact, Mongolian
economy is presently in a rebound and resilient mood after successfully tackling
the adverse impact of the severe and successive dzuds during 2000-2002.
Economy performed very well since 2003 and achieved an average growth rate
of 8.4 per cent during 5 years 2003-2007 with peak at 10.7 per cent recorded in
2004 (Table-2). The mining, construction, wholesale and retail trade, financial
services, transport and tele-communications served as the main drivers of growth
supported by favorable weather conditions. Mongolian economy usually does
well when the weather conditions are favorable and commodity markets are
buoyant. Consumer prices inflation moderated from 11 per cent in 2004 to 7
percent in 2006, but increased to 8.6 percent due to rise of wages by 30 percent
at home and hardening of international prices of petroleum products abroad.
Interest rate on central bank bills declined from 15 percent in 2003 to 5.8 percent
in 2006, but was raised to 6.4 per cent in September 2007 by the Bank of
Mongolia as a part of policies for inflation targeting. The current account balance
on both the government budget and the external sector improved significantly
and were in surplus in 2006 and 2007.
Net present value of public external debt halved from 64 percent of GDP in 2003
to 32 percent in 2006. External debt service ratio (as percent of exports of goods
and services) declined significantly from 34 percent in 2003 to 3.4 percent in
2006. As per World Bank classification, Mongolia is now categorized as a low
income and les indebted country.
Foreign exchange reserves were rebuilt from their end-2003 low level after the
settlement of the pre-1991 Russian debt, and reached US$626 million
(equivalent to 3.4 months of imports) at the end-2006 and further to US$1290
million (equivalent to 8 months of imports) at the end-2007.
Mongolian economic prospects in the short and medium term are considered to
be bright. Assuming that there would be no major internal or external shocks
having destabilizing effects on the Mongolian economy and no monsoon failures,
Mongolia would be able to sustain real GDP growth rates around 10 percent in
2008-2011 supported by a growth rate of 5 to 6 percent in agricultural value
added, 10 to 11 percent in industry and 11 percent in services (Table-3).
Industrial and services production are expected to sustain growth momentum
largely driven by cyclical factors and induced by a rise in agricultural income and
increased public spending on physical and social infrastructure.
9
Author’s projections in this report. For details, see section 4.2.
Higher inflation rate also implies a more expansionary fiscal policy to encourage
work efforts and production, to enhance buoyancy in government revenues and
to foster private investment. Monetary policy can be accordingly designed to
support fiscal expansion and export promotion by achieving low real interest
rates for private investment and the alleviation of public-sector debts.
With higher inflation rate prevailing in the economy, monetary authority (i.e. the
Bank of Mongolia) could take direct measures (such as selective credit controls
and higher cash reserve ratios) to dampen the inflationary pressures resulting
from ‘supply shocks’— e.g., sharp increases in food and energy prices. They
should not hold back economic growth by raising interest rates and trying to
contain inflation at five percent or less. They could move aggressively to provide
increased access to affordable credit, through offering loan guarantees for
productive activities and reviving development banks. They could also pursue
appropriate foreign exchange management policies to reduce volatility in
exchange-rates and to maintain stability in real interest rates.
(b) Stability approach- Stable value for an item over the planning
horizon implying attainment of satiety or saturation level;
Table-6-A: Financial Planning for the Govt of Mongolia for 2009-2011 (Billion MNT)
ITEMS 2005 2006 2007 2008 2009 2010 2011
5. TOTAL EXP & NET LENDING 765 1237 1832 2569 3037 3622 4363
6. CURRENT EXPENDITURE 600 982 1414 1968 2335 2798 3391
6.1 Goods and Services 387 692 667 1020 1122 1234 1357
6.1.1 Wages and Salaries 143 197 307 566 623 685 754
6.1.2 Purchase of goods/services 244 496 360 454 499 549 604
6.2 Interest payment 21 18 20 21 22 22 23
6.3 Subsidies and transfers 193 272 727 927 1191 1542 2011
6.3.1 Subsidies 8 12 330 380 437 503 579
6.3.2 Transfers 185 259 397 548 754 1039 1432
7. CAPITAL EXPENDITURE 90 176 312 482 584 706 854
7.1 Domestic Investment 67 146 250 375 450 540 649
7.2 Capital Repairs 5 12 19 27 34 41 49
7.3 Other capital expenditures 7 9 18 17 24 34 48
7.4 Road fund by project loan 10 9 26 63 76 91 109
8. NET LENDING 74 79 106 118 118 118 118
8.1 Domestic (net) -14 -10 19 -44 -44 -44 -44
8.2 Foreign (net) 89 89 87 162 162 162 162
9. Overall Balance 73 123 -46 -165 -172 -191 -234
10 Current Balance 232 372 367 419 513 616 721
11. Mineral balance -49 -190 0 0 0 0 0
Table-6-B: Financial Planning for the Govt of Mongolia for 2009-2011 (Billion MNT)
ITEMS 2005 2006 2007 2008 2009 2010 2011
Outturn Outturn Outturn MOF Forecast Forecast Forecast
Final
.1. . 2. . 3. . 4. . 5. .6. .7. .8.
12. FINANCING: -73 -123 46 165 172 191 234
12.1 Foreign (net) 90 74 65 170 201 237 298
12.1.1 Project loans 99 98 112 225 280 336 417
12.1.2 Cash loans 11 6 1 6 6 6 6
12.1.3 Amortization -20 -29 -48 -62 -85 -105 -125
12.2 Domestic (net) -163 -198 -19 -5 -30 -46 -64
12.2.1 Privatization receipts 5 30 32 16 16 15 10
12.2.2 Repayment of Govt bonds -14 0 0 0 0 0 0
12.2.3 Long term bond -12 -94 24 -15 -41 -56 -69
12.2.3.1 New 0 0 56 67 79 94 111
12.2.3.2 Amortization -12 -94 -33 -82 -120 -150 -180
12.2.4 IMF ( Net ) -7 -7 -8 -6 -5 -5 -5
12.2.4.1 Disbursement 0 0 0 0 0 0 0
12.2.4.2 Amortization -7 -7 -8 -6 -5 -5 -5
12.2.5 Banking system net credit -135 -126 -67 0 0 0 0
12. 2.5.1 Increase in the DF bal 0 0 317 463 600 600 600
12.2.5.2 Net changes in C/A -135 -126 -384 -463 -600 -600 -600
12.2.5.3 Opening Balance 0 0 0 0 0 0 0
12.2.6 Non-banking system 0 0 0 0 0 0 0
Memo Items
GDP at current market prices 2267 3715 4526 5464 6557 7869 9442
GR of GDP at market prices (%) 19 64 22 21 20 20 20
Real GDP GR (%) 7.0 8.7 10.1 10.1 9.9 9.8 9.8
Overall inflation by GDP deflator
(%) 10.9 50.8 8.2 12.1 10.0 10.0 10.0
CPI inflation rate (%) 9.5 7.0 8.6 5.5 5.5 5.5 5.5
5. TOTAL EXP & NET LENDING 33.7 33.3 40.5 47.0 46.3 46.0 46.2
6. CURRENT EXPENDITURE 26.5 26.4 31.2 36.0 35.6 35.6 35.9
6.1 Goods and Services 17.1 18.6 14.7 18.7 17.1 15.7 14.4
6.1.1 Wages and Salaries 6.3 5.3 6.8 10.4 9.5 8.7 8.0
6.1.2 Purchase of goods/services 10.8 13.3 7.9 8.3 7.6 7.0 6.4
6.2 Interest payment 0.9 0.5 0.4 0.4 0.3 0.3 0.2
6.3 Subsidies and transfers 8.5 7.3 16.1 17.0 18.2 19.6 21.3
6.3.1 Subsidies 0.4 0.3 7.3 6.9 6.7 6.4 6.1
6.3.2 Transfers 8.2 7.0 8.8 10.0 11.5 13.2 15.2
7. CAPITAL EXPENDITURE 4.0 4.7 6.9 8.8 8.9 9.0 9.0
7.1 Domestic Investment 3.0 3.9 5.5 6.9 6.9 6.9 6.9
7.2 Capital Repairs 0.2 0.3 0.4 0.5 0.5 0.5 0.5
7.3 Other capital expenditures 0.3 0.2 0.4 0.3 0.4 0.4 0.5
7.4 Road fund by project loan 0.5 0.2 0.6 1.2 1.2 1.2 1.2
8. NET LENDING 3.3 2.1 2.3 2.2 1.8 1.5 1.3
8.1 Domestic (net) -0.6 -0.3 0.4 -0.8 -0.7 -0.6 -0.5
8.2 Foreign (net) 3.9 2.4 1.9 3.0 2.5 2.1 1.7
It may be observed from the above tables that the overall fiscal balance as per
the fiscal planning is projected to decline to 2.5 percent of GDP during 2009-2011
compared with MTBF ceiling on fiscal deficit at 3 percent of GDP. This implies
that the financial planning for the period is consistent with fiscal sustainability
over time. Resource mobilizations from individual taxes and duties and
expenditures by economic classifications appear to be reasonable and realistic.
Government’s financing planning also appears to be feasible. Needs for foreign
project loans will continue and the government will be able to repay domestic and
foreign loans and make associated interest payments in time without undue
pressure on government budgets. Underlying parameters for the real GDP
growth rates and the inflation rates for consumer prices are realistic as judged by
past trends. Overall, the fiscal planning as indicated in the Tables 6-A, 6-B, 7-A
and 7-B appears to be realistic and feasible.
Annex10
Under GFSM, all flows are classified either as transactions or as other economic
flows. A transaction is an interaction between two units by mutual agreement or
by force of law such as interest payments, tax and non-tax revenues. Every
transaction is either an exchange or a transfer. A transaction is an exchange if
one unit provides a good, service or asset a second unit and receives something
of the same value in return. Compensation of employees, purchases of goods
and services, interest expense etc. are exchanges. A transaction is a transfer if
one unit provides a good, service or asset to a second unit without receiving
anything of any value in return, such as government subsidies, grants, and social
assistance benefits to the people. All taxes and duties are treated as
transfers. Transactions cover monetary flows and in-kind activity (such as the
receipt of commodity grants and non-cash remuneration).
Other economic flows are the result of events that affect the value of
nonfinancial assets, financial assets, and liabilities but which are not exchanges
or transfers. These flows can reflect either price changes (including exchange
rate movements) or volume changes due to one-off events such as mineral
discoveries and natural disasters.
10
This Annex is primarily based on the Government Finance Statistics Manual 2001
(GFSM 2001) and other papers on GFSM 2001 published by the International Monetary
Fund (IMF), Washington, D.C. It may be mentioned here that the author was a Member
of the Expert Group Meeting at IMF, Washington D.C. in February 2001 to discuss the
Draft GFS Manual 2001 and to incorporate final round changes and conclusions in
GFSM 2001 (refer the Preface by Mrs. Carol S. Carson, the then Director, Statistics
Department, IMF in the GFS Manual 2001, p.ix).The author was also Country Reporter
for India on IMF Government Finance Statistics when he worked as Economic Adviser in
the Ministry of Finance, Government of India during 1989-2006.
MOF, Govt. of Mongolia 24 Glocoms Inc. (USA)
Financial Planning Methodology and Policies – Tarun Das
• The Balance Sheet shows the government’s net worth at the end of a fiscal
year, which is equal to the stock of nonfinancial assets plus net financial worth
(i.e., the difference between financial assets and liabilities). The change in net
worth in a year is the sum of changes due to revenue and expense
transactions and to other economic flows. The links between the components
of the balance sheet and the other accrual-based statements are shown in
Table-A.1.
• Statement of Sources and Uses of Cash shows cash flows associated with
revenue and expense transactions and transactions in nonfinancial assets,
and their net impact in terms of the cash surplus/deficit. Adding the cash
flow from transactions in financial assets and liabilities to the cash
surplus/deficit gives the net change in the stock of cash.
A.3 Valuation
All flows and stocks are valued at market prices. This is the cash value of in-
kind transactions or the amount for which goods, services, assets, labor or
capital are exchanged. Flows are valued at the current prices on the dates when
they are recorded. Stocks are valued at the market prices current on the balance
sheet date.
Minus
Expense
Net operating
balance
=
The focus of GFSM 2001 is the general government. A reasonable objective for
Group-I countries is that they achieve comprehensive coverage on a cash basis
for the central government and at least the important subnational governments.
Group-II countries should routinely expand coverage from central government to
general government, and a shift from a cash to a partial accrual basis. Group-III
countries should be reporting fully GFSM 2001 compliant fiscal statistics for the
whole of general government.
Table-A2 indicates further that the countries in Asia and Pacific were far behind
the complete implementation of GFSM 2001. None of the Asia and Pacific
countries belonged to Group-III and only nine countries viz. Hong Kong, India,
Japan, Korea, Malaysia, Nepal, Philippines, Singapore and Thailand belonged to
Group-II, and all other countries including Mongolia were in Group-I.
IMF observed that in general a country, which is fully committed to GFSM 2001
implementation, could spend 1–2 years in Group-I, 4–5 years in Group-II, and 2–
3 years in Group-III. Thus a country could expect to achieve full implementation
in at best 7 years and possibly up to 10 years.
Four years have passed since 2003, and now Mongolia has moved to
Group-II. Government of Mongolia has already developed chart of accounts and
GFMIS and is engaged in upgrading both software and hardware for the Budget
Preparation Information System (BPIS). Even then, full implementation of GFSM
2001 is a major task for Mongolia. It requires careful planning and management
so that the normal flow of fiscal statistics is not disrupted. Furthermore, there is
need to train, recruit, and retain skilled staff to work for the National Statistical
Organisation (NSO), the Ministry of Finance, Bank of Mongolia and other
government agencies.
The ultimate objective is that fiscal tables in IMF reports will be presented in full
GFSM 2001 format. This should be the outcome for Group-III countries.
However, systematic steps in this direction should be taken by Group-I and
Group-II countries. Tables-A3.1 and A3.2 set out schematically how fiscal tables
could be modified to parallel the progress that is made with implementation.
While GFSM 2001 involves a shift to accrual reporting, this does not imply an
automatic shift to accrual budgeting. Only a few industrialized OECD countries
currently prepare budget on the basis of an accrual accounting, while most of the
other member countries still prepare budgets on cash basis or on a mixture of
cash and accrual accounting. Successful implementation of GFSM 2001,
however, can support other best practices for PEM reforms. The introduction of
accrual output budgeting (AOB), which involves an explicit focus on the
effectiveness of public policy and efficiency of service delivery, provides a good
example of governance reforms. We have already indicated in the main report
that Mongolia has made significant progress on preparation of output budgets on
the basis of accrual accounting, benchmarks and performance parameters.
Gross debt
Net debt
11
Assuming that all privatization proceeds derive from sales of equity. Proceeds from
sales of nonfinancial assets would be netted out of D.
12
Assuming that information on domestic and external financing is available only on a
net basis. If information is available on a gross basis, any acquisition of financial assets
should be included in F. Financial assets acquired for liquidity management purposes,
which are included below-the-line in the current presentation, fall into this category.
Selected References
13
A ‘0’ subscript indicates beginning of year value.
14
A ‘0’ subscript indicates beginning of year value.
15
A ‘0’ subscript indicates beginning of year value.
Das, Tarun (1999a) East Asian Economic Crisis and Lessons for External Debt
Management, pp.77-95, in External Debt Management, ed. by A. Vasudevan, April
1999, Reserve Bank of India (RBI), Mumbai, India.
_______ (1999b) Fiscal Policies for Management of External Capital Flows, pp. 194-
207, in Corporate External Debt Management, edited by Jawahar Mulraj, December
1999, Credit Rating and Investment Services of India Ltd. (CRISIL), Mumbai, India.
______ (2003a) Off budget risks and their management, Chapter-3, Philippines
Improving Government Performance: Discipline, Efficiency and Equity in Managing
Public Resources- A Public Expenditure, Procurement and Financial Management
Review (PEPFMR), Report No. 24256-PH, A Joint Document of The Government of
the Philippines, the World Bank and the Asian Development Bank, Poverty
Reduction and Economic Management Unit, World Bank Philippines Country Office, April
30, 2003.
______ With Raj Kumar, Anil Bisen and M.R. Nair (2003b) Contingent Liability
Management- A Study on India, pp.1-84, Commonwealth Secretariat, London.
_______ (2005) International Cooperation Behind National Borders- A Case Study for
India, pp.1-50, Office of Development Studies, UNDP, UN Plaza, New York, 2005.
_______ (2008) Accrual Accounting Rules for Government Finance Statistics, pp.1-36,
ADB Capacity Building Project on Governance Reforms, Ministry of Finance,
Govt of Mongolia, Ulaanbaatar, January 2008.
Das, Tarun and E. Sandagdorj (2007a) Strategic Business Planning- objectives and
suggested structure for Mongolia, pp.1-95, ADB Capacity Building Project on
Governance Reforms, Min of Finance, Govt of Mongolia, Ulaanbaatar, August 2007.
_______ (2007b) Output costing and output budgeting, pp.1-50, ADB Capacity
Building Project on Governance Reforms, Ministry of Finance, Govt of Mongolia,
Ulaanbaatar, October 2007.
_______ (2007c) Transition from Cash Accounting to Accrual Accounting, pp.1-35, ADB
Capacity Building Project on Governance Reforms, Ministry of Finance, Govt of
Mongolia, Ulaanbaatar, October 2007.
________ (2008) Seven-Year (2008-2014) Action Plan for the Complete Implementation
of the Provisions of Public Sector Management and Finance Act (27 June 2002), ADB
Capacity Building Project on Governance Reforms, Ministry of Finance, Govt of
Mongolia, January 2008.
_______ (2003a) The Implications of the Government Finance Statistics Manual 2001
for Country Work in the Fund, GFS Policy Development Taskforce, IMF, Washington
D.C., August 2003.
_______ (2003b) External Debt Statistics- Guide for Compilers and Users, 2003, IMF,
Washington D.C.
International Monetary Fund and the World Bank (2003) Guidelines for Public Debt
Management: Accompanying Document and Selected Case Studies, 2003,
Washington D.C.
Keipi, Kari Juhani and Justin Tyson (2002) Planning and financial protection to
survive disasters, Sustainable Development Department Tech. Studies series: ENV-139,
Inter-American Development Bank, Washington D.C., Oct. 2002.
Reserve Bank of India (RBI) (1999) External Debt Management- Issues, Lessons and
Preventive Measures, pp.1-372, edited by A. Vasudevan, RBI, Mumbai, April 1999.