Mongolia’s parliament blocked a bill to raise the debt ceiling, a move that could limit the government’s ability to raise money for infrastructure needed to develop the mining sector.
The bill to amend the Fiscal Stability law and raise the debt limit to 60 percent of gross domestic product from 40 percent failed to muster the necessary two-thirds approval yesterday, said Purevbaatar Gantsogt, the State Secretary for the Ministry of Finance.
Mongolia is increasing its spending on road, rail and power projects as mining companies including Rio Tinto Group invest billions in mineral deposits. Much of the country’s spending on infrastructure this year has been facilitated by proceeds from the sale of dollar bonds in 2012.
“The plan was to issue more bonds to finance infrastructure development so yesterday’s decision restricts this,” Gantsogt said. “Next year we will probably not do what we had planned.”
Mongolia’s Fiscal Stability Law, adopted in 2010 as a way to smooth spending habits and generate savings from mineral revenues, imposes limits on expenditure growth and caps the structural budget deficit to two percent of GDP, separate from the 40 percent cap on outstanding debt.
Instead of selling international debt, Gantsogt said parliament is planning to approve the sale of 1.4 trillion tugrik in local bonds, to be issued in 2014. The bonds, issued in tugrik, will be used to plug revenue shortfalls, Gantsogt said.
Mongolia posted 17.4 percent growth in 2011 and 12.4 percent growth in 2012. Growth over the first three quarters of this year stood at 11.9 percent. By stopping the sale of international bonds Mongolia’s GDP to debt ratio is forecast to fall to 40 percent by the end of next year from from 49.5 percent because of increases to GDP, Gantsogt said.
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