When World Bank senior economist Rogier van den Brink spoke with our correspondent in September, he warned that, despite robust growth, the Mongolian economy still faced risks. He recently spoke with our correspondent again, after his arrival in Mongolia for discussions relating to the 2012 general budget. 

Q: You said in September that the revised 2011 budget would have an impact on Mongolia’s economy. Parliament passed the revised budget and is now discussing the 2012 budget. How will the revised 2011 budget and the proposed 2012 budget affect the economy?

A: Mongolia’s economy is growing with amazing speed, and that is attracting the world’s attention. But there is a question as whether that growth can be made stable over a long period of time. Economic growth was 17.3 percent at the end of June 2011, and it increased to 20.8 percent at the end of September 2011. All spheres had growth, including the industrial and processing sectors. Also, unemployment has been reduced. But the growth should be correlated to the world economy, which is facing dilemmas these days. The Euro zone has a crisis and its economy could be reduced, and this situation could influence the American economy.

Q: Some economists say the situation could be even more difficult than the 2008 financial crisis. What is your opinion?

A: Some problems that occurred during the 2008 crisis have not been resolved yet, and other difficult problems are arising now. Many countries have invested to support the private sector. But now some countries can not continue this investment, due to political problems in the United States. Europe has not had the capital to implement such programs, though China did hope to implement an investment program.

On the other hand, China’s economy is based on exports, and exports directly depend on other countries’ economies, so the economies of Europe and the United States could influence China. Chinese exports and economic growth have decreased, and the price of mineral resources has been reduced globally.

Q: How will the crisis influence Mongolia?

A: The tugrug exchange rate will not be as affected as in the previous crisis period. The Central Bank has implemented a more flexible policy of currency rates, such as increasing policy rates three times and doubling the bank reserve. Inflation reached 34 percent in 2008 but nowadays inflation is 12.6 percent in Mongolia. Despite such monetary policy progress, budget policy has not improved, if it has not worsened.

Q: Some people criticize the proposed budget for being too extravagant and careless. What do you say about that?

A: The 2011 budget expenditure was more than 32 percent higher than the 2010 budget, and the revised 2011 budget increased expenditures by another 20 percent. 2008 budget expenditures increased by about 20 percent, due to new allowances. And social welfare allowances are being included in the current budget proposal.

It seems to be that the budget has much income but its expenses are also too much, and that poses risks to the economy. The country should have one goal, but the Government and the Central Bank have two different policies. In other words, budget and monetary policies have not been reconciled.

Q: How do you assess the current economic situation?

A: I want to remind that the situation has risks and the conditions are hard. The proposed 2012 budget accounts for GDP, revenue, and expenses with much optimism. Certainly the mining sector will have accelerating growth but there are some challenges with border point capacity for coal transportation, which has had bad indicators. Politicians have promised to fulfill their promise of cash allowances. But what about increasing investment expenditures? A large budget is a project that needs much time and planning. Politicians should think realistically about increasing budget expenditures.

Q: What do the experts think?

A: I think either the World Bank or foreign experts and economists would all agree that a risky condition is occurring. Economics has an immovable principle to not spend too much. All countries should be guided by this principle. If Greece were guided this principle, the country would not be faced with situation it’s now in.

Q: Mongolian politicians have said that they learned lessons from the financial crisis. But they seem to have forgotten. What is your opinion?

A: I wonder about a too extravagant policy instead of a more prudent policy in this difficult period for the world economy. The budget deficit has been estimated at 9.9 percent of GDP in 2011, and this figure is risky. There is a favorable condition to reduce the budget deficit now that income has been improved, but expenditures have been increased. In reality Mongolians should not increase expenditures more than capacity.

Q: What should we do?

A: We all understand the risky situation and need to do something. I hope that Parliament and decision-makers will implement appropriate policies in the budget. In my previous interview, we said that inflation mostly affects citizens with small incomes. But today inflation affects citizens with average incomes. This means inflation has had a direct influence on people, and people may lose faith in the politicians.