Fiscal Federalism and Decentralization in Mongolia

Fiscal federalism has been an important topic among public finance theorists in the last four decades. Developing and transition countries have developed a variety of forms of fiscal decentralization as a possible strategy to achieve effective and efficient governmental structures. A generalized principle of decentralization due to the country specific circumstances does not exist. Therefore, decentralization has taken place in different forms in various countries at different times, and even exactly the same extent of decentralization may have had different impacts under different conditions. As a former socialist country Mongolia has had a highly centralized governmental sector. The result of the analysis below revealed that the Mongolia has introduced a number of decentralization measures, which followed a top down approach and were slowly implemented without any integrated decentralization strategy in the last decade. As a result Mongolia became de-concentrated state with fiscal centralization. The revenue assignment is lacking a very important element, for instance significant revenue autonomy given to sub-national governments, which is vital for the efficient service delivery at the local level. According to the current assignments of the expenditure and revenue responsibilities most of the provinces are unable to provide a certain national standard of public goods supply. Hence, intergovernmental transfers from the central jurisdiction to the sub-national jurisdictions play an important role for the equalization of the vertical and horizontal imbalances in Mongolia. The critical problem associated with intergovernmental transfers is that there is not a stable, predictable and transparent system of transfer allocation. The amount of transfers to sub-national governments is determined largely by political decisions on ad hoc basis and disregards local differences in needs and fiscal capacity. Thus a fiscal equalization system based on the fiscal needs of the provinces should be implemented. The equalization transfers will at least partly offset the regional disparities in revenues and enable the sub-national governments to provide a national minimum standard of local public goods.Fiscal Federalism; Decentralization; Revenue Autonomy; Expenditure Assignment; Intergovernmental transfers.

An Analysis of the New Budget Law of Mongolia of 2011

The government of Mongolia developed and passed a new Budget Law on 23 December 2011 in order to improve the legal framework for budgeting, budget relations and fiscal management by integrating the Budget Law of 2002 and Public Sector Management and Finance Law. The purpose of new Budget Law is to ensure fiscal stability, enhance the efficiency and predictability of resource allocation, and to increase citizens’ participation in the budgeting process. The new Budget Law in its 11 chapters and 66 articles redefines the budgeting principles, scope, composition, classification of the budget, clarifies expenditure and revenue assignment, improves authorities and responsibilities of the bodies that participate in the budgeting process, and improves regulations on budget transparency and accountability. The key new regulations introduced by the Budget Law concern the following areas: • Public investment budgeting; • Government debt management; • Program budgeting; • Public private partnership; • Formula based transfer allocation; and • Citizens’ participation in budgeting. The most important change introduced by new Budget Law is a reform of the intergovernmental fiscal relations system towards greater decentralization. The law clarifies expenditure assignments by clearly defining delegated functions and differentiating the functions among sub-national governments. It also introduces a formula based transfer allocation that will allow predictability and sustainability in the local budgeting process

An Analysis of the New Budget Law of Mongolia of 2011

The government of Mongolia developed and passed a new Budget Law on 23 December 2011 in order to improve the legal framework for budgeting, budget relations and fiscal management by integrating the Budget Law of 2002 and Public Sector Management and Finance Law. The purpose of new Budget Law is to ensure fiscal stability, enhance the efficiency and predictability of resource allocation, and to increase citizens’ participation in the budgeting process. The new Budget Law in its 11 chapters and 66 articles redefines the budgeting principles, scope, composition, classification of the budget, clarifies expenditure and revenue assignment, improves authorities and responsibilities of the bodies that participate in the budgeting process, and improves regulations on budget transparency and accountability. The key new regulations introduced by the Budget Law concern the following areas: • Public investment budgeting; • Government debt management; • Program budgeting; • Public private partnership; • Formula based transfer allocation; and • Citizens’ participation in budgeting. The most important change introduced by new Budget Law is a reform of the intergovernmental fiscal relations system towards greater decentralization. The law clarifies expenditure assignments by clearly defining delegated functions and differentiating the functions among sub-national governments. It also introduces a formula based transfer allocation that will allow predictability and sustainability in the local budgeting process

Fiscal Federalism and Decentralization in Mongolia

Fiscal federalism has been an important topic among public finance theorists in the last four decades. Developing and transition countries have developed a variety of forms of fiscal decentralization as a possible strategy to achieve effective and efficient governmental structures. A generalized principle of decentralization due to the country specific circumstances does not exist. Therefore, decentralization has taken place in different forms in various countries at different times, and even exactly the same extent of decentralization may have had different impacts under different conditions. As a former socialist country Mongolia has had a highly centralized governmental sector. The result of the analysis below revealed that the Mongolia has introduced a number of decentralization measures, which followed a top down approach and were slowly implemented without any integrated decentralization strategy in the last decade. As a result Mongolia became de-concentrated state with fiscal centralization. The revenue assignment is lacking a very important element, for instance significant revenue autonomy given to sub-national governments, which is vital for the efficient service delivery at the local level. According to the current assignments of the expenditure and revenue responsibilities most of the provinces are unable to provide a certain national standard of public goods supply. Hence, intergovernmental transfers from the central jurisdiction to the sub-national jurisdictions play an important role for the equalization of the vertical and horizontal imbalances in Mongolia. The critical problem associated with intergovernmental transfers is that there is not a stable, predictable and transparent system of transfer allocation. The amount of transfers to sub-national governments is determined largely by political decisions on ad hoc basis and disregards local differences in needs and fiscal capacity. Thus a fiscal equalization system based on the fiscal needs of the provinces should be implemented. The equalization transfers will at least partly offset the regional disparities in revenues and enable the sub-national governments to provide a national minimum standard of local public goods

Status quo on fiscal decentralisation in Mongolia

fiscal decentralisation, fiscal federalism, intergovernmental relations, local and regional autonomy, revenue sharing, economic transformation