Mongolia Parliament Scrutinizes Budget and Sovereign Wealth Fund

A Massive State Budget Proposal Amid High Inflation

When parliament opened its autumn session, Prime Minister Uchral’s administration presented one of the largest state budgets in Mongolia’s history. The proposal asks for 41.3 trillion tugrik with a projected deficit of 2.3 trillion tugrik. Economists and critics have raised alarm bells regarding this heavy deficit, pointing out that inflation currently stands at 12.5 percent. Skeptics warn that such heavy borrowing will inevitably increase national debt, forcing the government to impose heavier taxes on local businesses and everyday individuals.

The state budget proposal has already faced massive scrutiny within parliamentary committees. Signaling the depth of political friction, parliament failed to reach the required quorum last week. To offset the 2.3 trillion tugrik deficit, the Uchral government is banking on utilizing increased dividends from Oyu Tolgoi. On September 11, Mongolia and Rio Tinto agreed to amend the Shareholder’s Agreement originally established 17 years ago. This amendment allows Mongolia to receive approximately 13 trillion tugrik, roughly $3.6 billion, alongside a reduction in operational costs negotiated by Rio Tinto amounting to approximately 30 trillion tugrik, or $8.4 billion.

Sovereign Wealth Fund Pivot and Private Sector Partnerships

Alongside the budget battles, the State Great Khural must review the ongoing evolution of Mongolia’s Sovereign Wealth Fund. Originally, the fund was designed under the Oyun-Erdene administration in 2024 to function as part of Mongolia’s welfare system, directly benefiting the public. In February 2026, the Zandanshatar Gombojav government signed a preliminary agreement to allocate 60 percent of the benefits from strategic deposits to this profit-sharing mechanism.

However, the current trajectory has pivoted toward a corporate governance structure integrated with broader reforms of state-owned enterprises. On September 10, Mongolia signed a Memorandum of Understanding with U.S.-based BlackRock Financial Markets Advisory to explore selling shares in state-owned enterprises in both domestic and international capital markets. This shift has drawn sharp criticism from observers questioning whether a corporate restructuring model aligns with the nation’s semi-welfare system.

Public services and welfare remain central to Mongolian society, especially following intermittent protests and strikes throughout 2025 by educators and medical workers demanding pay raises. If the Uchral government fails to maintain sufficient funding for public education, healthcare, and assistance for the elderly, disabled, and impoverished, the shift in wealth fund priorities could deeply impact citizens who rely on these safety nets.

Energy Vulnerability and Cross-Border Solutions

Beyond domestic financial maneuvering, severe energy security challenges continue to loom over the country. Global energy markets have been severely disrupted by the Iran-U.S. war and repeated Ukrainian attacks on Russian energy infrastructure. Because Mongolia is uniquely dependent on Russia for its fuel—importing over 95 percent of its refined petroleum products from its northern neighbor—any disruption abroad sends immediate shockwaves inward.

During the summer and fall of 2026, nationwide fuel shortages highlighted this structural vulnerability, prompting policymakers to diversify supply chains toward China. In September, delegates from the Ministry of Industry and Mineral Resources held bilateral meetings with the China National Petroleum Corporation to negotiate imports of 10,000 tonnes of refined petroleum, 4,000 tonnes of jet fuel, and 3,000 tonnes of diesel. China is currently financing the Erdeneburen Project, one of Mongolia's first hydropower plants, located in Khovd province.