One of the key objectives of the "Fiscal and Financial Stability Strengthening Project" jointly implemented by the Ministry of Finance of Mongolia and the World Bank, is to improve the legal environment for debt management, medium-term debt management strategy, and create a reporting system for contingent liabilities.

In this context, the Debt Management Division of the Financial Policy Department of the Ministry of Finance cooperated with a law firm - MDS&KhanLex (i) to review the current state of implementation of the Debt Management Law, (ii) to develop regulations governing debt management, and (iii) to prepare proposals to amend the Debt Management Law. 

The draft amendments to the Law on Debt Management and the accompanying draft laws include fundamental reforms. These include:

1. Contingent liabilities to fiscal relations, such as government debt guarantees, debts of state and locally owned entities, are unregulated. Therefore, in this draft law, the issues related to registration, reporting, and monitoring of contingent liabilities shall be regulated by this law consistent with the Budget Law;
   
2. The timeline for preparing and the Parliamentary approval of the new borrowing plan and debt management strategy in the Debt Management Law is inconsistent with the Budget Law. Therefore, it is essential to harmonize these two laws to avoid legal loopholes;
   
3. Regulations related to government debt and contingent debt are unclear. Therefore, the draft law stipulates that the risk assessment of programs, projects, and activities shall be organized by the state central administrative body in charge of finance and budget affairs and carried out before every decision. The methodology for risk assessment shall be approved and enforced by the Cabinet member in charge of finance and budget affairs. In addition, it has been stipulated in the draft law that the state audit body must evaluate the implementation of the Government's debt management and legislation every three years and eliminate duplication of functions of government organizations;
   
4. The current law gives the Cabinet member in charge of finance and budget affairs the authority to issue domestic securities and determine their terms under the borrowing plan approved by the Government. Still, the issue is regulated by the Government and the Parliament. Therefore, it is needed to be revised that the Parliament’s decision to be only limited to issuance of international bond;
   
5. If the State Audit Office and the State Central Administrative Body Responsible for Finance and Budget affairs reveal violations of the legislation on debt management through its registration, control, and inspection, the authority to impose sanctions on the responsible organizations and officials was included in the draft law. It is considered that the implementation of this law will be enhanced by improving the current accountability;
   
6. Relationships related to the issuance of securities or debt creation of provinces and the capital city are not regulated by the Law on Debt Management. Therefore, there is a need to reflect the issuance of securities by provinces and the Ulaanbaatar capital city into the draft law.
   

This strengthening of the debt management system will improve Mongolia's debt management performance. According to the World Bank's assessment in (i) 2008, 1 indicator was rated A, 5 were rated B, 6 were rated C, 3 were rated D, (ii) in 2011, 1 indicator was rated B, 8 were rated C, 5 were rated D, (iii) and in 2016, 1 indicator was rated B, 7 were rated C, and 6 were rated D. Adopting a draft law amending the Debt Management Law and improving the implementation mechanism is expected to increase this assessment and positively impact public debt sustainability.