ON DEBT MANAGEMENT

CHAPTER ONE

GENERAL PROVISIONS

Article 1. Purpose of the law

1.1. The purpose of this law is to regulate relations in connection with ensuring the appropriate levels of debt, implementing medium-term strategies, creating debt through borrowing by the Government and/or municipalities, on-lending, and issuing, registering, reporting and monitoring Government debt guarantees within the framework of debt management policy and regulations.

Article 2. Legislation on debt management

2.1. Legislation on debt management consists of the Constitution of Mongolia, the Law on Fiscal Stability, the Law on Budget, the Law on International treaties, the Law on Governmental Special Fund, this law and other legislative acts issued in accordance with these laws.

2.2. If an international treaty to which Mongolia is a party stipulates otherwise than this law, then the provisions of the international treaty shall prevail.

Article 3. Scope of the law

3.1. This law shall regulate relations related to the creation and management of debts with the condition of repayment from the state and local budgets.

3.2. This law does not apply to private sector liability relations except as provided in this law.

3.3. Debt guarantee of the Government shall be regulated by this law, and the issue of contingent liabilities related to budget relations shall be regulated by other laws.

3.4. This law does not apply to the liability relations of state or local owned enterprises, or state or local controlled enterprises, except for matters associated with issuing Government debt guarantees and their registration.

3.5. This law does not apply to all types of aid relationships.

Article 4. Definitions of terms

4.1. Terms used in this law shall have the following meanings:

4.1.1."debt" means an obligation to pay interest, principal and other related payments over a certain period of time through a debt instrument;

4.1.2."debt instrument" means all types of loans, securities and any contract or transaction that creates debt;

4.1.3."debt management" means the activities of developing and implementing strategies based on of the government's short- and medium-term financial expenses and risk levels, and ensuring and monitoring their implementations.

4.1.4."the country's total external debt" means payment obligations of the Government, municipalities, the Bank of Mongolia and any entity registered in Mongolia to pay any person who is not registered in Mongolia and is not a permanent resident;

4.1.5."state budget" means as stated in clause 4.1.6 of Law on Budget;

4.1.6."Government debt" means as stated in clause 4.1.8 of Law on Fiscal Stability;

4.1.7."Government debt guarantee" means the Government's obligation to pay the debt on behalf of the guarantee holder in case he/she fails to fulfill the payment obligations specified in the contract;

4.1.8."Government debt management strategy" means a policy document defining the Government's medium-term debt management goals and ways to implement them.

4.1.9. "be able to have an influence on the monetary and foreign exchange market of Mongolia" means issuing securities with amount and conditions that will affect the target result of measures taken by the Government within a framework of the monetary policy and the exchange rate of Mongolian tugriks, and obtaining, using and paying back external loans;

 4.1.10. "debt structure" refers to the classification of debt by repayment period, terms, currency and other characteristics;

4.1.11."debt service" means principal and interest payments and other related payments to be paid in the given fiscal year;

4.1.12. "refinancing debt " means the activity of getting a new loan for the purpose of performing the debt service;

4.1.13. "debt limit/ceiling" means the precentaged maximum amount of the balance of the Government's debt expressed in the present value of the gross domestic product;

4.1.14. "maximum amount of loan and debt guarantee" means that the State Great Khural sets a monetary limit on the amount of new loans and debt guarantees issued by the Government in the given fiscal year;

4.1.15. "loan" means creating debt through debt instruments other than Government debt guarantees;

4.1.16. "loan plan" means the planned schedule for each debt instrument based on the medium-term strategic document of the Government's debt management;

4.1.17. "external loan" is a source of debt funding provided by any person who is not registered in Mongolia and is not a permanent resident;

4.1.18. "level of discount" means comparing the difference between the nominal value of loan and the current value to the nominal value of the loan, and expressed as percentage;

4.1.19. "Government securities" means bonds traded by the Government in accordance with the purposes and procedures specified in this law;

4.1.20 "securities of province and the capital city" means bonds traded in the domestic market by provinces and the capital city according to conditions, requirements, purpose, and procedures specified in this law;

/This clause was repealed according to the law as of September 7, 2016./

4.1.21. "project implementer" means the authorized organization specified in international treaties, project documents, and/or other agreements concluded between the parties of the agreement, which is responsible for the implementation of projects financed by external loan capital;

4.1.22. "potential liabilities" means as stated in clause 4.1.48 of the Law on Budget;

4.1.23. "project and measures" means as stated in clause 4.1.17 of the Law on Budget;

4.1.24. "securities of provinces and the capital city" means bonds that are traded in the domestic market with or without a public offer in accordance with the conditions and procedures established by the law in order to implement certain projects and activities, and/or to refinance previously issued securities.

/This clause was added according to the law as of July 7, 2021./

Article 5. Principles of debt management

5.1. The following principles shall be followed in order to implement the debt management:

5.1.1. have a unified management system;

5.1.2. ensuring the appropriate level of debt;

5.1.3. efficient spending of assets created by debt;

5.1.4. ensuring transparency;

5.1.5. to be responsible.

Article 6. Implementing principles of debt management

6.1. A person participating in the debt management relations of the Government is obligated to follow and implement the principles of debt management specified in section 5.1 of this law.

6.2. The principle of having a unified management system specified in clause 5.1.1 of this law shall be implemented as follows:

6.2.1. Government or municipal loans, and/or Government debt guarantees must be coherent with the National Security Concept of Mongolia and the long-, medium-, and short-term development policies approved by the State Great Khural;

/This clause was amended according to the law as of December 17, 2021./

6.2.2. Government or municipal loans, and Government debt guarantees must be reviewed by the state central administrative organization in charge of financial and budgetary matters;

6.2.3. Government loans and Government debt guarantees shall be approved by the State Great Khural, and municipal loans shall be approved by the Citizen's Representative Khural of Provinces and the Capital city;

6.2.4. To include the Government and/or municipal loans, debt guarantees, and all types contracts, transactions, and/or activities related to financial obligations in the budget;

6.3. The principle of ensuring the appropriate level of debt specified in section 5.1.2 of this law shall be implemented as follows:

6.3.1. To meet the requirements specified in clause 6.1.4 of the Law on Fiscal Stability;

6.3.2. The Government's newly created debt and debt guarantees must comply with the maximum amount specified in section 17.1 of this law;

6.3.3. The Government and/or municipal loans, the Government debt guarantees, contingent liabilities and their effects should not cause debt burden in the future;

6.3.4. to implement the Government debt management by ensuring the appropriate level of Government debt in the long term.

6.4. The principle of efficient spending of assets created by debt specified in clause 5.1.3 of this law shall be implemented as follows:

6.4.1. the Government debt guarantees, projects and/or activities financed by the Government and municipal loans shall be socially beneficial and economically efficient, except for the cases specified in clauses 7.1.6 and 35.4 of this law;

6.4.2. unless otherwise specified in this law, to finance projects and/or activities that can be repaid with external loan sources with commercial terms;

6.4.3. to adhere to the instruction that the implementation period of the project or activities does not exceed the repayment period of the loan which finances them;

6.4.4. to adhere to the instruction of not financing projects and/or activities that can be financed by external and domestic investments with borrowed funds;

6.4.5. Unless otherwise specified in laws or international treaties, the purchase of goods, works and services with debt-created funds shall be regulated by the Law on the Procurement of Goods, Works and Services with State and Local Funds.

6.5. The principle of ensuring transparency specified in clause 5.1.4 of this law shall be implemented as follows:

6.5.1. unless otherwise provided by law, to inform the public about the total external debt, the Government debt and the Government debt guarantees in a clear and accessible manner within the specified period;

6.5.2. the Government and/or municipal loans and debts, the Government debt guarantees and contingent liabilities shall be transparent.

6.6. The principle of responsibility specified in clause 5.1.5 of this law shall be implemented as follows:

6.6.1. to exercise the authority of the state organization regarding debt management in accordance with the law, not to violate the requirements and regulations of the law, and to impose responsibility in case of violation;

6.6.2. any person incurring debt according to this law shall use the loan capital efficiently according to their intended purpose and maintain budgetary discipline;

6.6.3. any person incurring debts in accordance with this law shall perform the payment obligations on time in accordance with the law and the contract, and be financially responsible;

6.6.4. not to generate sources of fund by incurring debts in violation of this law;

6.6.5. The relevant person shall provide and report information on the assets that have been guaranteed by the Government's debt and the assets created by the debt, as well as the projects and/or activities funded by them in accordance with this law.

Chapter two

FULL POWERS AND DUTIES OF STATE ORGANIZATION REGARDING DEBT MANAGEMENT

Article 7. Full powers of State Great Khural

7.1. The State Great Khural shall exercise the following full powers regarding debt management:

7.1.1. to approve the Government's medium-term debt management strategic document /hereinafter referred to as "strategic document"/ in the framework of budget and monetary policy;

7.1.2. to approve the maximum amount of newly created debt of the Government in the given fiscal year along with the budget based on the statement of the medium-term budget framework and the strategic document;

7.1.3. based on the statement of the medium-term budget framework and the strategic document, to determine the maximum amount of the Government's new debt guarantee for the given fiscal year;

7.1.4. to determine the policy to be followed by the Government regarding the Government's external debts;

7.1.5. to ratify the Government's external loan agreement;

7.1.6. to decide whether projects and/or activities that have social benefits but cannot be repaid to the state budget will be financed with the loan capital without the condition of repayment by adopting the budget law of the given year, and if necessary, to make the decision on every occasion;

7.1.7. to discuss results of projects and/or activities financed with the loan capital together with the budget execution report, and to give instructions regarding the implementation;

7.1.8. to discuss the Government's report on the implementation of strategic documents and monitor the implementation of laws and regulations on debt management;

7.1.9. other full powers stated in the law.

Article 8. Full powers of Government

8.1. The Government shall exercise the following powers regarding debt management:

8.1.1. to determine the medium-term strategy of the Government debt management in accordance with this law, submit the draft strategy document to the State Great Khural for approval, and monitor its implementation;

8.1.2. based on the strategic document, to prepare the maximum amount of the new debt of the Government for the given fiscal year together with a draft budget, and separately prepare the maximum amount of the Government new debt guarantees and submit it to the State Great Khural;

8.1.3. In accordance with the Law on International Treaties, to grant the right to sign the loan agreement based on consultation with the State Great Khural;

8.1.4. to solve matters of getting loans and guaranteeing debt in accordance with the conditions and requirements specified in this law;

8.1.5. to discuss, evaluate and give instructions on the general budget governor's report of implementation and execution of projects and/activities funded by debt funds;

8.1.6. to approve the loan plan for the fiscal year based on the strategic document and the maximum amount of loan;

8.1.7. to report the results of the projects and/or activities financed by debt funds to the State Great Khural, and to take relevant measures according to the given instructions;

8.1.8. to ensure the implementation of laws and strategic documents on debt management, and report the results to the State Great Khural;

8.1.9. to grant permission for loans of provinces and the capital city;

8.1.10. to approve the procedures on the Government debt management stipulated in this law;

8.1.11. other full powers stated in law.

8.2. The member of the Government in charge of finance and budgetary matters shall exercise the following full powers regarding debt management:

8.2.1. based on the statement of the medium-term budget framework and strategic documents, to submit the maximum amount of newly created debt and the Government's debt guarantee in the given fiscal year to the Government for discussion;

8.2.2. to enter into an external loan contract for on-lending internally;

8.2.3. with the approval of the Government, to conclude contracts for the Government's debt guarantee and settlement of receivables;

8.2.4. to establish the conditions of Government securities, approving trading and payment schedules;

8.2.5. to approve the procedures on the Government debt management stipulated in this law;

8.2.6. to establish the Debt Management Council in accordance with section 21.1 of this law;

8.2.7. to discuss proposals for projects and/or activities to be financed with the Government loan capital and guaranteed by debt guarantees at the Cabinet meeting;

/This clause was amended according to the law as of December 17, 2021./

8.2.8. to negotiate external loan agreements, discuss them at the Cabinet meeting, and sign external loan agreements upon approval of the Government;

8.2.9. other full powers stated in law.

Article 9. Full powers of the state central administrative organization in charge of financial and budgetary matters

9.1. The state central administrative organization in charge of financial and budgetary matters shall exercise the following full powers regarding debt management:

9.1.1. to develop strategic documents in accordance with the medium-term budget framework statement in accordance with the conditions and requirements specified in this law;

9.1.2. to implement the Government debt management policies and regulations in accordance with this law;

9.1.3. based on the strategic document, to calculate the maximum amount of newly created debt of the Government in the fiscal year, and include it in the draft budget;

9.1.4. based on the strategic document, to prepare a draft of decision of the State Great Khural on determining the maximum amount of the debt guarantees newly issuing by the Government for the given fiscal year;

9.1.5. to prepare a schedule of the Government's external and internal debt service, calculate a pressure and impact on the state budget, and include required funds in the annual draft budget;

9.1.6. based on the strategic document, to develop the Government's loan plan and submit it to the Government;

9.1.7. to monitor financing of projects and/or activities implemented within the framework of Government loan capital and debt guarantees, and to take necessary measures to ensure their fulfillment;

9.1.8. to review whether any draft decision of the Government or municipalities on creating debt or guaranteeing the Government's debt complies with the limit specified in clause 6.1.4 of the Law on Fiscal Stability and the requirements and criteria specified in the law, and make suggestions and conclusions;

9.1.9. to organize risk assessment for projects and/or activities that will be on-lent and issued debt guarantees;

9.1.10. to on-lend on behalf of the Government in order to finance projects and activities confirmed that debt funds will be fully repaid within the period according to the risk assessment;

9.1.11. to monitor and ensure the implementation of on-lending agreements;

9.1.12. to trade the Government securities and exercise rights and obligations of issuer of the Government securities based on clause 7.1.2 of this law;

9.1.13. to establish the Government debt guarantee fund;

/This clause was repealed according to the law as of November 13, 2019./

9.1.14. to calculate the balance of the Government debt quarterly, and calculate medium-sterm debt service assumptions annually;

9.1.15. to calculate the balance of the country's total external debt on a quarterly basis together with the Bank of Mongolia;

9.1.16. to obtain the necessary information from state organizations and other relevant persons to exercise full powers stated in this law;

9.1.17. to develop proposals for tax exemptions for projects and/or activities implemented with external loan capital;

9.1.18. to develop the procedures on Government debt management specified in this law;

9.1.19. to prepare unified proposals for projects and/or activities to be financed with the Government loan capital and guaranteed by debt guarantees;

/This clause amended according to the law as of December 17, 2021./

9.1.20. On behalf of the Government of Mongolia, to make official requests for the Government's external loans to international organizations and partner countries, negotiate on external loans, conclude contracts, coordinate and monitor it;

9.1.21. to organize the selection, evaluation, and assessment of projects and/or activities to be financed with the Government loan capital and debt guarantees;

9.1.22. other full powers stated in law.

9.2. The state central administrative organization in charge of finance and budgetary matters shall have a debt management unit in charge of debt management policy, regulations and planning, research and analysis, debt service, registration, and information as specified in this law.

9.3. The state central administrative organization in charge of finance and budgetary matters shall review proposals for projects and/or activities to be implemented within the framework of the Government's loan capital and debt guarantees submitted by the general budget governors, and putting them into an order and submit them to the Government in accordance with the Law on the Budget.

/This section was amended according to the law as of December 17, 2021./

Article 10. Full powers of Governor and Citizen's Representative Khural of Province and Capital city

10.1. The Citizen's Representative Khural of Province and the Capital city shall exercise the following full powers regarding debt management:

10.1.1. to ensure and monitor the implementation of debt management laws and regulations;

10.1.2. to discuss and approve proposals for projects and/or activities submitted by the Governor to be implemented with the loan capital at the local level;

10.1.3. to discuss the results of projects and/or activities in municipalities financed with the loan capital along with the budget execution report, and to give instructions regarding their implementations;

10.1.4. to discuss the proposal of the Governor to create local debt, make a decision to create local loans based on the Government's approval;

10.1.5. other full powers provided by law.

10.2. Governors of provinces and the capital city shall exercise the following full powers regarding the debt management:

10.2.1. to prepare proposals for projects and/or activities to be implemented with the loan capital at the local level and submit them to the Citizen's Representatives' Meeting in accordance with section 19.1 of this law;

10.2.2. to organize the work of ensuring the implementation of projects and/or activities implemented with the loan capital in municipalities, and monitor their operations;

10.2.3. according to this law, to organize the work of concluding loan agreements, making negotiations, issuing securities of provinces and the capital city;

/This clause was added according to the law as of July 7, 2021./

/This clause was amended according to the law as of September 7, 2016./

10.2.4. to submit proposals for projects and/or activities in municipalities implemented with external loan capital, along with related calculations and studies, to the state central administrative organization in charge of finance and budgetary matters;

/This clause was amended according to the law as of December 17, 2021./

10.2.5. to include the amount of domestic sources of assets required for projects and/or activities implemented with external loan capital in the annual budget draft

10.2.6. other full powers stated in the law.

Article 11. Functions of other state organizations regarding debt management

11.1. The Bank of Mongolia has the following functions within the framework of debt management:

11.1.1. to calculate the balance of the country's total external debt on a quarterly basis in cooperation with the state central administrative organization in charge of financial and budgetary matters and inform the public;

11.1.2. in the event that the amount of loan to be obtained by the Government is likely to affect the monetary and foreign exchange markets of Mongolia, submit relevant suggestions and recommendations to the state central administration in charge of financial and budgetary matters.

11.2. The state central audit office has the following functions within the framework of debt management:

11.2.1. to audit the implementation of strategic documents in accordance with this law, make conclusions, and give recommendations;

11.2.2. to audit the implementation of laws and regulations on debt management, make conclusions and give recommendations;

11.2.3. to conduct an external audit and make a conclusion on the risk assessment specified in clause 9.1.9 of this law;

11.2.4. to issue a conclusion in accordance with section 37.2 of this law.

11.3. The National Statistics Committee is tasked with summarizing data on the country's total external debt, the Government debt and debt guarantees, along with figures and statistics related to the macroeconomic overview, on a quarterly and yearly basis.

11.4. Other than governors of provinces and the capital city, the general budget governors have the following functions in the framework of debt management:

11.4.1. to submit proposals for projects and/or activities to be implemented with the Government loan capital and the Government debt guarantees, along with related calculations and studies, to the state central administration organization in charge of financial and budgetary matters;

/This clause was amended according to the law as of December 17, 2021./

11.4.2. to present the report on implementation and performance of projects and/or activities financed by the loan capital to the Government;

11.4.3.to orrganize and supervise the implementation of projects implemented with the loan capital and the Government debt guarantees;

11.4.4. to get the amount of internal sources of assets required for projects and/or activities implemented with external loan capital included in the annual draft budget;

11.4.5. other full powers stated in the law.

Chapter three

POLICY AND REGULATION OF DEBT MANAGEMENT

Article 12. Purpose of creating debt

12.1. The Government may create debt for the following purposes:

12.1.1. to finance the budget deficit;

12.1.2. to finance the budget's seasonal revenue shortfall;

12.1.3. to support the Government's domestic securities market;

12.1.4. to refinance debt;

12.1.5. to finance projects and/or activities included in the development policy and planning documents;

/This clause was amended according to the law as of December 17, 2021./

12.1.6. to increase the net official foreign exchange reserves of the Bank of Mongolia in order to support the balance of payments.

12.1.7. to recapitalize banks by the state in accordance with the Law on ensuring the stability of the banking sector.

/This clause was added according to the law as of June 22, 2018./

12.2. When refinancing the debt, we will follow the guideline of smoothing the budget pressure and burden and reducing the market risk.

12.3. Governors of provinces and capitals may create debts with the approval of the government based on the provisions of Article 19 of this law.

12.3. Governors of provinces and capitals may create debts with the approval of the government based on the provisions of Article 19 281 of this law.

/Addendum was made to this section according to the law as of July 7, 2021./

/This section was amended according to the law as of September 7, 2016./

Article 13. Debt management of Government, its implementation

13.1. Policies and strategies of debt management are aimed at maintaining macroeconomic stability, financing the Government's financial needs at the possible level of risk, at the lowest cost, and supporting the Government's internal securities market.

13.2. The state central administrative organization in charge of financial and budgetary matters shall implement the Government debt management within the framework of the strategic document as follows:

13.2.1. to develop and implement a debt management strategy based on the Government's financial needs, cost in the debt portfolio and risk analysis;

13.2.2. to determine optimally objectives of the Government debt management, amount of debt, structure of debt portfolio and risks in the short and medium term;

13.2.3. to implement the new debt created by the Government in the relevant fiscal year, requirements, conditions and limitations in accordance with this law;

13.2.4. to maintain the database of the country's total external debt in cooperation with the Bank of Mongolia, inform the public in accordance with this law, and ensure the transparency of the Government's debt information.

Article 14. Strategic documents

14.1. The Government's medium-term debt management strategy shall be determined by the policy document and shall follow section 13.1 of this law.

14.2. The state central administrative organization in charge of financial and budgetary matters shall develop and approve a strategic document once in three years in accordance with the schedule specified in section 8.1 of the Budget Law along with the statement of the medium-term budget for the fiscal year.

14.3. The strategic document shall include the following:

14.3.1. the current state of the country's total external debt and the government debt;

14.3.2. medium-term assumptions of the Government debt indicators;

14.3.3. potential sources of financing;

14.3.4. factors affecting the Government's debt portfolio in the medium term;

14.3.5. effects on costs and risks in the Government's debt portfolio and their assumptions;

14.3.6. the current situation of the Government's debt guarantee portfolio, the impact on costs and risks in the debt portfolio, and risk assumptions;

14.3.7. medium-term target structure of the Government debt portfolio;

14.3.8. medium-term strategic goals of debt management, ways to implement them, and debt settlement process;

14.3.9. others.

14.4. It is forbidden to make addendum or amendments to the strategic document unless it becomes impossible to reach the target level of the debt portfolio based on the medium-term projection due to fluctuations of the main macroeconomic indicators.
14.5. In the event of the situation specified in section 14.4 of this law and section 8.2 of the Law on Fiscal Stability, the Government shall include relevant amendments in the strategic document and submit it to the State Great Khural for approval.

14.6. The state central administrative organization in charge of finance and budgetary matters shall submit the strategic document to the Government along with the report on the implementation of the previous strategic document in accordance with section 14.2 of this law.

Article 15. Reporting and monitoring the implementation of strategic documents

15.1. The state central administrative organization in charge of financial and budgetary matters shall report the implementation of strategic documents as follows:

15.1.1. to prepare the progress report of the strategic document every year and submit it to the Government together with the budget execution report;

15.1.2. to prepare a report on the implementation of strategic documents once in every three years and submit it to the State Great Khural in accordance with this law.

15.2. The report specified in section 15.1 of this law shall include the following:

15.2.1. information of the country's total external debt and the Government debt;

15.2.2. costs in the Government's debt portfolio, risk assessments and its explanation;

15.2.3. medium-term target structure of the Government debt portfolio and its implementation;

15.2.4. compliance with the limits specified in clause 6.1.4 of the Law on Fiscal Stability;

15.2.5. implementations of loan plan;

15.2.6. others.

15.3. The report on the implementation of the strategic document shall be submitted to the State Central Audit Office by 1st of March, and the State Central Audit Office shall audit the report by 1st of April.

15.4. The Government shall submit and present the report on implementation of the strategic document once in three years to the State Great Khural together with the conclusion of the State Central Audit Office during the period for submitting the draft of the next strategic document.

15.5. The state central administrative organization in charge of financial and budgetary matters shall inform the public about the strategic document and its implementation report.

Article 16. Debt limit of Government

16.1. The Government debt and the Government debt guarantees shall meet the requirements specified in clause 6.1.4 of the Law on Fiscal Stability.

16.2. The state central administrative organization in charge of financial and budgetary matters shall check whether any draft decision on the creation of debts of Government or municipalities and/or issuance of Government debt guarantees complies with the limits set forth in clause 6.1.4 of the Law on Fiscal Stability, the requirements and criteria specified in the law, review and make suggestions and conclusions on it.

16.3. When matters of getting loan by the Government or municipalities and guaranteeing the Government's debt are discussed at the Cabinet meeting, it shall be discussed and decided together with the proposals and conclusions issued by the state central administrative organization in charge of financial and budgetary matters in accordance with section 16.2 of this law.

Article 17. Establishing the maximum amount of newly created debts and debt guarantees

17.1. The maximum amount of newly created debt of the Government in the fiscal year shall be approved together with the annual budget law, and the maximum amount of the Government debt guarantees shall be approved by the State Great Khural.

/This section was amended according to the law as of December 17, 2021./

17.2. The maximum amount of newly created debt of the Government shall comply with the requirements specified in clause 6.1.4 of the Law on Fiscal Stability.

17.3. The state central administrative organization in charge of financial and budgetary matters shall revise the maximum amount of the Government's new debt for the given year based on provisions of section 17.2 of this law, and shall include it in the draft budget and submit it to the Government.

17.4. The amount of financing of projects and/or activities implemented with the loan capital for the current fiscal year shall be included in the maximum amount of newly created debt of the Government.

Article 18. Loan created by the Government

18.1. Based on sectrions 12.1, 16.1, and 17.1 of this law, the Government may receive loans in accordance with the strategic document.

18.2. When getting a loan, the Government shall meet the following requirements:

18.2.1. complying with the loan plan and the maximum loan amount for the current fiscal year;

18.2.2. in accordance with clause 16.2 of this law, opinions and conclusions of the state central administrative organization in charge of financial and budgetary matters have been received;

18.2.3.  projects and/or activities to be implemented with the loan capital of the Government must meet the requirements specified in the law.

18.3. Procurement of goods, works and services with the Government loan capital shall be regulated in accordance with the Law on Procurement of goods, works and services with state and local property funds.

18.4. In case the Government gets a loan that affects the monetary and exchange market of Mongolia, the amount, terms and duration of the loan will be decided on the basis of consultation with the Bank of Mongolia.

18.5. Unless otherwise specified by law, projects and/or activities financed by the Government's loan capital shall meet the following requirements:

18.5.1. be included in the budget;

18.5.2. compliance with the medium-term budget framework statement;

18.5.3. be included in the development policy and planning documents;

/This clause was amended according to the law as of December 17, 2021./

18.5.4. to perform and confirm drawing and budgeting, technical and economic feasibility study depending on types of the project or activities;

18.5.5. in case of on-lending external loan capital, economically efficiency and capability of repaying the loan capital must be confirmed by the risk assessment;

18.5.6. in case of on-lending external loan capital, the term of the contract shall not exceed the term of the main loan contract;

18.5.7. depending on types of projects or activities, social and environmental impact analysis shall be carried out and confirmed.

18.6. The state central administrative organization in charge of financial and budgetary matters shall issue an opinion and conclusion on whether the new loan by the Government meets the requirements specified in clauses 18.5.3, 18.5.4, and 18.5.7 of this law.

18.7. The Government may borrow money from the Bank of Mongolia for the purposes specified in clause 12.1.2 of this law with the condition that it will be repaid in the current fiscal year.

18.8. A concession agreement with the condition of repayment from the state or local budget shall be considered a debt instrument, and projects and/or activities financed by the agreement shall meet the requirements specified in clauses 18.5.1-18.5.4 and 18.5.7 of this law.

18.9. When concluding a concession agreement with the condition of repayment from the state and local budgets, the provisions of clause 16.2 of this law shall apply.

18.10. It is prohibited for the Government to borrow money from the Bank of Mongolia in violation of section 18.7 of this law.

Article 19. Debt management of municipalities, regulations

19.1. In accordance with Article 281, Clauses 6.2.2, 7.1.2, and 8.1.4 of this law, Governors of provinces and the capital city shall get a loan after it revised by the state central administrative organization in charge of finance and budgetary matters and based on the Government's approval. The loan decision shall be approved by the Citizen's Representatives Meeting of the province and the capital city.

/Addendum to this section was made according to the law as of July 7, 2021./

19.2. The matter of debt creation from the state budget by the Governor of provinces and the capital city with the condition of repayment within the given fiscal year shall be regulated in accordance with the Law on Budget.

19.3 Provinces and the capital city that meet the following requirements may finance investment projects required to perform functions specified in sections 58.1 and 58.2 of the Law on Budget with loan sources:

19.3.1. does not receive financial supports from the state budget;

19.3.2. the profit of the basic balance of the local budget should not be less than 50 percent of the base cost.

/This section was repealed according to the law as of September 7, 2016./

19.4. The amount of local debt to be created according to section 19.3 of this law shall not exceed 50 percent of the average base income of the budget of province or the capital city for the previous three years, and the amount of debt service to be paid in that fiscal year shall not exceed 50 percent of the base cost.

/This section was repealed according to the law as of September 7, 2016./

19.5. Debt service created in accordance with section 19.3 of this law shall be paid from the funds left in the budget from the profit of the basic balance of the local budget in an amount equal to the base cost.

/This section was repealed according to the law as of September 7, 2016./

19.6. When creating a debt in the budget of the province and the capital city in accordance with section 19.3 of this law, it is prohibited to use the following assets and income as debt collateral or to finance debt service:

19.6.1. Property that belongs to ownership of provinces and the capital city related to performance of functions specified in section 61.1 of the Law on Budget;

19.6.2. all kinds of revenue from provincial and the capital city budgets;

19.6.3. special purpose transfers granted by the state budget;

19.6.4. state budget revenue transfer.

/This section was repealed according to the law as of September 7, 2016./

19.7. Governors of provinces and the capital city shall meet the following requirements when creating debts in accordance with clause 19.3 of this law:

19.7.1. source of debt must meet the requirements specified in section 17.1 and 19.4 of this law;

19.7.2. investment projects and/or activities to be financed by creating debt must be reviewed by the state central administrative organization in charge of financial and budgetary matters;

19.7.3. to be reviewed by the state central administrative organization in charge of financial and budgetary matters;

19.7.4. to obtain permission from the Government and to get it approved by the Citizen's Representative Meeting of the the province and the capital city;

19.7.5. to inform the public about the purpose of  debt and, if necessary, organize an open discussion involving the public.

/This section was repealed according to the law as of September 7, 2016./

19.8. Governors of provinces and the capital city shall submit copies of the contract, relevant documents and information to the state central administrative organization in charge of financial and budgetary matters within 10 working days after signing any debt creation agreement or trading securities.

/This section was repealed according to the law as of September 7, 2016./

19.9. Governors of provinces and the capital city shall submit information about the balance of the previous quarter's debt and overdue debt, as well as the interest and penalties as defined in accordance with this law to the state central administrative organization in charge of financial and budgetary matters within 10th of first month of the next quarter.

19.10. In the event that the state central administrative organization in charge of financial and budgetary matters delivers a request to get any loan or debt information relevant to municipalities, the governor of the province or the capital city shall submit the relevant information within 10 working days after receiving the request.

19.11. Governor of province and the capital city is prohibited from creating debts or issuing guarantees with the condition that they will be repaid from the local budget, except as specified in this law and/or the Law on Budget.

/This section was amended according to the law as of September 7, 2016./

19.12. Debt service of province and the capital city shall be performed from the respective local budget.

19.13. Section 19.11 of this law does not apply to the budget loan of the Governor of province or the capital city to be repaid in the current fiscal year.

/This section was repealed according to the law as of September 7, 2016./

Article 20. Debt settlement process of the Government

20.1. The state central administrative organization in charge of financial and budgetary matters may take the following measures of debt settlement, which are included in the strategic document in order to create an optimal structure of the debt portfolio and manage risks appropriately:

20.1.1. to perform currency and interest rate swaps;

20.1.2. to enter into currency forward transactions;

20.1.3. to refinance, transfer and/or sale debt;

20.1.4. to repurchase debt ahead of time;

20.1.5. others.

Article 21. Debt management council

21.1. An adjunct debt management council (hereinafter referred to as the "Council") with advisory functions in defining and implementing debt management policies and strategies shall be established by the decision of the Government member in charge of financial and budgetary matters.

21.2. The Council shall issue recommendations on the following matters:

21.2.1. the Government debt management policy;

21.2.2. a draft strategic document;

21.2.3. an implementation of strategic documents;

21.2.4. performance of debt sustainability indicators;

21.2.5. the Government debt settlement process.

21.3. The Council will be headed by the member of the Government in charge of financial and budgetary matters, and the working procedure of the Council will be approved by the Government.

21.4. The Council will be established by the member of the Government in charge of financial and budgetary matters, with a composition of nine members, including representatives of the state central administrative organization in charge of financial and budgetary matters, the Bank of Mongolia, the Financial Regulatory Commission, the National Security Council and specialized researchers in the field of finance and economics.

Article 22. Government debt servicing

22.1. The state central administrative organization in charge of financial and budgetary matters shall complete the Government debt servicing within the specified period.

22.2. Regulations of the Government debt servicing shall be approved and enforced by the member of the Government in charge of financial and budgetary matters.

Chapter four

CREATING DEBT AND IMPLEMENTATION OF DEBT MANAGEMENT

subchapter one

EXTERNAL LOAN OF THE GOVERNMENT

Article 23. External loan of the Government, requirements

23.1. External loan of the Government shall meet the requirements set forth in this law and shall have the following types:

23.1.1. commercial loans or loans with a discount rate of up to 15%;

23.1.2. discounted loans or loans with a discount rate of 15-35%;

23.1.3. high discounted loans or loans with a discount rate of 35% or more.

23.2. Projects and/or activities to be financed by external loan sources with commercial terms of the Government shall meet the requirements specified in section 18.5 of this law.

23.3. Projects and/or activities to be financed by the Government's discounted and high discounted loan sources must meet the following requirements:

23.3.1. meet the requirements specified in clauses 18.5.1-18.5.4 and 18.5.7 of this law;

23.3.2. consider common interests of Mongolia when concluding and negotiating agreements with international organizations and partner countries;

23.3.3. projects and/or activities to be financed by the Government shall include the following:

23.3.3.a. direct financing or payment for goods, works and services;

23.3.3.b. indirect financing or tax, fee, fee discounts, exemptions and other support which necessary to ensure normal operations of projects and/or activities.

23.4. On the basis of the Government's external loan contracts and/or negotiations, the capital source of projects and/or activities shall be included in the budget.

23.5. If contracts or negotiations of the Government external loan which is to granted according to the Law on International Treaties are concluded in the middle of the current fiscal year, the source of loan capital shall be included in the supplementary budget based on clause 47.1.2 of the Law on Budget.

Article 24. Use of the Government's external loan capital

24.1. The sources will be used in the following forms depending on the purpose, social benefit, economic efficiency, and repayment capacity of projects and/or activities to be financed by the Government's loan capital:

24.1.1. financing on the basis of the project implementation contract without the condition of repayment;

24.1.2. on-lending;

24.1.3. financing projects and/or activities to be implemented by the Government, ministries, and/or their affiliated organizations.

24.2. Projects and/or activities that are beneficial to society but cannot be repaid to the state budget shall be financed with highly discounted loans, and in cases where financing is not possible, they may be financed with discounted loans.

24.3. Except as specified in clause 7.1.6 of this Law, the Government external loan capital with commercial terms shall be used on basis of on-lending agreements with repayment terms.

24.4. The Government member in charge of financial and budgetary matters shall approve the procedure for using the Government's external loan capitals, implementing, organizing, financing, monitoring and evaluating projects and/or activities to be financed with these capitals.

24.5. The fixed capital created within the scope of the project implementation contract specified in clause 24.1.1 of this law shall be registered as state and local property in accordance with the Law on State and Local Property[7].

Article 25. Getting external loans, concluding contracts

25.1. The state central administrative organization in charge of financial and budgetary matters will propose and negotiate projects and/or activities to be financed with external loan capitals based on the development policy and planning documents in accordance with the Law on International Treaties and relevant legislation.

/This section was amended according to the law as of December 17, 2021./

25.2. When the state central administrative organization in charge of financial and budgetary matters makes negotiations on the matters stated in section 25.1 of this law, if necessary, the state central administrative organization in charge of the relevant matters, affiliated agencies, and/or other professional organizations shall be involved in the negotiations.

25.3. Unless specifically authorized by the Government, the member of the Government in charge of financial and budgetary matters shall conclude the external loan agreement.

25.4. The state central administrative organization in charge of financial and budgetary matters shall meet the following requirements in order to exercise the authority to obtain loans from external sources and conclude loan agreements:

25.4.1. the amount of loans to be taken from external sources must compliant with the maximum amount of loans and the loan plan for the current fiscal year in accordance with this law;

25.4.2. have received opinions and conclusions specified in section 16.2 of this law;

25.4.3. have received the opinion of the state central administrative organization in charge of the sector in which projects or activities will be implemented.

25.5. When submitting the proposals specified in clause 25.4.3 of this law, the state central administrative organization in charge of the sector shall meet the requirements specified in Article 29 of the Law on Budget and clauses 18.5.4 and 18.5.7 of this law.

25.6. Unless otherwise provided by law, the Government may enter into financing agreements with related parties for projects and/or activities to be implemented within the framework of the general external loan agreement ratified by the State Great Khural.

25.7. Every time when an external loan contract or agreement is concluded, a copy of the contract or agreement shall be submitted to the state central administrative organization in charge of financial and budgetary matters.

25.8. It is prohibited to borrow from external sources and enter into loan agreements in violation of the terms and conditions stipulated in this law.

25.9. The state central administrative organization in charge of financial and budgetary matters shall develop the procedures to be followed when preparing the Government's external loan and it shall be approved by the Government.

/This section was added according to the law as of November 12, 2011./

Subchapter two

GOVERNMENT SECURITIES AND SECURITIES OF PROVINCE AND CAPITAL CITY

/Title of this subchapter was amended according to the law as of September 7, 2016./

Article 26. Issue the Government securities

26.1. Internal securities of the Government shall be issued for the purpose specified in clauses 12.1.1-12.1.4 of this law, and external securities shall be issued in accordance with clauses 12.1.1 and 12.1.4-12.1.6 of this law.

26.2. The state central administrative organization in charge of financial and budgetary matters shall perform functions of the issuer of the Government securities.

26.3. Any draft decision related to issuance of external and internal securities of the Government shall be submitted to the Government by the member of the Government in charge of financial and budgetary matters based on clause 8.2.4 of this law, and the Government to the State Great Khural.

26.4. The following requirements must be met for issuing Government securities:

26.4.1. to be included in the budget law of that year;

26.4.2. value of securities to be issued must comply with the maximum amount of loan for the fiscal year as specified in this law;

26.4.3. compliance with the strategic document.

26.5. The schedule of internal securities to be traded by the Government in the current fiscal year shall be approved by the member of the Government in charge of financial and budgetary matters in compliance with the loan plan and strategic documents.

26.6. The following requirements shall be included in the Government securities issuance schedule:

26.6.1. type, conditions and amount of securities;

26.6.2. form of securities trading;

26.6.3. date of trading and settlement of securities.

26.7. Expenses related to the issuance of Government securities shall be financed by the state budget.

26.8. Capital of the Government external securities shall be used for financing projects and/or activities that meet the requirements specified in section 18.5 of this law on basis of on-lending agreement with the condition of repayment.

26.9. Initiative to issue the Government external securities for the purposes specified in clause 12.1.5 of this law shall be issued by the state central administrative organization in charge of financial and budgetary matters.

26.10. Procedures for operations of the primary and secondary markets of the Government's internal securities, issuing and trading the Government's external securities shall be developed by the state central administrative organization in charge of financial and budgetary matters, and shall be approved by the Government.

26.11. The issuer of securities shall prepare and approve the schedule of the Government internal securities to be traded in the current fiscal year, and inform the public.

26.12. It is prohibited to issue the Government securities in violation of the terms and conditions stipulated in this law.

Article 27. Classifications of the Government securities

27.1. The Government securities are classified as follows:

27.1.1. short-term securities repayable within one year;

27.1.2. medium-term securities to be repaid within one to five years;

27.1.3. long-term securities to be repaid in more than five years.

Article 28. Issuing securities of province and capital city

28.1 Provinces and the capital city that meet the criteria specified in clauses 19.3.1 and 19.3.2 of this law may issue p securities of provinces and capital city for the purpose of financing the local seasonal income shortfall with the condition of repayment within the current fiscal year.

28.2. Governors of provinces and the capital city shall perform functions of security issuers of provinces and the capital city, and shall submit proposals for securities issuance of provinces and the capital city to the state central administrative organization in charge of financial and budgetary matters.

28.3. When issuing securities of provinces and the capital city, provisions of section 19.1 of this law shall be applied, and the following requirements shall be met:

28.3.1. obtained a permission to issue securities from the Government;

28.3.2. comply with the maximum amount of newly created debt of the Government;

28.3.3. Citizen's Representative Khural must have supported the initiative to issue securities of provinces and capital city.

28.4. The member of the Government in charge of financial and budgetary matters shall submit the draft decision to issue securities of the province and the capital city to the Government, and the Government will decide whether to issue securities of the province and the capital city.

28.5. Based on the approval of the Government specified in section 28.4 of this law, the decision to issue securities of the province and capital city shall be approved by the Citizen's Representative Khural.

28.6. The state central administrative organization in charge of financial and budgetary matters shall develop regulations related to issuing, trading, and reporting securities to be issued by the Governor of provinces and the capital city, and the regulations shall be approved by the Government.

28.7. Expenses related to issuance securities of the province and the capital city shall be financed by the local budget.

28.8 It is prohibited to issue securities of provinces and the capital city in violation of the terms and conditions stipulated in this law.

/This article was repealed according to the law as of September 7, 2016./

Article 281 . Issuance securities by province and the capital city

/This article was added according to the law as of July 7, 2021./

281.1. Provinces and the capital city may issue securities in the internal market in national currency for the purpose of refinancing certain projects and/or activities and previously issued securities.

281.2. The governor of a province or the capital city shall perform functions of security issuer on behalf of the province or the capital city. 

281.3. Projects and/or activities specified in section 281.1 of this Law shall meet the requirements specified in clauses 18.5.1, 18.5.2, 18.5.3, and 18.5.4 of this law.

281.4. Governors of provinces and the capital city shall present their proposals for issuance of securities to the Citizens' Representatives' Meeting, and in case a favorable decision was made, it shall be submitted to the state central administrative organization in charge of financial and budgetary matters for a conclusion at least four months before the beginning of the fiscal year.

281.5. If the state central administrative organization in charge of financial and budgetary matters determines that the draft decision of the Governor of the province or capital city to issue securities complies with the limits specified in clause 6.1.4 of the Law on Fiscal Stability, conditions, requirements, and criteria specified in the law, the draft decision shall be submitted to the Government before submitting the annual draft budget to the Government.

281.6. When issuing securities of the province or the capital city, the section 19.1 of this law shall apply, and the following requirements shall be fully met: 

281.6.1. obtained a permission to issue securities from the Government;

281.6.2. compliance with the Government's new debt limit;

281.6.3. the budget draft of the province or the capital city which complies with the Government's debt management strategy document, medium-term budget framework statement and loan plan shall include the amount of debt obligations to be covered by securities, and expenses related to issuance of securities;

281.6.4. it has been determined that the conclusion made by the state central administrative organization in charge of financial and budgetary matters in accordance with section 16.2 of this law complies with the limits specified in clause 6.1.4 of the Law on Fiscal Stability and the requirements and criteria specified in the law;

281.6.5. the Citizens' Representatives Meeting supported the Governor's proposal to issue securities of the province or capital city;

281.6.6. others stated in the legislation. 

281.7. The state central administrative organization in charge of financial and budgetary matters shall develop the procedures related to issuing, trading, and reporting securities to be issued by the Governor of the province and the capital city, and the procedures shall be approved and implemented by the Government.

281.8. It is prohibited to pay payment of securities of the province or the capital city by the state budget transfer and/or aid.

281.9. It is prohibited to issue securities of the province or the capital city in violation of the terms and conditions stipulated in this law.

Subchapter three

ON-LENDING

Article 29. On-lending loan of the Government, its requirements

29.1. The Government's external loan capital can be on-lent in order to finance projects and/or activities that meet the conditions and requirements set forth in this law.

29.2. The state central administrative organization in charge of financial and budgetary matters shall provide loan capitals based on on-lending agreement concluded with a sub-borrower and an end-borrower in accordance with Article 30 of this law.

29.3. A sub-borrower means the general budget governor, Bank of Mongolia, Development Bank of Mongolia (hereinafter referred to as "Development Bank"), commercial banks and other financial institutions that provide on-lent loans to end-borrowers according to this law.

29.4. An end-borrower means a legal entity registered in Mongolia that receives loan capitals with the condition of repaying them with interest on basis of on-lending agreement according to this law.

29.5. In the event that the Government's loan capitals are on-lent to end-borrowers through the general budget governor, the requirements specified in clauses 18.5.1-18.5.6 and 23.3.3 of this law shall be followed.

29.6. In case of on-lending the Government loan capitals to end-borrowers through sub-borrowers, such as the Bank of Mongolia, Development Bank, commercial banks and/or other financial institutions, the requirements specified in clauses 18.5.1-18.5.3 and 18.5.5-18.5.7 of this law shall be followed.

29.7. According to section 29.6 of this law, the sub-borrower shall independently solve the issue of selection and evaluation of effectiveness of projects and/or activities to be financed on basis of the on-lending agreement, and shall be fully responsible for related risks.

29.8. Relations associated with on-lending the Government loan capitals through the Development Bank shall be governed by this law, and relations associated with the use of loan capitals from the Development Bank shall be governed by the Law on the Development Bank of Mongolia.

29.9. The procedure for on-lending the Government's external loan capitals shall be prepared by the state central administrative organization in charge of financial and budgetary matters, and it shall be approved and enforced by the Government.

29.10. On-lending in violation of the terms and conditions stipulated in this law is prohibited.

Article 30. Concluding on-lending agreement

30.1. The member of the Government in charge of financial and budgetary matters shall conclude the on-lending agreement, and the term of the agreement shall not exceed the term of the main loan agreement.

30.2. In case of on-lending in order to finance projects and/or activities to be implemented by the state or local owned enterprises, or state or local controlled enterprises, a general budget governor of that sector or municipality shall perform sub-borrower's obligations, and a tri-party agreement shall be concluded among the state central administrative organization in charge of financial and budgetary matters, the sub-borrower and the end-borrower.

30.3. In the event that the Government decides to finance the projects and/or activities specified in section 30.2 of this law by the Development Bank, the Development Bank shall perform of sub-borrower's obligations, and a tri-party agreement shall be concluded among the state central administrative organization in charge of financial and budgetary matters, the sub-borrower and the end-borrower.

30.4. An on-lending agreement in which the loan will be on-lent by a commercial bank or other financial institution, or the Development Bank, except as specified in section 30.3 of this law, shall be concluded according to the following phasis:  

30.4.1. to conclude a bilateral on-lending agreement between the state central administrative organization in charge of financial and budgetary matters and the Development Bank, commercial bank, or other financial institutions;

30.4.2. The development bank, commercial bank, or other financial institutions shall conclude the on-lending agreement with the end-borrower.

30.5. The state central administrative organization in charge of financial and budgetary matters has the right to supervise whether the on-lending agreement concluded in accordance with clause 30.4.2 of this law and its implementations comply with the conditions and requirements set forth in this law.

30.6. Terms and conditions of the on-lending agreement shall be determined in accordance with the Government's lending conditions, and the principle of not pressure on the budget with any additional payments shall be followed.

30.7. It is prohibited to change the general conditions of the on-lending agreement, extend the period of the agreement and the principal debt exemption period, or interest payment exemptions, except in cases specified in Article 32.2 of this law.

Article 31. Obligations of parties of on-lending agreement

31.1. The state central administrative organization in charge of financial and budgetary matters is responsible for monitoring the implementation of on-lending agreement and taking measures to ensure the fulfillment of contractual obligations.

31.2. The sub-borrower has the following common obligations:

31.2.1. to monitor the end-borrower's utilization and repayment of loans;

31.2.2. to keep detailed records of loans for each end-borrower;

31.2.3. regularly submit reports and information about the implementation of projects and/or activities to the state central administrative organization in charge of financial and budgetary matters, and ensure accuracy and reliability of these reports and information;

31.2.4. to have same duties and responsibilities as the end-borrower before the state central administrative organization in charge of financial and budgetary matters;

31.2.5. to take responsibility for risks of projects and/or activities;

31.2.6. to manage and use loan capitals according to their purpose.

31.3. The end-borrower has the following common obligations:

31.3.1. to manage and use loan capitals according to their purpose;

31.3.2. to pay the principal, interest and other payments of on-lent loan in accordance with the contract;

31.3.3. regularly submit reports and information about the implementation of projects and/or activities to sub-borrowers, and be responsible for accuracy and reliability of these reports and information.

Article 32. Make obligation of on-lent loan payment performed

32.1. Sub- and end-borrowers are obliged to pay up the loan repayment within the period specified in the contract.

32.2. In the event that there is a risk of non-payment of on-lent loans lent by the Government due to the state policies and regulations in the sector, the member of the Government in charge of that matter shall immediately submit a statement to the state central administrative organization in charge of financial and budgetary matters along with evidence, calculations and research.

32.3. Pursuant to section 32.2 of this law, the member of the Government in charge of that matter shall submit the issue to the Government along with an opinion and a conclusion of the state central administrative organization in charge of financial and budgetary matters, and present it to the State Great Khural.

32.4. In the event of non-payment of the loan due to the wrongful actions of the sub-borrower, the responsibility shall be imposed on in accordance with the contract and clause 45.2.3 of this law.

32.5. In the event that the end-borrower is unable to fulfill the payment obligations within the scope of the contract specified in section 30.2 and 30.3 of this law, the sub-borrower shall fulfill the payment obligations.

32.6. If a payment installment specified in the on-lending agreement is overdue when a sub- and end-borrower, the state central administrative organization in charge of financial and budgetary matters has a right to take the following measures:

32.6.1. as a general budget governor, to deduct loan receivables from financial support and general income accounts to be transferred to the budget portfolio;

32.6.2. in case of state or local owned enterprises, or state or local controlled enterprises, to close their commercial bank accounts, to deduct capitals from the relevant accounts to settle receivables; if they have mutual receivables with other organizations, to calculate mutual deductions from that organization;

32.6.3. To take relevant measures in accordance with the contract for loans granted through Bank of Mongolia, commercial banks and/or other financial institutions;

32.6.4. to be decided by the relevant organization according to the law.

Chapter five

GOVERNMENT DEBT GUARANTEE

Article 33. Government debt guarantee and its requirements

33.1. The Government may issue the Government's debt guarantee for loans to be taken by the Development Bank and for loans to finance projects and/or activities implemented by legal entities specified in section 33.4 of this law.

33.2. The Government's debt guarantee shall meet the requirements of clause 6.1.4 of the Law on Fiscal Stability and section 17.1 of this law.

33.3. Projects and/or activities to be financed with borrowed capitals which will be guaranteed by the Government's debt guarantee shall meet the requirements specified in clauses 18.5.2-18.5.4 and 18.5.7 of this law.

33.4.Дараах этгээд нь төсөл, арга хэмжээг хэрэгжүүлэхээр зээллэг хийхдээ Засгийн газрын өрийн баталгаа гаргуулахаар тухайн салбарын асуудал эрхэлсэн Засгийн газрын гишүүнд хүсэлт тавьж болно:

33.4.1. state or local owned enterprises, or state or local controlled enterprises;

33.4.2. a legal entity registered in Mongolia with domestic investment other than as specified in clause 33.4.1 of this law.

33.5. The member of the Government in charge of the relevant sector shall submit a request specified in section 33.4 of this law to the member of the Government in charge of financial and budgetary matters.

/This section was amended according to the law as of December 17, 2021./

33.6. The state central administrative organization in charge of financial and budgetary matters shall include a request for issuing the Government debt guarantees for loans to finance projects and/or activities that meet the requirements specified in section 33.3 of this law in the state investment program.

/This section was repealed according to the law as of December 17, 2021./

33.7. The member of the Government in charge of financial and budgetary matters shall present matters of issuing the Government's debt guarantees to the Government, and the matters shall be decided by the Government pursuant to section 16.1 of this law.

/This section was amended according to the law as of December 17, 2021./

33.8. Unless otherwise provided by law, the period of implementation of projects and/or activities to be implemented with loan capitals secured by the Government's debt guarantee shall not exceed the repayment period of the loan.

33.9. The Government debt guarantee is a component part of the budget.

33.10. Projects and/or activities implemented within the framework of Government debt guarantee, as well as their risk calculations, shall be included in the following documents:

33.10.1. a presentation of the medium-term budget framework statement;

33.10.2. a presentation of the draft budget;

33.10.3. a presentation of budget performance.

33.11. It is prohibited to issue the Government debt guarantee in violation of the requirements of this law.

Article 34. Requirements for Government debt guarantee holder

34.1. The Government debt guarantee holder /hereinafter referred to as "guarantee holder" shall mean the Development Bank and/or the person specified in section 33.4 of this law, respectively.

34.2. The guarantee holder shall fully meet the following requirements:

34.2.1. have been profitable in the financial statements for the last three years;

34.2.2. not having overdue debts;

34.2.3. a lending institution is an unrelated party with no common interest with the guarantee holder;

34.2.4. projects and/or activities to be implemented with loan capital to be guaranteed by the government's debt guarantee must meet the requirements specified in section 33.3 of this law;

34.2.5. the relevant information, reports, and documents must be accurately prepared in accordance with the law;

34.2.6. to be able to repay loans and securities guaranteed by the Government's debt guarantee.

34.3. The guarantee holder has the following common duties:

34.3.1. to properly fulfill obligations under the guarantee contract;

34.3.2. to pay the loan principal and interest on time under the conditions specified in the contract;

34.3.3. regularly submit reports and information about the implementation of projects and/or activities to the state central administrative organization in charge of financial and budgetary matters, and ensure the accuracy and reliability of these reports and information;

34.3.4. to pay the guarantee fee in full within the specified period;

/This clause was amended according to the law as of November 13, 2019./

34.3.5. to settle the debt in an undisputed manner in accordance with section 37.6 of this law.

34.4. in the event that the loans taken by the Development Bank is guaranteed by the Government debt guarantee, the requirements specified in clause 34.2.1 of this law shall not apply.

Article 35. Procedure for issuing the Government debt guarantee

35.1. The state central administrative organization in charge of financial and budget matters shall exercise the functions of the Government debt guarantor based on section 33.7 of this law.

35.2. Except for section 35.3 of this law, up to 85% of the loans made by the persons specified in section 33.4 of this Law and up to 100% of the loans made by the Development Bank may be guaranteed by the Government debt guarantee.

35.3. In the event that the guarantee holder pledges his/her owned Government securities which is equal to the amount of loan which he/she will borrow, the total amount of the loan can be guaranteed by the Government debt guarantee, and risks caused by the difference in the exchange rate of the national currency shall be included in the guarantee agreement.

35.4. If total budgeted costs of projects and/or activities with social benefits, but can not be repaid, does not exceed 15 percent of all projects and/or activities to be financed by the loan capitals of the Development Bank, the Government's debt guarantee will be issued for that loan.

35.5. The debt guarantees to be issued by the Government applies to the principal and interest payments of the loan.

35.6. The methodology for calculating the premium/fee to be paid by the guarantee holder shall be developed by the state central administrative organization in charge of financial and budgetary matters, and shall be approved by the Government.

/This section was amended according to the law as of November 13, 2019./

35.7. The state central administrative organization in charge of financial and budgetary matters shall conduct a risk assessment on whether the guarantee holder is capable of repaying the loan capitals in accordance with clause 34.2.6 of this law.

35.8. The state central administrative organization in charge of financial and budgetary matters may receive the support of an external professional organization or consulting services when making the assessment specified in clause 35.7 of this law.

35.9. The member of the Government in charge of financial and budgetary matters shall conclude the guarantee agreement with the lender and the guarantee holder, and the receivable settlement agreement shall be concluded with the guarantee holder, respectively.

35.10. The contract to be concluded according to the the Government's debt guarantee, its requirements, the procedure for settlement of receivables, and a model of the contract shall be developed by the state central administrative organization in charge of financial and budgetary matters, approved and enforced by the Government. The Government's debt guarantee contract shall include the conditions specified in section 37.4 of this law.

35.11. The Government debt guarantee contract enters into force when the guarantee holder pays the fee in accordance with section 35.6 of this law.

35.12. The state central administrative organization in charge of financial and budgetary matters shall conduct an annual risk assessment for the implementation of projects, activities and contracts financed by the loan capitals guaranteed by the Government's debt guarantee, as well as the borrower's capacity to repay.

35.13. The state central administrative organization in charge of financial and budgetary matters has the right to monitor whether projects and/or activities implemented with loan capitals guaranteed by the Government's debt guarantee and the Government's debt guarantee contract and its implementation comply with the conditions and requirements set forth in this law.

Article 36. The Government debt guarantee fund

/This article was repealed according to the law as of November 13, 2019./

Article 37. Payment settlement

/Title of this article was changed according to the law as of November 13, 2019./

37.1. The state central administrative organization in charge of financial and budgetary matters shall fulfill payment obligations related to the Government's debt guarantee in accordance with the provisions of this law.

/This section was amended according to the law as of November 13, 2019./

37.2. The guarantee holder shall immediately deliver a notice that the guarantee holder is unable to make principal and interest payments, along with relevant evidence and information and the conclusion of the National Audit Office's examination on the guarantee holder's capacity to repay, to the state central administrative organization in charge of financial and budgetary matters and to the lender.

37.3. If the notice with evidences specified in section 37.2 of this law is confirmed to be true, the member of the Government in charge of financial and budgetary matters shall make the payment based on a payment invoice of the lender, by a decision of the Government.

/This section was amended according to the law as of November 13, 2019./

37.4. After the guarantee holder delivers the notice specified in section 37.2 of this law, the lender is obligated to submit an invoice for guaranteed payment to the state central administrative organization in charge of financial and budgetary matters within 30 days.

37.5. After the payment guaranteed by the Government debt guarantee, a receivable/debt shall be created in the name of the guarantee holder for that amount.

/This section was amended according to the law as of November 13, 2019./

37.6. Pursuant to clause 37.5 of this law, the collection of receivables from the guarantee holder shall be governed in accordance with the contract specified in section 35.9 of this law and relevant legislation.

37.7. The Government's debt guarantee obligation shall be terminated upon fulfillment of contractual obligations or on other grounds specified in the contract.

Chapter six

TRANSPARENCY OF DEBT MANAGEMENT AND MONITORING

Article 38. Transparency of debt management, its implementation

38.1. Unless otherwise specified by law, information, records, and reporting of the country's total external debt, the Government debt, and Government debt guarantees are transparent.

38.2. The state central administrative organization in charge of financial and budgetary matters shall ensure the transparency of debt management in the following form:

38.2.1. to record and report liabilities in accordance with laws and regulations;

38.2.2. to create a unified database of information on the country's total external debt, the Government debt and the Government debt guarantees, keep records and report;

38.2.3. to report strategic documents, credit plans, their implementations, the country's total external debt, the amount and calculation of the Government's debt and guarantees to the State Great Khural and the Government.

38.3. The state central administrative organization in charge of financial and budgetary matters shall calculate the balance of the Government's debt and debt guarantees quarterly, and a medium- and long-term debt service assumption shall be made annually, and those shall be informed the public.

38.4. The state central administrative organization in charge of financial and budgetary matters shall calculate the country's total external debt together with the Bank of Mongolia and inform the public.

38.5. The state central administrative organization in charge of financial and budgetary matters is responsible for reporting the total external debt, debt indicators, and the Government debt guarantees to the National Security Council every six months, or whenever necessary.

Article 39. Debt database

39.1. The state central administrative organization in charge of financial and budgetary matters shall create and maintain a unified database of debt.

39.2. The following information shall be included in the unified database of debt:

39.2.1. the balance of the country's total external debt, the Government debt and debt guarantees;

39.2.2. information and schedule on trading of the Government securities;

/This clause was revised according to the law as of September 7, 2016./

39.2.3. the Government's external loans, their use and performance, and on-lending loans;

39.2.4. solvency status of sub- and end-borrowers, Government debt guarantee holders, implementation of related contracts;

39.2.5. information about projects and/or activities implemented with the Government debt guarantee and loan capitals.

39.2.6. the Government loans and guarantees specified in section 6.2 of the Law on Fiscal Stability;

39.2.7. contingent liability information;

39.2.8. debt information arising from the concession financing agreement with the condition of repayment from the state and local budgets;

39.2.9. debt information of provinces and the capital city;

39.2.10. debt information of special Government funds;

39.2.11. debts of state or local owned enterprises, or state or local controlled enterprises;

39.2.12. other related information.

39.3. The state central administrative organization in charge of financial and budgetary matters shall regularly compile the information specified in section 39.2 of this law in the unified debt database and update it from time to time.

39.4. In order to create the unified database of debt, the following organizations are obligated to submit the information specified in section 39.2 of this law to the state central administrative organization in charge of financial and budgetary matters on a quarterly basis:

39.4.1. a general budget governor;

39.4.2. a central budget governor;

39.4.3. organizations with budget funding;

39.4.4. state or local owned enterprises, or state or local controlled enterprises;

39.4.5. the Bank of Mongolia, Development Bank;

39.4.6. sub-borrower and end-borrower of the loan agreement;

39.4.7. the Government debt guarantee holder;

39.4.8. other related persons.

39.5. The procedure for creating a unified database of debts, receiving and collecting information, recording and reporting debts shall be approved by the member of the Government in charge of financial and budgetary matters, along with forms and instructions.

39.6. In order to ensure the transparency of debt management, the state central administrative organization in charge of financial and budgetary matters shall inform the public once a year about the country's total external debt, the Government debt and the Government debt guarantees.

39.7. The person specified in this law is obligated to record accurately and on time in the debt database, store and protect information.

Article 40. Registration of debt

40.1. The state central administrative organization in charge of financial and budgetary matters shall calculate and record the Government's debt limit specified in clause 6.1.4 of the Law on Fiscal Stability at the present value.

40.2. Information on the Government's external loan agreement shall be entered into the unified debt database on the day the agreement enters into force, and shall be recorded as debt from the day the loan is used.

40.3. Securities of the Government, province, and capital city shall be entered into the unified debt information database on the date of settlement, and shall be recorded as debt.

/Addendum to this section was made according to the law as of July 7, 2021./

/This section was amended according to the law as of September 7, 2016./

40.4. Information on on-lending agreements financed by the Government's external loan capitals shall be entered into the unified debt information database on the day the agreement enters into force, and shall be recorded in receivables when the loan is used.

40.5. The Government debt guarantee shall be entered into the unified debt database on the day the contract becomes effective.

40.6. Based on the decision specified in section 37.3 of this law, the state central administrative organization in charge of financial and budgetary matters shall record the amount of the Government's obligated to pay of the debt guarantee.

40.7 Concession agreements subject to repayment from the state and local budgets shall be entered into the unified debt data based on the date of their entry into force, and shall be recorded as the Government debt based on the quarterly utilization under the concession agreement.

/Addendum to this section was made according to the law as of October 30, 2015./

40.8. The state central administrative organization in charge of financial and budgetary matters shall maintain the registration of the Government loans and the Government debt guarantees specified in section 6.2 of the Law on Fiscal Stability.

Article 41. Registration of projects and/or activities to be implemented with the Government external loans

41.1. The state central administrative organization in charge of financial and budgetary matters shall perform the function of recording projects and/or activities implemented with the Government external loan capitals, and within the scope of this function, it has the right to obtain the necessary documents and information from the relevant persons.

Article 42. Reporting the Government debt

42.1. The Government debt information is a component of consolidated budget performance and consolidated financial statements of the Government.

42.2. The state central administrative organization in charge of financial and budgetary matters shall include the following in the Government debt information:

42.2.1. annual debt management and adjustment activities;

42.2.2. information on loans and debt services made by the Government, province and capital city in the current year;

42.2.3. debt portfolio information, related costs and risk analysis;

42.2.4. debt guarantee information issued by the Government;

42.2.5. information about on-lending loans;

42.2.6. other necessary information.

42.3. Information on contingent liabilities that will arise or already arose within the framework of projects and/or activities for which the Government has issued debt guarantees, as well as other potential liabilities related to the budget and their risk calculations shall be included in the consolidated financial report of the Government in the form of clarification.

Article 43. Monitoring of debt management

43.1. The State Great Khural supervises the implementation of Government debt management and may give guidelines to the Government.

43.2. The National Audit Office shall conduct an external audit for the implementation of the strategic document once in three years, and the report will be informed the public.

43.3. In accordance with Article 69 of the Budget Law, an annual internal audit will be conducted on the implementation of debt management.

43.4. The state central administrative organization in charge of financial and budgetary matters, or the relevant authorized organization, shall take appropriate measures according to the recommendations of internal and external audits, and shall report their implementations.

43.5. The general budget governor and the project implementer will annually monitor and evaluate the progress and results of implementation of projects and/or activities implemented in the sector, and if necessary, relevant supervisory organizations and officials may be involved.

Chapter seven

MISCELLENEOUS

Article 44. Grounds of responsibilities

44.1. If the medium-term budget framework statement submitted by the Government and the consolidated budget draft of the current year violates the requirements specified in clause 6.1.4 of the Law on Fiscal Stability, it shall be grounds for not approving or returning the consolidated budget draft in accordance with Section 18.2 of the Law on Fiscal Stability.

44.2. If the governor of a province or capital city violates the provisions of sections 19.11, 281, 281.8, 281.9 of this law, the governor can be dismissed in accordance with clause 35.1.7 of the Law on Administrative and Territorial units and their Governance.

/This section was amended according to the law as of July 7, 2021./

/This section was amended according to the law as of September 7, 2016./

44.3. If The State Great Khural violates the debt limit specified in clause 6.1.4 of the Law on Fiscal Stability when approving the medium-term budget framework and the annual budget, as well as making amendments to them, it shall be a ground that the President of Mongolia is to exercise the right to veto in accordance with clause 1, section 1 of Article 33 of the Constitution of Mongolia.

44.4. The fact that a person who violates the Law on Debt management is held responsible and dismissed from his/her position in accordance with this law does not exempt him from criminal or administrative responsibility.

44.5. A person who performed the evaluation specified in this law shall be responsible for results and accuracy of the evaluation in accordance with the relevant laws and regulations.

Article 45. Liabilities for Violations of the Legislation on Debt management

45.1. Relevant authorized persons and officials who violate the sections 25.7, 26.12, 29.10, and 30.7 of this law shall be fined an amount equal to fifty times of the minimum wage for one month, and if this violation is committed repeatedly, he/she shall be subjected to the disciplinary action of dismissal without the right to return to public service for 10 years.

45.2. A court or a state inspector in charge of financial control shall charge violators of the legislations on debt management with the following punishments, if the violation is not of criminal nature:

45.2.1. If the estimates, proposals, budget drafts, news, information, and reports specified in sections 19.9, 19.10, and 39.4 of this law are not submitted within the specified time, the guilty person or official shall be fined an amount equal to five to ten times of the minimum wage for one month;

/This clause was amended according to the law as of September 7, 2016./

45.2.2. a person who does not properly fulfill the obligations specified in sections 31.2, 31.3, 34.3, and 37.6 of this law shall be fined an amount equal to ten to fifty times of the minimum wage for one month, and shall compensate damages incurred;

45.2.3. the guilty person specified in section 32.4 of this law shall be fined an amount equal to fifty to one hundred times of the minimum wage, and shall fully compensate damage caused;

45.2.4. the guilty official who violates section 39.7 of this law shall be fined an amount equal to two to five times of the minimum wage for one month;

45.2.5. an official who fails to fulfill his obligation to inform the public shall be fined the amount of five to ten times of the minimum wage for one month.

45.3. The punishments specified in clauses 45.2.2 and 45.2.3 of this law shall be imposed by the judge, and the punishments specified in clauses 45.2.1, 45.2.4, and 45.2.5 shall be imposed by the state inspector of financial control.

45.4 Regardless of the nature of violation and liability to be imposed, a guilty person who caused damage to the state due to the violation of this law shall compensate the damage caused.

Article 46. Obeying the law

46.1. This law shall be obeyed starting from the date of February 18, 2015.

SPEAKER OF THE STATE GREAT KHURAL OF MONGOLIA          Z.ENKHBOLD