Can Redirecting Mongolia’s Mining Billions to Local Hands Avoid the Resource Curse—or Ignite It?

Royalty Overhaul Forces Choice: Immediate Cash for Mining Towns vs. a Sovereign Wealth Safety Net

Mineral royalties, the fees levied on extracted resources, are a cornerstone of Mongolia’s economy. As these revenues grow, so does the debate: Should Mongolia spend these funds immediately to boost local development, especially in mining towns, or save them for future generations through a sovereign wealth fund? The central question remains: Who should benefit more—the entire nation or the communities directly impacted by mining activities?

As demands grow for greater local control over mining revenues, the parliament plans to deliberate a transformative proposal. Set for its 2025 spring session, the plan mandates that at least 30% of the Mineral Resource Extraction Tax (MRET or royalties) collected from a given province or sub-province be directly funnelled into that locality’s development fund. This is on top of other taxes in the mineral sector.

Advocates see this as a long-overdue correction to economic imbalances; critics warn of unintended consequences for the nation’s fiscal stability.

Under the current system, royalties flow into the central government’s coffers, including the Future Heritage Fund, Mongolia’s sovereign wealth fund aimed at intergenerational equity. Revenues are then redistributed nationwide. This approach has often left mining regions feeling shortchanged, bearing the brunt of environmental degradation while receiving no greater share of royalties than non-mining regions.

The proposed policy change—spearheaded by MP Myagmarsurengiin Badamsuren of Dornod province—would redirect 1.7% of royalties to local development funds in mining-affected areas, with discussions ongoing about including additional variable royalty rates in this allocation.

Proponents point to international models in Canada and Australia, where local governments retain significant shares of resource revenues to offset the social and environmental costs of extraction. Supporters argue that direct benefits to local communities could improve transparency, reduce tensions between miners and residents, and foster a sense of shared ownership over natural resources.

Yet the implications of this policy shift are far-reaching. Redirecting royalties to mining communities could pressure the central government to raise royalty rates to meet both local and national spending needs. This could discourage investment and exacerbate reliance on volatile commodity markets.

Furthermore, siphoning funds away from the Future Heritage Fund risks undermining Mongolia’s commitment to intergenerational equity—a cornerstone of long-term economic stability.

Regional inequality is another concern. While mining provinces may see their fortunes rise, resource-poor regions could be left behind, deepening existing disparities. The risks of corruption and mismanagement loom large as well, especially in areas where governance capacity remains underdeveloped. Without strong oversight, local development funds could become magnets for political patronage rather than engines of economic growth.

A glimpse into Dundgovi province’s budget highlights these challenges. In 2025, its local development fund allocated roughly MNT 4 billion ($1.18 million) to projects like heat distribution lines, school repairs, and hospital landscaping. Additional spending on goods and services amounted to over MNT 1.4 billion ($428,000). While such investments address immediate infrastructure needs, they contrast sharply with the savings-focused strategies of resource-rich nations like Norway.

The Norwegians’ emphasis on long-term wealth preservation through sovereign wealth funds offers a stark alternative to Mongolia’s inclination for short-term spending.

The push for localized royalties underscores a deeper tension in Mongolia’s resource governance: the clash between economic prudence and political expediency. In democracies, visible infrastructure projects often trump abstract notions of savings, particularly in regions where resource extraction is both a blessing and a burden. Yet, short-term gains risk perpetuating the "resource curse"—a paradox where resource wealth hinders rather than helps economic development.

Crafting a balanced policy will require drawing on international best practices. Project-based funding models or targeted revenue-sharing mechanisms could offer a middle ground, enabling local investments while safeguarding national priorities. Clear frameworks for fund allocation, robust oversight, and capacity building at the local level are essential to mitigate risks of mismanagement.

Ultimately, Mongolia’s challenge lies in ensuring that its mineral wealth benefits all its citizens—today and tomorrow. While the proposed policy may address local grievances, it must not come at the expense of long-term economic resilience. In the race to distribute mineral royalty revenues, Mongolia must tread carefully, lest it jeopardize the prosperity of future generations.