Moody’s: Mongolia’s economy still susceptible to volatility

September 06 04:29 2013 Print This Article

2013-09-05 17:16:04.48 GMT

Singapore September 06, 2013

Moody’s Investors Service says that
Mongolia’s B1 sovereign bond rating and stable outlook hinges on the
absence of significant fiscal pressures, relative macroeconomic
stability, and the maintenance of a favorable investment climate in the
mining sector.

Moody’s assessment was contained in its just-released “Credit Analysis
Mongolia” which serves as an update to investors and is not a rating
action.

Moody’s looks at four, overall methodological factors and scores them as
follows for Mongolia: economic strength — low; institutional strength
— low; government financial strength — low; and susceptibility to
event risk — high.

Moody’s notes that the country’s credit strengths include its strong
growth, which is based on rich natural resources, but also underscores
credit challenges, stemming from a narrowly-diversified economy,
pro-cyclical fiscal policy, and an unpredictable investment regime.

While GDP has moderated to 12.4% in 2012 from the 17.5% pace seen in
2011, overheating pressures are still present, with inflation remaining
high, and credit growth elevated. A heavy dependence on global commodity
prices and demand from China leave the country vulnerable to growth
volatility. Coupled with policy uncertainty, these factors have
increased the economy’s susceptibility to boom-bust cycles.

Recent fiscal performance is a credit constraint. Preliminary data
suggests that the government is unlikely to meet targets set out by the
country’s Fiscal Stability Law. Another constraint is transparency. This
is evident in off-budget spending largely channeled through the
Development Bank of Mongolia, which also detracts from fiscal
discipline.

Event risks are high, driven primarily by economic factors. Over the
past two years, large current account deficits were easily financed
through debt and FDI inflows. However, with the first phase of the Oyu
Tolgoi mining project coming on stream, and flagging investor sentiment,
FDI flows have dwindled considerably, imparting a moderate degree of
pressure on the balance of payments.

The recent insolvency of the country’s fifth-largest bank, Savings Bank
— which accounted for 8% of banking sector assets — adds to asset
quality concerns and highlights risks related to cross-ownership; a
feature common among Mongolian Banks.

Subscribers can access the report at
htods://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_157933

Anushka Shah
Analyst
Sovereign Risk Group
Moody’s Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Bart Jan Sebastian Oosterveld
MD – Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody’s Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

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Saranchimeg Enkhee
Saranchimeg Enkhee

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