Moody’s raises Mongolia’s rating by a notch to B3 as pressures ease

Moody’s Investors Service on Thursday raised Mongolia’s long-term issuer ratings and senior unsecured ratings from Caa1 to B3, a level that is still deep in non-investment territory.

The rating agency cited an easing in liquidity and external pressures in Mongolia, which in 2016 was hit by a crisis due to government overspending and declining commodity export revenue.

The outlook on the ratings remains stable, Moody’s said, reflecting balanced risks.

The Moody’s upgrade moves Mongolia’s ratings from the category of “very high credit risk” to “high credit risk”.

Mongolia’s financing needs have eased with the refinancing of government debt at the end of last year, measures to narrow its fiscal deficit, and windfall gains from higher commodity-related revenues, Moody’s said.

In addition, the measures currently implemented under the International Monetary Fund programme, if effective, will contribute to lower - but not remove - the volatility of economic and fiscal outcomes arising from potential swings in commodity prices, the agency said.

Mongolia turned to the IMF amid fears that it could default on its debts. The deal required Ulaanbaatar to introduce austerity measures such as higher tax rates, which take effect this month as well as cuts to social welfare.

The IMF said in December that Mongolia was on a path to recovery with its economy outpacing growth expectations, despite budget cuts, driven by strong coal exports.

“The government is doing a fairly good job on economic recovery. I only wish the government would do the same good job on major projects,” said Dale Choi, analyst at Altan Bumba Financial Group in Ulaanbaatar.

“Investors have been through booms and busts for the past 10 years. So far there’s only one project progressing fairly well, which is the OT underground (expansion).”

Expansion of Oyu Tolgoi (OT), one of the world’s largest copper mines, has been under way since 2016 after being put on ice for several years due to disagreements between Mongolia and Anglo-australian miner Rio Tinto.