Mongolia to provide USD 1 million to help United States fight coronavirus www.montsame.mn

At its irregular meeting held today, June 1, the Cabinet made following decisions.

EU grants EUR 50.8 million to Mongolia for improving transparency www.news.mn

The European Union is supportig Mongolia’s efforts in boosting employment and improving transparency in public finances with a grant of 50.8 million euros (MNT 155.7 billion). This is the first budget support programme in Mongolia, also aiming to address the social and economic consequences of the COVID-19 pandemic.

219 Mongolian child monks to arrive from India www.montsame.mn

There are around 597 Mongolian Buddhist child monks and students living at three monasteries – Gomang, Sera and Jume in the Karnataka state of India, and 357 of them are children aged between 10 and 18.

Mongolia confirms 6 new COVID-19 cases, 185 in total www.xinhuanet.com

Mongolia reported six new cases of COVID-19 over the last 24 hours, bringing the national count to 185, the country's National Center for Communicable Disease (NCCD) said Monday.

Fitch affirms Mongolia at 'B' with stable outlook www.akipress.com

Fitch Ratings has affirmed Mongolia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B'. The outlook is stable.

Fitch forecasts the economy to contract by 2% in 2020, before rebounding to 7.9% in 2021. Our baseline assumes demand from China, which accounts for around 90% of Mongolia's exports, will pick up during the second half of this year. This is underscored by a gradual improvement in China's industrial production and investment spending since April. At the same time, downside risks to Mongolia's growth outlook remain amid uncertainty on how the pandemic develops globally, as well as the speed of China's recovery.

Real GDP fell by 10.7% yoy in the first quarter, driven in large part by measures to prevent the local spread of the coronavirus. This included a temporary suspension of coal exports to China during February and March, tight restrictions on international flights and railways, and strict social-distancing measures. Mongolia has seen relative success in containing the coronavirus, with 141 officially reported cases.

Fitch forecasts a budget deficit of 7.1% of GDP in 2020, up from a 1.4% surplus last year. Our forecast is wider than the government's baseline of 2.5%, due mainly to our view that the revenue decline will be more severe. In March, the authorities unveiled an economic stimulus package valued at around 13% of projected 2020 GDP. However, this includes reordering of expenditure priorities, and Fitch estimates that measures that will add directly to the budget deficit are around 4% of GDP. Key fiscal priorities include select infrastructure projects, as well as fiscal and tax relief measures. The risk of a sharp rise in pre-election spending ahead of parliamentary elections on 24 June, as was the case in 2016, has thus far not materialised, and Fitch now anticipates fiscal restraint to remain broadly intact.

Fitch projects that the fiscal deficit and growth contraction will drive up the general government gross debt (GGGD) to around 70% of GDP by end-2020, from 65% of GDP in 2019. We expect GGGD to resume its downward trend in 2021 and decline to 57% by 2024, below the current 'B' median level of 60%. Prior to the coronavirus outbreak, Mongolia had made significant progress in reducing public debt from 93% of GDP in 2016, underpinned by strong budget outcomes aided by robust growth and supportive commodity prices.

Fitch forecasts foreign-currency reserves (USD4.1 billion in 1Q20) to decline to USD3.1 billion by end-2020, equivalent to 4.1x current-external payments. The sovereign faces no marketable external bond maturities until April 2021, after a USD500 million private-sector external bond carrying a government guarantee matured in May 2020. Fitch forecasts the current account deficit to widen to 14.7% of GDP in 2020 (4.6% of GDP net of FDI, or USD645 million), before narrowing to 11.9% in 2021. Nevertheless, reserves are low and a rating weakness, particularly in view of a substantial step up in amortisation in 2021-2023.

IMF staff have completed discussions on a USD99 million loan under its Rapid Financing Instrument (RFI) to help meet the country's budgetary and balance of payments needs, and we expect IMF board approval in early June. In completing the discussions, IMF staff noted Mongolia's progress in reducing public debt and accumulating reserves under the three-year Extended Fund Facility (EFF) that expired on 23 May. The Asian Development Bank (ADB) has also recently approved new loans and a grant worth USD233 million in budget support and project financing. The authorities are also exploring a possible follow-on program to the EFF, as reflected in the IMF's media statement following staff discussions on the RFI.

The Mongolian parliament unanimously passed a resolution last November requiring the government to review ways to improve the Oyu Tolgoi investment agreement. Fitch believes this underscores the longstanding strained relations between the government and Rio Tinto over taxation, delays and other aspects of the large-scale copper mining project, as well as the potential for heightened political volatility around resource nationalism. However, Fitch does not believe this will lead to a material disruption in Oyu Tolgoi's development, given the significant implications this would have for Mongolia's macroeconomic stability, and the considerable investment that Rio Tinto has already deployed into the country.

Mongolia's rating is supported by World Bank Governance Indicators (WBGIs), GDP per capita, and World Bank Doing Business rankings that are stronger than the 'B' range median. GDP growth potential is high. However, net external debt is high at 176% of GDP at end-2019.

Fitch has a negative sector outlook on Mongolian banks, which reflects our expectation that the pandemic will put additional pressure on banks' asset quality. The banking sector non-performing loan ratio stood at 10.9% as of end-April 2020. A combination of the Bank of Mongolia cutting interest rates by 200bp so far in 2020, slower credit growth than previously expected and a higher credit-loss provision is likely to put pressure on banks' profitability.

UNICEF and UN joint statement for International Children’s Day www.unicef.org

Usually the statement on children’s day is about progress and challenges, with a positive tone. However, this year there is sadness in our hearts. UNICEF and the UN Team in Mongolia sends its condolences to the parents and loved ones of the four children who tragically lost their lives last week. UNICEF and the UN in Mongolia are deeply concerned that children continue to be subjected to neglect, violence and abuse.

Will coronavirus make flying more expensive? www.bbc.com

As more countries start to ease their Covid-19 lockdowns, attention is returning to the global aviation industry, almost entirely grounded for months. Some passenger airlines have kept skeleton fleets flying for repatriation missions, some have converted passenger jets to use as cargo planes, but all of them would much rather return to their primary objective: flying people safely around the world.

But when planes do take to the skies again, how much impact will the pandemic have on what they charge? “We know airlines want to get planes back in the air and bums back on seats,” says Benjamin Cany from Amadeus, a technology company that provides IT services to the travel industry, including one of its principal booking systems. In the short-term at least, that would point to lower fares aimed at incentivising consumers.

Yet look past the next few months and there are factors that could push fares up, from airline bankruptcies that could reduce both supply and competition, to reduced fleets caused by retiring aircraft early. And the great unknown is how quickly passengers will return to flying, with the general feeling in the industry that aviation won’t return to pre-pandemic numbers until 2022, 2023 or beyond.

Airlines, Cany says, usually look at past demand to forecast future trends. But there’s no precedent for the current circumstances. “What are airlines to do when the past data is radically different, or no longer relevant for future calculations?”

The pricing equation

Airline pricing, explains Cany, is normally based on a combination of scientific calculations and models. This, he says, “is about understanding the customer's motivation to travel and how much they are willing to pay for the ticket. Airlines then balance that against capacity, and a myriad other indicators. The airline wants to strike the best deal for the airline and the traveller.”

This is both a science and an art. The science, Cany says, “is in the modelling, machine learning and algorithms behind this calculation” and would usually include “the choice between the different airline products (for example, business versus premium economy) and the various airline itineraries available (departure time, arrival time, trip duration). That needs to be combined with historical data, seasonality, as well as market indicators such as upcoming local events, competition on that same route, and so forth.”

The art, meanwhile, comes from “the airline’s pricing and revenue management experts, who adjust these indicators to develop the most accurate forecast. That’s where the technology helps, providing these teams with the tools to improve the forecast accuracy to the highest degree,” Cany concludes.

But nobody knows how the models that aviation has been honing for decades will change as a result of the extraordinary Covid-19 challenges, particularly given the situation is still evolving.

When will demand return?

In the most basic of economic terms, for example, airline fares are set based on a supply curve and a demand curve. Airlines usually have the lever of supply under their control, and it’s generally understood that when they want to stimulate demand to fill capacity, they reduce fares. More people will travel if a ticket is $50 than if it is $100. The X factor right now is that many people are scared to travel because of hygiene concerns, lockdown guidance and quarantine rules.

“Short-term, aircraft will continue to be much less full and airlines will be motivated to price seats to get customers flying safely in a Covid-19 world,” says Joe Leader, chief executive officer of APEX, a trade association whose members include airlines and their suppliers. “Airlines have cut back their flights to absolute connectivity minimums and are losing money on the vast majority of remaining flights… Hopefully, the combination of increased Covid-19 safety measures alongside low prices will encourage a travel rebound.”

Paul Simmons, a senior airline executive with experience at numerous airlines worldwide including easyJet and Malaysia Airlines, suggests much will depend on what part low pricing can play as a tool to persuade people to travel. “It could be that airlines find their traditional lever of low pricing to drive bums on seats does not work as well as it used to. People may have higher concerns.”

The general view is that domestic travel will recover first, a view with which Peter Foster, CEO of Kazakhstan’s national carrier Air Astana, agrees. “Initial indications from our recently-restarted limited domestic flights are that there is pent-up demand for these routes. We believe that business, worker and student travel will recover well before leisure travel.”

IATA, an airline trade association, expects low demand when countries first start to travel again, despite some business travellers needing to fly and a desire for what’s known as VFR — visiting friends and relatives — traffic as people miss their families. On the plus side for airlines, IATA notes that the biggest variable cost in aviation, fuel, will be low: as drivers in many places are noticing, there’s oversupply in the petroleum industry keeping prices down.

Will supply fall?

If there are major unknowns on the demand side, there are also evolving factors influencing pricing on the supply side.

One of the starkest images for the airline industry has been the sight of line after line of jets parked on runways and put into storage at aircraft recycling ‘boneyards’. While older and less efficient planes will be retired, some of them years ahead of schedule, airline executive Paul Simmons points out that most of the planes taken out of fleets have been stored, not scrapped. “This is an important distinction,” he says.

Joe Leader from airline association APEX suggests that “there will be more than enough supply even with all of the early aircraft retirements”. Certainly to start off with, demand will be low enough to be met by the aircraft that haven’t been retired. Airbus and Boeing have both announced cuts to the numbers of new aircraft they’re building every month, but as demand rises again, the aircraft manufacturers can increase production, airlines can extend the life of aircraft they’re using, or older aircraft can be brought back into use from storage.

It’s already clear that the airline landscape, and indeed the names painted on the side of the aircraft, are likely to be forever changed. Some airlines have already filed for various forms of bankruptcy protection or indeed have simply gone under. This will, in many cases, lead to less competition – and the possibility of monopoly pricing, which tends not to favour consumers. Yet it’s likely that regulators will come down hard on airlines seen to profiteer, while other carriers will seek to jump into monopoly markets where that is possible, or new entrants will arise. For passengers, that’s likely to mean a fair amount of volatility in fares.

The ‘rightsizing’ of supply and demand may take time, leading to higher pricing in the medium term – Paul Simmons
“Although some airlines will inevitably go out of business, others will scale up to fill the void,” comments Simmons. “The ‘rightsizing’ of supply and demand may take time, however, leading to higher pricing in the medium term.”

No easy answers

The watchword for aviation, as for so many industries looking to rebound from Covid-19, is going to be uncertainty. New waves of infection, or treatment breakthroughs, would both influence the future path. So too will political and regulatory responses, as well as the wider global economic fallout that is being forecast.

Demand, crucially, is not rising evenly; different government restrictions ­– especially quarantine periods on arrival for travellers from some nations – will have effects that are very complex to model, and will necessarily differ between nations or even within regions of the same nation.

The US is an example of how perceptions and thus demand can vary across a nation. Scott DeAngelo, chief marketing officer of niche leisure carrier Allegiant Air, said on an earnings call that customer surveys revealed that “in the Midwest and Mid Atlantic, the Upper West, I got to tell you they don’t share the opinion that the evening news is putting out there” around travel. Pictures over the US Memorial Day holiday weekend have shown leisure destinations in some parts of the country packed with partygoers.

It seems likely that travel resumption “bubbles” between neighbouring countries and regions with acceptably low infection rates (where “acceptably” will also vary) will continue, and while these may stimulate demand travellers will also not want to be caught overseas if restrictions return swiftly. The question of whether any travel insurance would cover Covid-19-related issues is also crucial.

Airlines also need to start flying for people to start buying tickets even in a reduced demand scenario, and we are only just starting to see a very limited number of airlines resuming very limited schedules. That all makes predicting the effects of the interlocking factors upon which airline pricing is based challenging. The demand side of the curve is particularly tricky for long-haul pricing, says Air Astana CEO Peter Foster, who nevertheless expects that the stronger long-haul airlines are likely to try to kickstart demand with lower fares.

Short-haul carriers, meanwhile, may benefit from low oil prices, reduced aircraft prices that enable counter-cyclical orders and lower salaries due to surplus aviation workers. “The prognosis may well be lower airfares on short/medium haul routes for at least 18 months to two years,” Foster expects.

And while Covid-19 is unprecedented, he believes the past can offer indicators for future trends. “After every major crisis of the last 20 years – the Asian financial crisis of 1998, 9/11, the global financial crisis – low-cost airlines have emerged faster and stronger because suppressed demand combined with depressed consumer spending power has driven people to them,” he says. “I doubt 2020/21 will be any different.”

Aviation journalist John Walton writes about airlines, aircraft and everything aeronautical. He welcomes questions and discussions from readers via email to john@walton.travel and on Twitter (he’s @thatjohn).

4 boys drown in water-filled hole in Mongolia www.xinhuanet.com

Four children drowned in a water-filled hole left by construction work in Mongolia, the country's National Police Agency (NPA) said Thursday.

China to launch digital yuan next year to replace cash www.rt.com

The People’s Bank of China has revealed plans to have its sovereign digital currency ready in time for the 2022 Winter Olympics. The announcement comes as the Covid-19 pandemic has accelerated a shift away from paper money.
Limited trials are already underway in Shenzhen, Suzhou, Chengdu and the Xiongan New Area in the northern province of Hebei, said the central bank’s governor Yi Gang. He told reporters that China’s government plans to run pilot tests at Olympic venues, though there remains no official timetable for a release.

Mongolia reports 13 new COVID-19 cases www.xinhuanet.com

Mongolia's National Center for Communicable Disease on Thursday reported 13 new cases of COVID-19, taking the nationwide tally to 161.