Moody's - Mongolia faces liquidity risks as coronavirus squeezes export revenue and limits financing options www.moodys.com

Moody's Investors Service says in a new report that Mongolia is facing rising external vulnerability risks amid the coronavirus pandemic, as pressures on export revenue coupled with highly uncertain access to external financing threaten already weak foreign exchange reserve adequacy.

Moreover, the government's borrowing requirements will increase markedly to fund a sizable stimulus package, which raises liquidity risks. Recently approved emergency assistance from the International Monetary Fund (IMF) and other multilateral agencies alleviates some of these risks, although the size of funding indicated so far remains short of financing needs.

"Mongolia's primary commodities, coal and copper, have fallen sharply in price, and combined with export restrictions and lower demand from China and globally we expect a large drop in commodity export proceeds in 2020," says Anushka Shah, a Moody's Vice President and Senior Analyst.

"This in turn will widen the current account deficit and reduce reserves, with lower foreign reserves set against substantial repayment obligations on external debt that will start coming due in 2021, reflected in mounting vulnerabilities," adds Shah.

In response to the coronavirus outbreak, the government has announced a sizable fiscal stimulus plan. Moody's expects this will widen the budget deficit to 8.6% of GDP in 2020, from its projection of 4.8% at the start of 2020. A larger deficit will add to the government's gross borrowing requirements, estimated at 12.5% of GDP in 2020, and which will peak at 17.0% of GDP in 2022 as external bond repayments come due.

Financing will likely be drawn from a mixture of external sources, in particular multilateral and bilateral lenders, and domestic sources. If concessional sources do not all materialize and the local authorities maintain their planned stimulus measures, liquidity strains will increase.

Beyond 2020, Moody's expects growth to return toward Mongolia's high potential rates.

Robust growth potential continues to represent an underlying credit strength, although it is dependent on large projects proceeding as planned beyond 2020. This is Moody's base case assumption, particularly supported also by political continuity following recent parliamentary election results.

Subscribers can access the report "Government of Mongolia: External vulnerability, government liquidity risks turn more acute under coronavirus-driven pressures" at: http://www.moodys.com/researchdocumentcontentpage.aspx…

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This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Anushka Shah
VP-Senior Analyst
Sovereign Risk Group
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Gene Fang
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Jurisdictions under Increased Monitoring – 30 June 2020 www.fatf-gafi.org

Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the ‘grey list’.

The FATF and FATF-style regional bodies (FSRBs) continue to work with the jurisdictions noted below and to report on the progress made in addressing the identified strategic deficiencies. The FATF calls on these jurisdictions to complete their agreed action plans expeditiously and within the proposed timeframes. The FATF welcomes their commitment and will closely monitor their progress. The FATF does not call for the application of enhanced due diligence to be applied to these jurisdictions, but encourages its members to take into account the information presented below in their risk analysis.

The FATF continues to identify additional jurisdictions, on an on-going basis, that have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. A number of jurisdictions have not yet been reviewed by the FATF and FSRBs.

On 28 April, the FATF decided on a general pause in the review process for the list of jurisdictions under increased monitoring,

FATF extends its assessment and follow-up deadlines in response to COVID-19 (28 April 2020)
The FATF granted jurisdictions an additional four months for deadlines, with the exception of Mongolia and Iceland who requested to continue on their original schedule. As a result, the FATF reviewed and virtually met with only these jurisdictions and the result of these discussions is noted below.

Iceland

In October 2019, Iceland made a high-level political commitment to work with the FATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. The FATF has made the initial determination that Iceland has substantially completed its action plan and warrants an on-site assessment to verify that the implementation of Iceland’s AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future. Specifically, Iceland has made the following key reforms: (1) ensuring the access to accurate basic and beneficial ownership information for legal persons by competent authorities in a timely manner; (2) introducing an automated system for STR filing and enhancing the FIU’s capacity in its strategic and operational analysis; (3) ensuring implementation of TFS requirements among FIs and DNFBPs through effective supervision; and (4) enabling effective oversight and monitoring of NPOs with adequate resources and in line with the identified TF risks. The FATF will continue to monitor the COVID-19 situation and conduct an on-site visit at the earliest possible date.

Mongolia

In October 2019, Mongolia made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. The FATF has made the initial determination that Mongolia has substantially completed its action plan and warrants an on-site assessment to verify that the implementation of Mongolia’s AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future. Specifically, Mongolia has made the following key reforms: (1) improving sectoral ML/TF risk understanding by DNFBP supervisors, applying a risk-based approach to supervision and applying proportionate and dissuasive sanctions for breaches of AML/CFT obligations; (2) demonstrating increased investigations and prosecutions of different types of ML activity in line with identified risks; (3) demonstrating further seizure and confiscation of falsely/non-declared currency and applying effective, proportionate and dissuasive sanctions; (4) demonstrating cooperation and coordination between authorities to prevent sanctions evasion; and (5) monitoring compliance by FIs and DNFBPs with their PF-related TFS obligations, including the application of proportionate and dissuasive sanctions. The FATF will continue to monitor the COVID-19 situation and conduct an on-site visit at the earliest possible date.

The statement on Jurisdictions under Increased Monitoring, adopted in February 2020 remains in effect for the remaining jurisdictions identified at that time:

Albania
The Bahamas
Barbados
Botswana
Cambodia
Ghana
Jamaica
Mauritius
Myanmar
Nicaragua
Pakistan
Panama
Syria
Uganda
Yemen
Zimbabwe
Please refer to the statement issued in February 2020 for details concerning each of these jurisdictions. However, please be advised that the statement may not necessarily reflect the most recent status in the jurisdiction’s AML/CFT regime.

Chinese economic activity picks up despite global coronavirus uncertainty www.rt.com

China’s manufacturing and services sectors expanded in June, beating last month’s results and economists’ expectations, but the coronavirus crisis still hinders economic recovery.
The official manufacturing purchasing managers’ index (PMI) for the country’s manufacturing sector rose to 50.9 in June, up from 50.6 in May, the National Bureau of Statistics (NBS) said on Tuesday. A reading above 50 reflects growth in factory output, while a reading below signals contraction.

Rio Tinto avoids footing $1bn bill for new power plant in Mongolia www.ft.com

Rio Tinto has been spared from footing the bill for a $1bn coal-fired power station in Mongolia, where the miner is developing a huge underground copper deposit in the Gobi Desert.

The Anglo-Australian group said on Monday that a government-built plant at the Tavan Tolgoi coalfield would provide the long-awaited domestic power source for its $6.8bn Oyu Tolgoi project.

The deal comes days after the ruling Mongolian People’s party scored a landslide general election victory and will give the government greater influence over the project, the country's biggest source of foreign direct investment.

Analysts at Canaccord Genuity said the deal handed Mongolia a “valuable bargaining chip” should there be further disputes over the investment agreement that underpins development of the underground mine and that Ulaanbaatar wants to improve.

“While the elimination of a funding requirement on the order of $1bn is positive, in a world awash with historically cheap capital we view this as a limited benefit relative to the negative strategic and operational implications,” said analysts at Canaccord.

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“In addition, we are unclear as to what the impact on the mine’s operating costs will be as the government seeks to recoup a meaningful return on its investment.

Mongolia owns 34 per cent of OT, with the remainder owned by Turquoise Hill Resources, a Canadian-listed company. In turn, Rio owns 50.8 per cent of Turquoise and manages the mining operations.

The existing surface mine at OT is powered by coal-fired electricity that is imported from neighbouring China via overhead cables, but Mongolia has demanded that Rio find a domestic power source.

In February, Rio said a 300 megawatt coal-fired power station costing almost $1bn was the most likely domestic solution, a proposal that was subsequently knocked back by the government.

Under the new agreement, the parties will work towards finalising the commercial terms of a power purchase agreement by March 2021.

Subject to negotiations, Rio will continue to buy power from China for the surface mine at OT until the plant is commissioned and can supply reliable and continuous power from 2025.

The underground expansion of OT is one of Rio’s most important growth projects. When finished it will make the mine one of the world’s largest sources of copper, producing more than 500,000 tonnes a year of the metal used in everything from cars to air conditioning units.

However, the project has suffered setbacks. In July 2019 Rio said the expansion was running 16 to 30 months behind schedule and would cost $1.2bn to $1.9bn more than forecast, although it has since said the delay and cost overrun will be near the middle of that range.

“This was always a Catch-22 for Rio,” said Henry Steel, of Odey Asset Management. “Either Rio build the power plant and have to source the coal from Tavan Tolgoi, allowing the Mongolians to squeeze them on the coal price. Or the Mongolians build the power plant and squeeze Rio on the power price. Both are as bad as each other.”

Mongolia’s Dance with Democracy: Some Steps Back and Some Forward www.theglobepost.com

Last Wednesday, Mongolia held its 8th parliamentary elections since the democratization of the country in 1990. However, these were the first ones to take place amidst a pandemic.

Notwithstanding fears among important sectors of the population and some institutions, including the president who had called for postponing the contest, almost three-quarters of the population turned out to vote with great normality.

Here are four things you need to know.

Unsurprising Landslide Victory
The post-communist Mongolian People’s Party (MPP), which had already gained a constitutional majority at the last 2016 parliamentary elections, won again by a landslide.

The party acquired 62 of the 76 seats in parliament, while the main opposition party, the liberal-conservative Democratic Party (DP), won just 11. The other three seats went to an independent candidate and two social-democratic parties. Thirteen 13 of the 76 seats went to female candidates, the highest number since the first democratic elections 30 years ago.

On the one hand, MPP’s victory was favored by the good management of the pandemic. Despite Mongolia’s proximity to China, MPP has managed to keep the number of infections low with just 219 cases, all of them coming from abroad. No one died from the virus in the country. This, in comparison with other more economically developed countries such as the US, UK, or Italy, has been considered an enormous success.

On the other hand, it was an institutionally engineered landslide too. Using its constitutional majority, MPP managed to change the electoral system and introduce a block voting system characterized by multiple non-transferable votes. This not only marginalized smaller parties as expected (11 parties and two coalitions were left without representation), but it also increased the level of electoral disproportionality, especially pushed by the high number of wasted votes: 8.5 percent, a record in democratic Mongolia.

Thus, while MPP won almost 82 percent of the seats with barely 45 percent of the votes, DP won 14.5 with almost a quarter of the votes. Perhaps the best example of such disproportionality in the distribution of seats is that the New Coalition, which came in fourth place with 5.4 percent of the votes, was left out of parliament.

Thirdly, we should not forget that the new electoral changes also discriminated against more than 150,000 Mongolian emigrants, usually more inclined to vote for the opposition, as they could not be registered in any specific constituency. In a country with just 2 million voters, emigrant voters can make a huge difference.

Finally, Prime Minister Ukhnaagiin Khürelsükh’s battle against air pollution in the capital, one of the most contaminated cities in the world, certainly paid off. By reducing the capital’s air pollution by almost half, MPP managed to solve one of the main environmental concerns in Mongolia’s electorate.

Mongolia’s Trajectory Toward a Dominant Party System
MPP’s victory of last Wednesday constitutes not only the party’s second landslide victory in the last four years but also its sixth win since 1992.

The opposition, with the Democratic Party at its head, was only able to defeat MPP in 1996, in coalition with the Mongolian Social Democratic Party, and then again in 2012.

In a world where the stakes of political competition are higher, electoral results have consequently become more uncertain and governments more difficult to predict. Mongolia constitutes one of the few current examples of what political scientists call a dominant party system.

This, like in India or South Africa before, or in Hungary now, might become problematic given dominant parties’ tendencies to blend party and state, and to appoint party officials to senior positions regardless of whether they have the required qualities. This was already visible during the last legislature and might become even more during the next four years.

COVID-19: No Impediment for Democracy
As in South Korea, this election was unique in terms of its organization. Because of the COVID-19 pandemic, social distancing had to be practiced during campaigning events. Voters had to wear gloves and/or use sanitizing facilities. The number of international observers was low, especially compared with previous electoral contests, and actual observations were limited.

This pushed some candidates to vote buying. The most imaginative example was a candidate in the Dundgovi province in Southern Mongolia, who wanted to distribute motorcycles among those who voted for him. Fortunately, the police intervened and stopped the attempt.

Worried COVID-19 might affect the affluence of voters, various civil society groups campaigned to increase participation. One example was that of the NGO Zorig Foundation, which, to mobilize the youth vote, encouraged voters to wear traditional clothes when voting to make the act of voting more sociable and look cooler. Paradoxically, this might also have mobilized older voters, nostalgic of traditional clothing and “voting” during Communist times, when people would vote covered in a deel, a traditional piece of clothing worn by nomadic tribes since the Mongols.

The result could not have been better. Almost 74 percent of voters participated in the elections. This is the highest turnout in a decade and breaks the declining trend that began with the new century.

Some Steps Back, Some Steps Forward
One of the elections’ most worrying events was the arrests of five opposition candidates (three of them DP members) without proper legal guarantees. A sixth candidate, this time an MP from the governing party, was also illegally detained accused of a conflict of interest. This, together with the concerns on MPP’s dominance over the political process, raises concerns about the quality of democracy in Mongolia.

On the other hand, however, Mongolian democracy seems firmly consolidated.

First of all, the Central Electoral Commission’s management of the contest was almost exemplary, especially given the COVID-19 pandemic.

Secondly, these elections saw an important generational change in Mongolian politics after 32 energetic, well-educated, and young candidates managed to obtain representation.

Finally, DP’s leader immediately accepted the crushing defeat and announced his resignation. It is definitively a good sign that intra-party democracy also works in the country. This is extremely important, especially given Mongolia’s exceptional position as the only fully democratic state in the region.

Disclaimer: The views and opinions expressed here are those of the author and do not necessarily reflect the editorial position of The Globe Post.

Bat-Orgil Altankhuyag is a Researcher at the DeFacto (Independent Research) Institute, Mongolia. Fernando Casal Bértoa (@CasalBertoa) is Associate Professor at the University of Nottingham, United Kingdom

Mongolia extends heightened state of readiness until July 15 www.xinhuanet.com

June 30 (Xinhua) -- Mongolia has extended its heightened state of readiness until July 15 amid the COVID-19 pandemic, the government's press office said Tuesday.

Suspected case of bubonic plague reported in western Mongolia www.global.chinadaily.com.cn

A suspected case of bubonic plague has been reported in western Mongolia, local media reported on Tuesday, citing the country's National Center for Zoonotic Diseases (NCZD).

Mongolian Parliament appoints G.Zandanshatar as Speaker www.montsame.mn

The inaugural session of Mongolia’s new parliament formed by the 2020 parliamentary election was held today, June 30.

Mongolia keeps key policy rate at 9 percent www.news.mn

At a meeting held on 26 of June 2020, the Monetary Policy Committee decided to:

Fauci warns of 100,000 US cases per day www.bbc.com

Top disease researcher Dr Anthony Fauci has told the US Senate that he "would not be surprised" if new virus cases in the country reach 100,000 per day.

"Clearly we are not in control right now," he testified, warning that not enough Americans are wearing masks or social distancing.

During the hearing, he said about half of all new cases come from four states.

Earlier, the New York governor said nearly half of all Americans must self-quarantine if they visit the state.

On Tuesday, cases rose by more than 40,000 in one day for the fourth time in the past five days.

The surge - which is occurring particularly strongly in southern and western states - has forced at least 16 states to pause or reverse their reopening plans, according to CNN. Florida, Arizona, Texas and California are the four states referenced by Dr Fauci as being most heavily hit currently.

For some the new measures come over a month after they first began to reopen their economies.

Also on Tuesday, New York Governor Andrew Cuomo expanded the number of Americans who are required to self-quarantine for 14 days if they visit the state. There are now 16 states on the list.

The newly added states are California, Georgia, Iowa, Idaho, Louisiana, Mississippi, Nevada and Tennessee.

They join Alabama, Arkansas, Arizona, Florida, North Carolina, South Carolina, Texas and Utah.

All together, the order affects 48% all US residents, according to a USA Today analysis.

What did Dr Fauci say?
Testifying to a Senate committee on the effort to reopen schools and businesses, the director of the National Institute of Allergy and Infectious Diseases criticised states for "skipping over" benchmarks required for reopening, and said cases will rise as a result.

"I can't make an accurate prediction, but it is going to be very disturbing, I will guarantee you that," he told Senator Elizabeth Warren.

"Because when you have an outbreak in one part of the country even though in other parts of the country they're doing well, they are vulnerable."

"We can't just focus on those areas that are having the surge. It puts the entire country at risk," he added.

Dr Fauci also called on the US government to produce face masks to be distributed for free to all Americans, and condemned the "all or none phenomenon" of some people who have completely disregarded social distancing measures.

Robert Redfield, the director of the Centers for Disease Control and Prevention (CDC) - who was also testifying on Tuesday - told lawmakers that 12 states have seen hospital admission numbers rising, and Arizona has recorded an increasing death rate.

"It is critical that we all take the personal responsibility to slow the transmission of Covid-19 and embrace the universal use of face coverings," Dr Redfield said.

"The disease impacts us all and it's going to take all of working together to stop it."

Before the hearing began, Republican Senator Lamar Alexander, who leads the committee, appealed to President Donald Trump to wear a face mask - an act he has yet to do in a public event.

"Sadly this simple life-saving practice has become part of the political debate," said the ally of Mr Trump.

"If you are for Trump you don't wear a mask, if you are against Trump you do," he continued, going on to "suggest that the president occasionally wear a mask".

"The president has plenty of admirers that would follow his lead," he said.

'We have way too much virus'
On Monday, Dr Anne Schuchat, principal deputy director of the CDC, warned that the US is not responding like other countries who have shown success in containing the coronavirus, and has allowed the virus to spread much more widely and rapidly.

"We're not in the situation of New Zealand or Singapore or Korea where a new case is rapidly identified and all the contacts are traced and people are isolated who are sick and people who are exposed are quarantined and they can keep things under control," Dr Schuchat said in an interview with the Journal of the American Medical Association.

"We have way too much virus across the country for that right now, so it's very discouraging."

New Zealand declared the country infection-free on 8 June, and since then has had to contain several cases that came from international travellers. South Korea has aggressively employed contact tracers, and since 1 April has recorded fewer than 100 cases per day. Singapore's outbreak peaked in mid-April when 1,400 new cases were reported in one day.

The US has recorded 2,682,897 confirmed cases of coronavirus as of Tuesday, according to Johns Hopkins University, and has a total of 129,544 deaths.

"This is really the beginning," Dr Schuchat added.

"I think there was a lot of wishful thinking around the country that, 'hey it's summer'. Everything's going to be fine. We're over this and we are not even beginning to be over this. There are a lot of worrisome factors about the last week or so."

'Herd immunity unlikely'
Dr Fauci warned on Monday that the US is "unlikely" to develop herd immunity to the coronavirus even once a vaccine is available, which he earlier predicted could be available by early 2021.

He said this was due to the combination of a vaccine that is potentially only partially effective, and the large number of Americans who might refuse to get it.

"There is a general anti-science, anti-authority, anti-vaccine feeling among some people in this country - an alarmingly large percentage of people, relatively speaking," he said, calling for more education to promote confidence in vaccines.

Dr Fauci added that he would gladly "settle" for a vaccine that is only 70% to 75% effective at first.

According to the CDC website, herd immunity is reached when "a sufficient proportion of a population is immune to an infectious disease (through vaccination and/or prior illness) to make its spread from person to person unlikely".