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
Moody's Investors Service Singapore Pte. Ltd.
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Gene Fang
Associate Managing Director
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
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Published Date:2020-07-02