Bangkok--22 Nov--Standard & Poor's
Strong growth prospects and supportive relations with donors underpin Mongolia's fiscal and external stabilization.
We affirmed the 'BB-' long-term and 'B' short-term sovereign credit ratings on Mongolia.
The stable outlook balances the risks from an underdeveloped, narrow economic profile and a weak financial sector against robust growth prospects and solid multilateral and donor support.
Standard & Poor's Ratings Services today affirmed its 'BB-' long-term sovereign credit ratings and 'B' short-term rating on Mongolia. The outlook remained stable. At the same time, Standard & Poor's affirmed its transfer and convertibility assessment of 'BB'.
The ratings on Mongolia balance an underdeveloped, resource-based economic profile and weak financial sector against robust growth prospects from an expanding mining sector, as well as progress in fiscal and external stabilization underpinned by strong donor and multilateral support. Such support makes for moderate debt-servicing burden, and conditions Mongolian policy formulation.
Mongolia's narrowly based, low-income economy is heavily skewed toward the extraction and export of a handful of mineral commodities, leaving the country's fiscal and external balances exposed to fluctuations in world commodity prices.
Mongolia's per capita income is widely expected to rise rapidly in the medium term, once its large coal and copper deposits begin production. However, its 2010 per capita GDP, at a projected US$2,023, is still less than half that of the 'BB' median, and official estimates indicate that more than one-third of the population lives below the poverty line.
"Significant social development needs against the prospect of large revenue inflows from the rapidly expanding mining sector creates a political and social environment where consistent adherence to prudent fiscal policies can face resistance." said Standard & Poor's credit analyst Agost Benard. "In that environment, the pressure on the government for more redistributive activity also hinders its ability to respond quickly and appropriately to shocks."
The ratings are additionally constrained by the contingent liabilities posed by the banking sector. After years of rapid credit growth in the run up to the 2009 economic downturn, and weak banking supervision, the failure of two major banks in Mongolia necessitated government capital injection of an estimated 3.2% of GDP. Although all banks now meet minimum regulatory capitalization levels, slow loans growth in the context of tightening monetary policy suggest that only modest asset quality improvements may be possible, Mr. Benard said.
The factors supporting the ratings on Mongolia are (1) the country's underlying strong growth potential, based on a rich natural resource endowment; (2) strong donor support; and (3) continued progress toward fiscal and external stabilization.
The government's cooperative relations with the international donor community and multilateral agencies ensured that public debt consists almost entirely of external, low cost, and long maturity borrowing, which places minimal burden on fiscal expenditure and external liquidity. In addition, donor and multilateral involvement strongly conditions policy formulation, helping to mitigate institutional deficiencies.
The stable outlook on the ratings balances the risks posed by an underdeveloped, narrow economic profile and a weak financial sector, against robust growth prospects and solid multilateral and donor support.
RELATED CRITERIA AND RESEARCH
Report Cards: Asia-Pacific Sovereigns: A Mostly Sunny Outlook, With The Chance Of Isolated Thunderstorms, published Sept. 29, 2010
Sovereign Credit Ratings: A Primer, published May 29, 2008.
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
David Wargin, New York (1) 212.438.1579,
[email protected]
Analyst Contacts:
Agost Benard, Singapore (65) 6239-6347
YeeFarn Phua, Singapore (65) 6239-6341