Bangkok--30 Oct--Moody's
Moody's Investors Service has changed its outlook on Mongolia's B1 government bond ratings as well as on its Ba2 and B2 foreign currency bond and bank deposit ceilings to stable from negative.
"The rating action was supported by the government's policy tightening which has contributed to a shoring-up of the country's balance of payments, the containment of its burgeoning fiscal deficit, and the elimination of nearly runaway inflation," says Tom Byrne, a Moody's Senior Vice President.
These policy actions were essential to bringing stability to an economy that has undergone a boom-bust cycle, and which is characterized by weak fundamentals and insufficient institutional strengths.
"Moreover, the parliament's ratification of the strategic investment pact in October between the government and foreign investors in the Oyu Tolgoi copper mining project and the likely development of other strategic mining projects will bring very sizable fiscal benefits and lead to a surge in foreign exchange earnings. But, the development of the mining sector will also pose policy challenges in terms of maintaining macroeconomic stability in the years ahead," says Byrne.
Mongolia's success in gaining support from the IMF in April and in completing two program reviews -- the most recent on September 21 -- also holds promise for the placing of government finances on a firmer footing for the rest of 2009 and into 2010.
Moreover, if the government is successful in passing into law its draft fiscal responsibility act, then budgetary stability over the long run would be enhanced, and the oscillations endemic to a commodity-dependent economy would be dampened. Such a development would most likely improve Mongolia's long-term credit fundamentals.
Looking ahead, Moody's believes that credit positive events over the rating outlook horizon would include continued control over inflation, stability in the exchange rate, and the maintenance of an ample and prudent level of official foreign exchange reserves.
"The ability of the government to contain its budget deficit and restore a favorable trend in its financial metrics would also be viewed positively. In addition, progress in government efforts to shore up the financial sector with the help of multilateral development banks, as well as improve the independence and regulatory capabilities of the central bank, would be necessary for an improvement in Mongolia's credit fundamentals," says Byrne.
On the other hand, a relapse into economic and financial sector instability and a fraying of the policy framework would renew negative ratings pressure.
Moody's had initially assigned Mongolia's B1 ratings in October 2005 and they have been unchanged since. In effect, the ratings have looked through the commodity price boom-and-bust cycle, which occurred over the past several years.
The last rating action with respect to Mongolia was on June 10, 2009 when Moody's concluded a review for possible downgrade of Mongolia's ratings by affirming the government's B1 rating, while maintaining a negative outlook.
The principal methodology used in rating the government of Mongolia was Moody's sovereign bond rating methodology, published in September 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer Sovereign Risk Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
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Singapore
Aninda S. Mitra
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308