Bangkok--26 Nov--Moody's
Moody's Investors Service report on Mongolia discusses the rationale for maintaining a stable outlook for Mongolia's B1 foreign currency and local currency bond ratings. Its foreign currency bond ceiling is Ba2.
"In its four overall rating methodology factors, Mongolia shows low economic and institutional strengths, moderate government financial strength, and high event risk relative to possible economic shocks arising from commodity price volatility, or financial sector distress," says Tom Byrne, a Moody's Senior Vice President.
"However, policy adjustments and financial support under an 18-month IMF program agreed in April 2009 support a stable rating outlook," says Byrne. "These actions have helped to quell inflation, restore confidence in the currency and replenish official foreign exchange reserves."
"Furthermore, the government's intention to enact a fiscal responsibility law by the end of 2009 and to strengthen the central bank will be essential to avoid sliding back into another boom-bust cycle," says Byrne on the release of Moody's annual report on Mongolia.
"In this context, the challenge for the government will be to strengthen Mongolia's economic institutions for a more prudent and sustainable management of the country's considerable mineral wealth," says Byrne, the author of the report.
The country's low economic strength could be bolstered with the successful development of its natural resources and -- in this context
-- the Moody's report notes the recent agreement to develop its massive copper and gold reserves at Oyu Tolgoi.
While the country's institutional weakness depresses its credit fundamentals, there are positive developments, including ongoing external technical support from the IMF, World Bank, Asian Development Bank and more recently the European Bank for Reconstruction and Development.
In addition, the government's relatively moderate financial strength reflects the economy's dependence on cyclically volatile mining-sector revenues and the lack of expenditure control during boom times, says the report.
Susceptibility to event risk arises from economic rather than political factors. A shock from the abrupt, adverse movement in Mongolia's terms of trade poses higher event risks than in most countries rated by Moody's, the report says.
The downward spiral in economic and financial conditions in 2008 and in early 2009 may have resulted in an abrupt downward ratings transition if it had not been for the external support from the IMF.
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 recent commodity price boom-and-bust cycle.
The last rating action with respect to Mongolia was on October 30, 2009 when the rating outlook was changed to stable from negative.
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.
The report entitled "Mongolia" is available at www.moodys.com.