Standard & Poor Global Ratings (S&P), one of the major three credit rating agencies, affirmed its 'B-' long-term sovereign credit rating on Mongolia. The outlook on the long-term rating was assessed stable, while short-term credit rating was affirmed at 'B'. The transfer and convertibility assessment remains unchanged at 'B'.
Mongolia's banking industry credit risk assessed "low" by S&P ratings
The stable outlook balances S&P’s expectation that Mongolia limits its government deficit against the risks associated with Mongolia’s elevated current account deficit, and its associated gross external financing needs.
According to S&P, the rating's upside potential could build if the economy outperforms S&P’s current projections over the next 12 months, likely on the basis of stronger external demand dynamics, more favorable commodity prices, and faster-than-anticipated development of the Oyu Tolgoi Phase 2 and Tavan Tolgoi megaprojects.
“Downward pressure could emerge if Mongolia's macroeconomic settings weaken materially, such that we assess external and fiscal pressures to have dramatically deteriorated. This could lead to renewed repayment pressures on the sovereign's obligations. We consider this scenario as highly unlikely over the next 12 months,” stated S&P in its report.
INSTITUTIONS AND POLICY ENVIRONMENT REMAIN CREDIT WEAKNESSES
S&P forecasts the economy to achieve average real GDP growth of 5.5 percent in 2018-2021, based on the continued expansion of production from large resource projects and robust investment and consumption growth. The agency expects the supportive mining policies under the Mongolian People's Party (MPP) government to continue and views that Mongolia retains strong market access despite the difficulties it has faced over recent years.
However, the agency highlighted that no Mongolian prime minister has completed a fouryear term since 2004. “This track record presents risks to policy continuity and predictability. The current administration's openness to working with donors to improve public finances, however, is generally consistent with the position of the previous MPP administration. The previous administration had already consolidated into the budget heavy spending on the price stabilization program, and capital spending through the Development Bank of Mongolia,” stated S&P.
FISCAL POSITION IMPROVED, BUT VULNERABILITIES REMAIN
According to the agency, Mongolia's public finances remain a key risk factor for the sovereign, despite the aforementioned improvements over the past year. Mongolia's net general government indebtedness remains very high, at 85 percent of GDP in 2017. S&P projects the country's current account deficit to return to double digits as a percentage of GDP from 2018-2020.
Central bank reserves have risen considerably over the past year, reflecting a recovery in external demand, more favorable terms of trade, as well as fund inflows from the multilateral donor program. S&P reports that it believes the Bank of Mongolia will continue to focus on boosting its reserves over the coming years, in accordance with the IMF program.
In addition, S&P assessed Mongolia’s bank industry credit risk at 10 (with 1 being the highest and 10 being the lowest), largely due to the size of Mongolia's financial sector. “Mongolia's banks remain exposed to vulnerabilities associated with the undeveloped, primarily commodity-based, low-income economy. The recently completed Asset Quality Review has helped to quantify the banking sector's capital needs, and we view this as a positive development. Nevertheless, we also observe continued weaknesses in Mongolia's regulatory framework, transparency, and disclosures.”.
Tugsbilig.B
Standard & Poor Global Ratings (S&P), one of the major three credit rating agencies, affirmed its 'B-' long-term sovereign credit rating on Mongolia. The outlook on the long-term rating was assessed stable, while short-term credit rating was affirmed at 'B'. The transfer and convertibility assessment remains unchanged at 'B'.
Mongolia's banking industry credit risk assessed "low" by S&P ratings
The stable outlook balances S&P’s expectation that Mongolia limits its government deficit against the risks associated with Mongolia’s elevated current account deficit, and its associated gross external financing needs.
According to S&P, the rating's upside potential could build if the economy outperforms S&P’s current projections over the next 12 months, likely on the basis of stronger external demand dynamics, more favorable commodity prices, and faster-than-anticipated development of the Oyu Tolgoi Phase 2 and Tavan Tolgoi megaprojects.
“Downward pressure could emerge if Mongolia's macroeconomic settings weaken materially, such that we assess external and fiscal pressures to have dramatically deteriorated. This could lead to renewed repayment pressures on the sovereign's obligations. We consider this scenario as highly unlikely over the next 12 months,” stated S&P in its report.
INSTITUTIONS AND POLICY ENVIRONMENT REMAIN CREDIT WEAKNESSES
S&P forecasts the economy to achieve average real GDP growth of 5.5 percent in 2018-2021, based on the continued expansion of production from large resource projects and robust investment and consumption growth. The agency expects the supportive mining policies under the Mongolian People's Party (MPP) government to continue and views that Mongolia retains strong market access despite the difficulties it has faced over recent years.
However, the agency highlighted that no Mongolian prime minister has completed a fouryear term since 2004. “This track record presents risks to policy continuity and predictability. The current administration's openness to working with donors to improve public finances, however, is generally consistent with the position of the previous MPP administration. The previous administration had already consolidated into the budget heavy spending on the price stabilization program, and capital spending through the Development Bank of Mongolia,” stated S&P.
FISCAL POSITION IMPROVED, BUT VULNERABILITIES REMAIN
According to the agency, Mongolia's public finances remain a key risk factor for the sovereign, despite the aforementioned improvements over the past year. Mongolia's net general government indebtedness remains very high, at 85 percent of GDP in 2017. S&P projects the country's current account deficit to return to double digits as a percentage of GDP from 2018-2020.
Central bank reserves have risen considerably over the past year, reflecting a recovery in external demand, more favorable terms of trade, as well as fund inflows from the multilateral donor program. S&P reports that it believes the Bank of Mongolia will continue to focus on boosting its reserves over the coming years, in accordance with the IMF program.
In addition, S&P assessed Mongolia’s bank industry credit risk at 10 (with 1 being the highest and 10 being the lowest), largely due to the size of Mongolia's financial sector. “Mongolia's banks remain exposed to vulnerabilities associated with the undeveloped, primarily commodity-based, low-income economy. The recently completed Asset Quality Review has helped to quantify the banking sector's capital needs, and we view this as a positive development. Nevertheless, we also observe continued weaknesses in Mongolia's regulatory framework, transparency, and disclosures.”.
Tugsbilig.B