Mongolia is currently courting Russia, India and the United Arab Emirates for a loan on favourable terms to repay a state-issued $580mn bond that matures in March, CNBC reported on December 21.

Faced with slowing economic growth and a budget deficit equal to 20% of GDP, Ulanbaatar is in desperate need of foreign funding to prevent defaulting on its debt. Talks with China, its main trade partner, looked promising but were halted in November after Mongolia allowed the Dalai Lama to visit the country against China's wishes. In response, Beijing closed key border crossings with Mongolia and exacted fresh tariffs on Mongolian commodities. Beijing accuses the Dalai Lama of seeking to split Tibet from China. 

The administration of Prime Minister Jargaltugla Erdenebat has since sought other possible lenders, including Japan and Singapore, but negotiations were dropped because lending conditions were deemed too strict and the interest rate too high.

Talks with the International Monetary Fund (IMF) for a stand-by programme are expected to be completed in February, but will concern boosting fiscal responsibility rather than repaying debt.

“If talks [with China] do not restart shortly, or an alternative, acceptable financing arrangement can quickly be secured with another country, Mongolia is looking at a greater default risk,” Emily Stromquist, senior analyst at consultancy Eurasia, told CNBC.

In a statement on December 21, Mongolia's foreign ministry pledged to extend no more invitations to the Dalai Lama.