S&P lowers Mongolia’s long-term sovereign credit rating

By bne IntelliNews November 5, 2015

Standard and Poor’s (S&P) has lowered Mongolia’s long-term sovereign credit rating to 'B' from 'B+' on weakening fiscal and external performance with a stable outlook, the ratings agency has said in its latest report.

“The stable outlook balances the country's low-income resource-driven economy, weak policy environment and fiscal performance, high external risk, and limited monetary flexibility with the prospect that large mining projects could quickly reverse Mongolia's sovereign credit profile during the next 12 months,” the report reads.

The development of the Oyu Tolgoi and Tavan Tolgoi mines could build upward pressure on the rating if the development accelerates economic growth and improves fiscal and external performances than currently expected by the agency, the report said. At the same time, downward pressure could emerge on the ratings if Mongolia's external liquidity weakens significantly.

The ratings agency expects the country’s GDP growth rate to stay below 4% until 2017. At the same time, the agency projects the country's current account deficit to fall below 9.4% of GDP in 2015 after five years of double digit deficits. Net general government debt is expected to reach 53% of GDP by 2016 with downside risks to foreign exchange movements and weaker growth, the report said.

The agency affirmed their previous 'B' rating for the country’s short-term credit and revised the transfer and convertibility assessment to 'B+', according to the report.

In the beginning of September, one of the country’s chief negotiators Minister (without portfolio) Mendsaikhan Enkhsaikhan stated that Mongolia would likely not be able to close the $4bn Tavan Tolgoi deal, Reuters reported. The deal, currently unable to get approval from parliament, will become increasingly harder to settle in the lead-up to a July 2016 election. Mongolia had previously fallen from grace with foreign investors, when politics got in the way of closing the multibillion dollar Oyu Tolgoi underground expansion deal. After nearly two years of negotiations, the government sealed the long-awaited deal with the mining powerhouse Rio Tinto over the flagship copper and gold mine in May. The project is widely considered as a barometer of the country’s investment climate.

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