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Events

Name organizer Where
Frontier's "Invest Mongolia Tokyo 2018" Frontier Securities Tokyo Japan
"Open to Export" ICC WTO International business award ICC WTO London

NEWS

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Fitch Upgrades Mongolia to 'B'; Outlook Stable www.fitchratings.com

Fitch Ratings-Hong Kong-09 July 2018: Fitch Ratings has upgraded Mongolia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B' from 'B-'. The Outlook is Stable.

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

The upgrade of Mongolia's IDR reflects ongoing improvements to fiscal and external metrics and progress in meeting key IMF programme targets.

Fiscal metrics have continued to improve since November 2017 when we revised the Outlook to Positive from Stable. General government revenue through May 2018 rose by 26% yoy, due to stronger than budgeted tax receipts associated with robust customs activity and the broader economic recovery. At the same time, expenditure rose by a modest 6%, broadly in line with the 2018 budget target. As a result, Fitch now forecasts a 2018 general government deficit of 3.9% of GDP, below the authorities' approved budget target of 5.9%, and consistent with the gross general government debt (GGGD)/GDP ratio remaining on a downward trajectory.

Fitch forecasts GGGD will decline to 75.3% of GDP by end-2018, down from 81.2% in 2017, and well below its 2016 peak of 91.4% following a commodity-price shock, sharp rise in expenditure, and large currency depreciation. The agency's baseline forecasts suggest GGGD will fall to about 70% of GDP by end-2020, assuming average nominal GDP growth of 12.7%, a budget deficit of 4.0%, and broad stability of the exchange rate. Nevertheless, this scenario will still leave Mongolia's GGGD/GDP ratio well above the current 'B' median of 62%.

The IMF Executive Board completed its fourth review of Mongolia's three-year Extended Fund Facility in June 2018, citing strong performance under the programme and that all quantitative targets had been met as of end-March 2018. This will enable an additional disbursement of IMF funds and provide a supportive backdrop for other external donors to approve further disbursements under their respective arrangements that together form Mongolia's IMF-led USD5.5 billion external financing package, initiated in mid-2017.

External buffers have strengthened. Foreign reserves rose to USD3.3 billion by end-May 2018, up from about USD1.0 billion in early 2017, supported by donor inflows tied to the IMF programme. Fitch forecasts foreign reserve coverage will rise to 4.5x current-external payments by end-2018, up from 2.3x at end-2016, to exceed the 'B' median of 3.9x. The agency expects the current account deficit to widen further this year, but more than half of the increase will reflect a rise in capital goods imports tied to the Oyu Tolgoi copper mining project, which is funded via FDI.

The growth outlook remains favourable. Real GDP growth accelerated to 6.1% in 1Q18, up from 5.2% in 2017, due to rising consumption and a surge in mining-related investment. Export volumes of coal and copper rebounded following an official visit of Mongolian Prime Minister Khurelsukh to China in April 2018, which appears to have resolved a customs dispute at the Chinese border that crippled the passage of cargo vehicles last winter. Fitch forecasts real GDP growth of 5.2% in 2018 and 6.3% in 2019, which balances our expectation of continued strength in private consumption and investment, with a large drag from net exports owing to a sharp rise in consumer and capital goods imports since early 2018.

The 'B' IDR also reflects the following key rating drivers:

The rapid improvement in fiscal metrics has benefitted from a strong external environment and rising commodity prices, which have lifted government revenue in excess of budget expectations. Against this backdrop, however, the authorities have delayed a variety of structural budgetary reforms, including the introduction of a progressive income tax, an extension of the retirement age, and the establishment of a politically independent fiscal stability council. This raises the risk that a waning commitment to further structural reforms could leave fiscal revenue vulnerable to swings in the external environment, or undermine the credibility of recent enhancements to Mongolia's fiscal policy framework.

Near-term refinancing risk has receded, with the sovereign facing no external bond maturities until after 2020. Nevertheless, Mongolia's heavy reliance on funding from external debt capital markets exposes the country to shifts in investor sentiment toward emerging market assets. Yields on Mongolia's 2023 US dollar bonds, for example, have risen by around 150bp since the beginning of the year, a trend shared by many emerging and frontier market issuers as a result of global risk aversion. High commodity export dependence, at 77% of current-account receipts, and export concentration to China, at 86% of exports, also leave Mongolia vulnerable to external shocks and constrains its ratings.

A history of abrupt leadership changes, with Mongolia experiencing four different prime ministers over the previous five years, increases the potential for political shocks or policy reversals. In addition, commercial disputes persist between Rio Tinto, the country's largest FDI investor, and the government with regards to various aspects of the Oyu Tolgoi project. Fitch expects the disagreements will ultimately be resolved given the mine's long-term strategic importance for both parties, but this conviction may be tested in the run-up to Mongolia's parliamentary elections in mid-2020, given the prominence resource nationalism has played in previous electoral cycles.

The completion of the asset-quality review has eased uncertainty over capital adequacy in the Mongolian banking system. The review revealed a system-wide capital shortfall equivalent to 1.9% of GDP, well below prior IMF estimates of up to 7.0%. Banks are expected to raise additional capital by end-2018, though the authorities have yet to specify the impacted institutions. A banking-sector recapitalisation law passed by parliament in June 2018 sets guidelines under which systemic banks can receive public capital injections. If public funds are indeed required, Fitch does not believe the expected amounts would pose a material funding challenge to the sovereign. Newly passed reform measures that give The Bank of Mongolia greater scope to implement macro-prudential policies may soon be tested in the face of rising household debt, which increased by 25% yoy to end-May 2018.

Structural factors, such as GDP per capita, governance indicators and doing business rankings score above 'B' category peers and provide considerable support to Mongolia's rating. Per capita income has the potential to rise substantially over the longer term if the country can successfully harness its substantial natural resources endowments via strategic mining projects, and deliver them more reliably to third markets via planned infrastructure investments.

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Mongolia a score equivalent to a rating of 'B+' on the Long-Term Foreign-Currency IDR scale.

Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR by applying its QO, relative to rated peers, as follows:
- External Finances: -1 notch to reflect repeated bouts of external financing stress.

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES
The main factors that could lead to positive rating action, individually or collectively, are:
- A track record of fiscal discipline supported by reforms to broaden the revenue base that leads to further declines in GGGD/GDP, and brings it more closely in line with 'B' rated peers.
- Continued implementation of credible and coherent macroeconomic policy-making that makes the economy less vulnerable to swings in commodity prices and the external environment.

The main factors that could lead to negative rating action, individually or collectively, are:
- Failure to meet IMF conditionality, resulting in the programme falling off track.
- Fiscal policy settings that put GGGD/GDP back on an ascending trajectory.
- Political instability sufficient to significantly disrupt FDI inflows or strategic mining projects.

KEY ASSUMPTIONS
- The global economy performs broadly in line with Fitch's Global Economic Outlook

The full list of rating actions is as follows:

Long-Term Foreign-Currency IDR upgraded to 'B' from 'B-'; Outlook Stable
Long-Term Local-Currency IDR upgraded to 'B' from 'B-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'B'
Short-Term Local-Currency IDR affirmed at 'B'
Country Ceiling upgraded to 'B+' from 'B-'
Issue ratings on long-term senior unsecured foreign-currency bonds upgraded to 'B' from 'B-'

Contact:

Primary Analyst
Andrew Fennell
Director
+852 2263 9925
Fitch (Hong Kong) Limited
19/F Man Yee Building
68 Des Voeux Road Central
Hong Kong

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South Korea eases visa rules for Mongolia www.news.mn

The South Korean Government has approved multiple entry visas for doctors, lawyers and other skilled workers from Mongolia and three other nations. South Korea has so far restricted multiple entry visas to stop illegal immigration. The visa will be valid for one to five years. Its holder can stay in Korea from 30 to 90 days each time they enter the country. Journalists, entrepreneurs and those who hold masters' or higher degrees from the four countries can also apply for multiple entry visas, if they have met certain conditions.

'The measure is the latest in Seoul's efforts to attract international tourists and facilitate people-to-people exchanges abroad,' a ministry official said.

Meanwhile, the justice ministry said it had asked the Mongolian government to grant multi entry visas for Korean entrepreneurs.

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Bank of Mongolia gold purchase increases by 6.0 percent www.news.mn

The Bank of Mongolia purchased 7.1 tons of gold from legal entities and individuals in the first half of 2018 - up 6.0 percent year-on-year.

As of June, the average gold purchase price was 100.042 tugrik (40.66 U.S. dollars) per gram, which corresponds to a low rate on the London Metal Exchange, according to experts from the Mongolian central bank. However, it is expected to increase with the start of the peak of the gold mining season in August, September and October.

Local gold producers in cooperation with the government have moved to enrich the treasury fund and improve foreign exchange rates over the past five years. Gold miners provided 20.01 tons of gold to the central bank in 2017, worth of over 800 million dollars.

The central bank launched a five-month campaign 'National Gold to the Fund of Treasures' beginning last month. Mongolia’s annual gold production has remained below 21 tons since 2005 when it reached its record high at 25 tons.

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Iran requests relocation of Mongolian camel and frozen camel semen www.montsame.mn

Ulaanbaatar /MONTSAME/ Deputy Minister of Food, Agriculture and Light Industry J.Saule met with delegates led by Mahmoud Farazandeh, Vice Minister and Director General for East Asia and Oceania Affairs of the Iranian Foreign Affairs Ministry.

At the beginning of the meeting, Deputy Minister J.Saule expressed gratitude for the close cooperation in food and agriculture sector over the past 10 years. She also emphasized that Mongolia put a request to export meat, particularly goat meat, to Iran and the country expressed to study it.

Iran delegation submitted three specific proposals which are import of meat, purchasing camels and relocating them in Iran, and having deep frozen camel semen since camel has honorable status in Iran. The delegation is interested in visiting camel farms in Mongolia to get specific information and establishing camel farm in Iran. In addition, they expressed their further intention to export camel wool products aside from satisfying domestic needs as Iranian women appreciate them.

Deputy Minister J.Saule said the proposal will be seriously considered and an official response will be sent as two humped camels are rare in the world and the camel population makes small part in Mongolian livestock. Deputy Minister invited the delegates to visit the National complex for livestock gene pool, which was recently established. She also restated willingness to increase the amount of export meat to Iran.

In recent years, studies on health impacts of animal origin raw materials and products have been intensified. There has been some achievements in agriculture studies including Mongolian scientists’ discovery that camel milk has composition against cancer. The two sides agreed to cooperate and share experiences in science sector.

M.Anudari

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Iran intends to increase meat imports from Mongolia www.news.mn

With around 61 million livestock, Mongolia has the potential to become a major world provider of meat. Economists have estimated that Mongolia has the capacity to export five million head of livestock or around 100,000 tons of meat every year. In this connection, Mongolia signed an agreement with Iran to ship 4,000 tons of mutton last year.

Earlier today, Iranian Deputy Foreign Minister Mahmoud Faranzandeh visited two Mongolian companies; namely, Makh Impex LLC and the Sausage and Canned Goods Plant LLC. During the visit, the Iranian Minister expressed his country's interest to increase meat imports from Mongolia.

Currently, the landlocked Asian country, exports a total of 10 thousand tonnes of meat to Russia, China, Japan and Kazakhstan every year.

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Meat export to Vietnam under discussion www.montsame.mn

Ulaanbaatar /MONTSAME/ On July 5, State Secretary of the Ministry of Food, Agriculture and Light Industry D.Enkhbat held official meeting with representatives led by Hoang Van Thang, Deputy Minister of Agriculture and Rural Development of the Socialist Republic of Vietnam and Doan Thi Huong, the Ambassador Extraordinary and Plenipotentiary of the Socialist Republic of Vietnam to Mongolia.

During the meeting, the parties discussed about implementation of the activities agreed during the 16th meeting of Intergovernmental Commission between Mongolia and Vietnam, held in Ulaanbaatar last year.

They also exchanged views on the opportunities to increase the number of accredited plants of heat-treated meat and meat products and export deep frozen meat. In the framework of exporting deep frozen meat from Mongolia to Vietnam, risk assessment team from Vietnam is to work in Mongolia in August.

At the end of the meeting, the two sides agreed that they should focus on the development of cooperation between the private-sectors in food, agriculture and light industry sector.

M.Anudari

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Fuel prices rise by 2-15 percent in Mongolia www.news.mn

Fuel prices have increased for three times since January, reported the Committee on Road and Transportation at a press conference on Friday. The most recent price increase took place on 4 July. Fuel prices vary across Mongolia: in the western provinces of Bayan-Ulgii and Uvs, for example, Specially, fuel is 20 percent more expensive than in Ulaanbaatar.

The committee has demanded that the Mongolian People’s Party fulfills its election promises to reduce prices and rationalise them nationwide. Furthermore, the committee also called drivers to hold a car horn protest on 9 July at 12.30 p.m. and 6.30 p.m. in front of Sukhbaatar Square.

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Mongolia to hold festival of overseas Mongolians www.xinhuanet.com

ULAN BATOR, July 5 (Xinhua) -- Mongolia will organize a Naadam Festival for overseas Mongolians here on July 6-8, a Mongolian Foreign Ministry spokesperson said Thursday.

Over 200 representatives from China's Inner Mongolia, Xinjiang autonomous regions and Qinghai Province, and Russia's Buryatia, Tuva, Kalmykia, Altai and Saha are expected to participate in the festival, which is aimed at preserving, inheriting and promoting the cultural heritage and traditions of Mongolia, Kh. Mandakhtsetseg said at a news briefing.

The event, "Eternal Sky," is co-organized by the Mongolian Foreign Ministry, the Mongolian Ministry of Education, Culture, Science and Sports, and Ulan Bator's Culture and Arts Department.

Naadam, the Mongolian national sports festival, is a traditional display of strength, horsemanship and marksmanship. The festival was inscribed in the List of Intangible Cultural Heritage of Humanity of UNESCO (United Nations Educational, Scientific and Cultural Organization) in 2010.

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US started biggest trade war in history, China forced to retaliate – Beijing www.rt.com

China's commerce ministry says the country has no choice but to fight back after the US "launched the largest trade war in economic history," as Washington's 25 percent tariffs on various Chinese imports go into effect.

"On July 6, the US began to impose 25 percent tariffs on $34 billion worth of Chinese imports. The US has breached WTO trade rules and launched the largest trade war in economic history to date," the ministry's statement read​​​.

The Trump administration's new 25 percent duties apply to 818 Chinese imports worth $34 billion. They are the first stage in levies threatened by the US on a total of $450 billion worth of Chinese goods.

China warned that while it promised not to "fire the first shot," it will now be forced to "counterattack" in order to defend its core interests. Beijing has vowed to inform the World Trade Organization and work with other countries to "jointly safeguard free trade and the multilateral system."

As Beijing geared up to respond to the new tariffs, it warned that the US would be “shooting itself in the foot and hurting the world” if it were to go through with the measure. Reciprocal levies had reportedly been prepared, which were set to take effect on the same day.

Beijing has been actively seeking an EU ally in the mounting trade war, with senior Chinese officials offering European states access to its market if they take Beijing's side in the row. However, Europe has rejected China’s proposal to team up against the US.

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Reduction of consumer loans stipulated to have impact on business investment www.gogo.mn

The Bank of Mongolia reports that Mongolian consumer loan holders spend 69 percent, on average, of their net income for loan repayments each month, thus negatively affecting their quality of life.

As of the first quarter of 2018, consumer loan growth reached 47.3 percent in conjunction with the total household debt increase of 18.2 percent. Consumer households contribute to 57.6 percent of total banking sector loans.

Corporate loans show an average growth of 1.5 percent for the last nine quarters, representing low business and investment growth and even lower creation of new jobs. In June, the Monetary Policy Committee of the Bank of Mongolia issued a decision to set the consumer loan debt/income ratio at 70 percent.

According to officials, the decision will help to maintain balance between the public’s current and future consumption levels, to diminish the debt burden of households and to avoid potential financial risks. In addition, it is expected that financial resources will be effectively allocated for businesses.​

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