Singapore, January 29, 2018 -- Moody's Investors Service ("Moody's") says that the Government of Mongolia's (B3 stable) medium-term growth potential is backed by its abundant mineral resources, demand for which is expected to remain solid. A recent debt refinancing has coincided with an improvement in external metrics to alleviate liquidity and external pressures, albeit from high levels. Sustained adherence to IMF rules designed to improve accountability and tighten the budgetary process would distinguish the current improvements in credit metrics from previous boom-bust cycles. However, at the current juncture and in the next few years, Mongolia's credit metrics will remain vulnerable to commodity price cycles.

Moody's conclusions are contained in its just-released report, "Government of Mongolia: FAQ on medium-term prospects for growth, liquidity and fiscal strength".

Moody's report answers the three questions below:

1. What are Mongolia's medium-term growth prospects?

2. Does the recent refinancing eliminate external liquidity risks?

3. What is the outlook for Mongolia's fiscal metrics in light of implemented and planned reforms?

Moody's says that Mongolia's GDP growth will be strong over the medium term, rising towards 7.0% by 2021, backed by demand for its natural resources. Consumption of coal and copper, both key exports for Mongolia, is likely to remain robust, given structural changes in the market, such as those associated with urbanization and the electrification of transport in China. However, risks to growth stem from a very high reliance on China as a destination for its exports and source of investment, as well as lack of predictability on the regulatory environment which can weigh on investment.

Moody's also notes that last October's debt refinancing alleviates liquidity pressures. Combined with a narrower current account deficit and higher investment inflows from both FDI and multilateral support, the refinancing has also reduced pressures on the country's foreign exchange reserves.

However, both liquidity risks and external vulnerability remain key constraints to the credit profile. Moody's estimates that external debt obligations due over the next year are still around 1.5 times larger than foreign exchange reserves, underscoring the prominence of external risks.

In light of implemented and planned reforms, Moody's now forecasts Mongolia's deficits to narrow faster than expected at the start of 2017, reflecting stronger headline GDP and revenue growth supported by the mining sector. This is leading to a gradual moderation in the country's debt burden. Still, government debt at around 81% of GDP in 2018 is high for an economy of the size and income levels of Mongolia's.

Thus, a sustained observance to structural reforms developped under the IMF program is crucial for credit quality because these reforms are designed to prevent a return to boom-bust cycles, that Mongolia has tended to be vulnerable to in the past.

Subscribers can read the full report at:

http://www.moodys.com/researchdocumentcontentpage.aspx…

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This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Anushka Shah
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
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Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Published Date:2018-01-29