Fitch Ratings-Hong Kong-09 June 2025: A sharp fall in revenues from coal exports will present challenges for Mongolia’s next government, says Fitch Ratings. Risks to public finances could be further heightened if the authorities opt to loosen fiscal policy in response to the recent bout of public protest.
Prime Minister Oyun-Erdene resigned on 3 June after losing a vote of confidence in parliament, following the demonstrations against him. We expect the ruling Mongolian People’s Party (MPP), with a simple majority in the parliament, should be able to appoint a new prime minister relatively quickly.
Swift resolution of the political volatility would support broad policy continuity and put the government in a position to respond to the recent coal-price shock. More prolonged instability, which is not our baseline assumption, could have greater adverse effects on Mongolia’s credit metrics.
Current spending rose 20% yoy in 4M25, and moves to assuage public discontent may add to upward pressure on spending, challenging efforts to reduce imbalances created by pro-cyclical fiscal policies. Mongolia’s fiscal rules have been strengthened in recent years, with a rule capping current spending and debt at 30% and 60%, respectively, of nominal GDP. The structural deficit is also limited to 2% of GDP. However, the authorities’ record of implementing the rules is short, and it is unclear how tightly they will be enforced in the face of external headwinds. Moreover, the government seems to have significant leeway in its calculation of the structural fiscal balance, based on its own commodity revenue projections.
Meeting the government’s target of a zero structural balance for 2025 would be likely to require slower fiscal spending as commodity revenues decline. Without fiscal policy adjustment, Fitch conservatively projects the headline budget deficit could reach 3.0% of GDP for 2025, against the government’s targeted 3% surplus, reflecting our latest assumptions for coal and copper exports and spending.
The outgoing government prioritised 14 mega-projects that require significant medium-term investment. Slower execution of the capital budget, for example because of the impact of recent events on government policy or investor sentiment towards these projects, could reduce near-term spending but would weigh on Mongolia’s medium-term growth potential.
When we upgraded Mongolia’s ratings in September 2024 to ‘B+’ with a Stable Outlook, from ‘B’, we stated that political instability or major policy shifts sufficient to significantly disrupt strategic mining projects or FDI inflows could create downward pressure on the rating.
Mongolia’s goods exports fell by 13% yoy in US dollar value terms over 4M25, led by a 39% yoy decline in coal exports. The drop in coal exports was only partly mitigated by a 58% yoy increase in copper exports. Weaker exports have contributed to a widening of the current account deficit. However, the Bank of Mongolia (BoM) has raised interest rates to 12%, from 10%, this year in the face of rising inflation pressures, and the Mongolian tugrik depreciated by 4.3% between end-2024 and end-May against the US dollar, which may help to contain import demand.
Mongolia’s external buffers strengthened in 2024 but could be eroded if export performance continues to weaken. Official reserves stood at USD5.1 billion in April 2025, but the BoM’s foreign liabilities have increased by USD470 million since January, reducing the net reserve position.
Our September 2024 upgrade of Mongolia’s ratings reflected our view that larger foreign-exchange reserves, lower debt and more manageable external debt maturities had strengthened Mongolia's ability to withstand shocks, including commodity-price corrections. Nonetheless, we believe the country remains highly vulnerable to external conditions. Significant external stress, like a commodity shock amid expansionary domestic economic policies, that erodes Mongolia’s foreign reserves could lead to negative rating action.

Published Date:2025-06-10