Fitch upgrades Mongolia debt rating as commodities cycle lifts income

Fitch has upgraded Mongolia’s long-term debt rating in a sign the central Asian nation is getting to grips with its debt burden, just under two years after it went to the International Monetary Fund for a rescue loan.

The rating agency bumped up its assessment of Mongolia’s creditworthiness for debt in local and foreign currency to B from B minus, as tax revenues climbed and the government kept public spending in check.

Mongolia’s economy — which is heavily dependent on mining investment and exports — suffered after a commodities boom turned to a rout, spending ballooned and its currency crashed, resulting in a looming payments crunch at the end of 2016 and a downgrade from Fitch.

The subsequent rise of commodity prices and rosy global economic growth have helped boost government revenue by 26 per cent in the year to May and strengthened foreign reserves, Fitch said.

Real GDP growth was expected to pick up in 2019 as robust private consumption and investment offset the drag on net exports from higher imports of consumer and capital goods since the start of the year, the rating agency added, while spending growth had risen by a “modest” 6 per cent in the year to May, “broadly in line with the 2018 budget target”.

The country’s debt still remains stuck well below investment grade, however, rated as “highly speculative” by Fitch. The agency said:

The rapid improvement in fiscal metrics has benefited 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 . . .

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.

A heavy reliance on funding from the international capital markets also left Mongolia at risk from a shift in investor sentiment away from emerging markets assets, Fitch added.

This article originally appeared here via Google News