Moody's assigns a provisional rating of (P) B1 to Mongolia's the forthcoming Medium Term Note Program
November 22, 2012 Moody's Investors Service
Moody's Investors Service has assigned a provisional rating of (P)B1 to the Government of Mongolia's forthcoming US$5,000,000,000 global medium term note program and the proposed bond issuance under the program The outlook is stable.
Mongolia's B1 government bond rating is consistent with our methodology scores of low economic and institutional strengths, moderate government financial strength and high event risk. Mongolia's rating has been constrained by susceptibility to destabilizing boom-bust cycles stemming from (1) an undiversified, dual mining/agricultural economy subject to global price volatility and supply shocks, and (2) pro-cyclical, inflationary monetary and fiscal policies. Long-term economic prospects are bright, if the country's infrastructure is developed and if macroeconomic stability is maintained.
The stable outlook is supported by the replenishment of official foreign exchange reserve holdings and improved macroeconomic stability after the successful International Monetary Fund Stand-By Arrangement in 2008-2009. Additional support is provided by the enactment into law of the Fiscal Stability Law in 2010, which holds promise for avoiding future boom-bust cycles in government finances if key provisions come into effect in 2013 and 2014 (including a limit on expenditure growth, a structural budget deficit ceiling and a 40% of GDP net-present value cap on outstanding government debt).
Credit positive factors which could change the rating -- up: Credit positive events over the rating outlook horizon include the maintenance of price and exchange rate stability and a further replenishment of net international reserves. A track record of adherence to the fiscal rule would be credit positive.
Furthermore, a timely and successful infrastructure development program, to which the Global Medium Term Note Program supports, that increases the country's export capacity and boosts government revenues would be credit positive.
Diversification and development of the country's industrial base which helps to shield the economy from mineral price volatility would also be credit positive.
Credit negative factors which could change the rating -- down: A relapse into high inflation, exchange rate volatility which leads to a deterioration in the external balance of payments would be credit negative. A weakening in the fiscal policy framework as seen in an inability to adhere to key provisions of the Fiscal Stability Law would be credit negative. Renewed uncertainty in the Mongolia's investment regime would also be credit negative.
External borrowing in excess of future repayment capacity would also be credit negative.
The principal methodology used in this rating was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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Company — Mongolia