Mongolia May Raise Debt Amid Outflows, Moody’s Says

Mongolia’s foreign currency reserves, down 40 percent in the last year, are on pace to run out by the end of 2014 unless the country can sell more debt, according to Moody’s Investors Service.

Should reserves expire, Mongolia could “issue another bond and that would buffer reserves for an extent,” Anushka Shah, Moody’s lead analyst on the Central Asian nation, said by phone yesterday.

Currency reserves have dwindled amid falling prices for copper and coal, Mongolia’s main exports. Foreign investment has also fared poorly, falling by half last year during a protracted dispute with Rio Tinto Plc, which operates the Oyu Tolgoi copper and gold mine, Mongolia’s biggest mining project.

Foreign currency reserves at the end of January were $2.44 billion, according to the Bank of Mongolia website.

Mongolia has raised about $2.3 billion in sovereign debt since March 2012, including a $600 million bond issued by the Development Bank of Mongolia, a 30 billion yen ($296 million) Samurai bond and a $1.5 billion Chinggis bond.

Moody’s, which has a B1 rating on Mongolia with a stable outlook, sees the country’s expansionary economy as a risk.

“If you look at monetary policy it has been very expansionary over the past year,” said Shah. “The central bank has been running a number of programs that have injected a large amount of liquidity into the system.”

‘Export Growth’

Programs to stabilize prices, finance mortgages and boost construction injected 3.4 trillion tugrik ($1.9 billion) into the economy over the past year, according to Moody’s.

However, issuing debt to tide over the deceleration in FDI and exports is not sustainable in the long term, said Shah.

“It would be more favorable from a credit perspective if they can shore up FDI with improved export growth, which should happen once Oyu Tolgoi comes onstream,” said Shah, referring to the halted work on the mine’s underground expansion.

“But in the meantime it seems like they will tide things over by raising more debt.”

Any bond sale is expected to be dollar denominated, said Shah. That would happen amid a declining tugrik, which has seen a year-on-year depreciation of 26 percent against the dollar.

(Corrects headline and second paragraph of story originally published March 14 to show Moody’s was commenting on possibility of bond sale.)
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