Mongolia: Riskier Than Belarus?

Courtesy of The Financial Times, an article on Moody’s risk profile of Mongolia:

Mongolia may be the darling of the mining world and a hotspot for investors in developing Asian economies. However as far as the credit markets are concerned, it might as well be a Greece or a Belarus. That’s according to Moody’s, which outlined the risks facing this young, resource-rich democracy in its recent annual report.

In some ways Mongolia’s finances would be the envy of many countries in the West: government gross debt was 43 per cent of GDP in 2010 and according to the International Monetary Fund this will fall to 20 per cent of GDP by 2015. But Mongolian sovereign debt is still risky because the country is so vulnerable global commodities prices.

“The key thing about Mongolia is that it is subject to these boom and bust cycles,” explains Tom Byrne, senior vice president at Moody’s in Singapore and the author of the report. “In the last cycle a couple years ago we saw reserves being run down, there was runaway inflation, a loss of confidence in the system and Mongolians fleeing the tugrik [local currency]. This was very destabilizing.”

The prospect of falling copper prices would be particularly damaging to the economy, according to Moody’s. Extremely harsh winters, known as “dzud” also pose economic risk.

Then there is the question of governance. While Mongolia has seen several successful transitions of power since it became a democracy in 1990, there are concerns that governance may be deteriorating. Moody’s notes:

The World Bank’s governance indicators. . . had previously placed Mongolia in a relatively favorable position for a country undergoing a transition from socialism and poverty. However, these indicators have deteriorated in past years and continue to trend downwards. These factors, along with other considerations, support our assessment of Mongolia’s institutional strength at low. . . . the country’s institutional development has not kept pace with its rapid economic growth in recent years.

Mongolia’s economy is still set to grow strongly this year, with Moody’s forecasting GDP growth at 9-10 per cent in 2011 and 2012. But that’s not to say that it will always be smooth sailing as Moody’s decision to maintain its B1 rating on the government’s bonds suggests.



This entry was posted on Wednesday, May 4th, 2011 at 7:29 am and is filed under Belarus, Mongolia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.


ABOUT
WILDCATS AND BLACK SHEEP
Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.