• Amar Adiya

Growing Debt to China Worries Mongolia


The government rejected the rumors of $20 billion in debt to China, which suggested that the country might be forced to sell land to repay it. Finance Minister said Mongolia owes $1 billion to China without considering a 15 billion yuan ($2.2 billion) swap, which is expiring in July 2023.


Finance Minister downplayed any concerns over the ability to repay international loans, which totaled around $8 billion and confirmed that the government will not seek commercial loans at market rates. Mongolia’s credit rating remains at B with a stable outlook.


Who Owns Mongolia's Foreign Debt?

Pie chart
source: Central Bank’s statistics.

Mongolia's debt to China remains low compared to multilateral (e.g. IMF and ADB) obligations. Some may prefer Chinese loans with no explicit strings attached compared to the IMF taking some comfort as loans from Beijing don’t bite immediately.


But others are concerned that Chinese lending practices may leave the country vulnerable to Beijing's pressure when it comes to repaying the debt.

As Chinese lending conditions remain undisclosed it is assumed that infrastructure loans are collateralized by mineral resource-generated revenue, which remains to be volatile. China's reduced commodity demand and potentially lower prices may also impede Mongolia's ability to repay its debt.


Moreover, public finances will be challenging next year as global economic conditions worsen and borrowing costs increase internationally. Over $1 billion in public external debt matures next year except for contingent liabilities under the Development Bank of Mongolia.


Mongolia’s central bank has been using the yuan credit line with the People’s Bank of China since 2011 and will likely roll it over before its expiration in July 2023.