Growing Debt to China Worries Mongolia

Rumors have been circulating that Mongolia owes China $20 billion in debt, but the government has rejected them as untrue. The Finance Minister clarified that the actual debt owed is only $1 billion, not including a 15 billion yuan ($2.2 billion) swap that will expire in July 2023.

Despite the country's international loans totaling around $8 billion, the Finance Minister reassured the public that the government is not seeking commercial loans at market rates and there are no concerns over the ability to repay the debt. Mongolia’s credit rating remains at B with a stable outlook.

Who Owns Mongolia's Foreign Debt?

Mongolia debt breakdown. Source: Central Bank of Mongolia 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.

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