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Mongolia’s Investor Confidence Surges With High Demand for New Bond

By Amar Adiya


Mongolia on January 11 issued a $650 million five-year bond, allowing the country to refinance its debt and improve its investment climate and economic outlook significantly in 2023.


S&P Global Ratings has given the bond a B rating, making Mongolia the first single-B rated issuer from the Indo-Pacific to enter the international debt market in 2023.


This bond issue reflects rising international investor confidence in the country.


Nevertheless, Mongolia’s economy depends heavily on the export of commodities, making it vulnerable to fluctuations in the global market.


High levels of debt, corruption, social unrest and inequality are ongoing concerns that must be addressed to ensure sustained economic growth.


The new bond will be used to refinance an existing $1.1 billion in debt, and the remainder will be paid from the state budget. The coupon for the newly issued bond is slightly lower than Mongolia’s highest coupon bond, suggesting investors are willing to accept a lower return on their investment in exchange for the bond’s stability and security.


The government has a positive economic outlook for Mongolia in 2023, and investors can trust the country’s debt management. The government announced that its flagship New Recovery Policy has eliminated the risk of default.


The budget deficit has decreased 60 percent, exports have increased and economic growth measured 4 percent by the end of 2022.


Mongolia paid off its Chinggis Bond debt of $136.6 million in December 2022, and the state-owned Development Bank of Mongolia has intensified its loan repayment.


Mongolia aims to create a diversified and sustainable economy to ensure long-term stability. The New Recovery Policy focuses on agriculture, tourism and renewable energy and is expected to boost economic growth significantly between 2023 and 2030.

The country has allocated 117 million hectares (289.1 million acres) of land for agricultural purposes, providing substantial growth opportunities in the sector.

Mongolia must address underlying issues such as corruption, social unrest and inequality to maintain investor confidence and secure funding for future economic development. The government must focus on reducing its reliance on debt and implement sustainable economic strategies to achieve long-term stability.


Mongolia’s major copper and coal mines such as Erdenet, Tavan Tolgoi and Oyu Tolgoi were key drivers of economic growth in 2022.

Last year, they helped increase export revenue to $12.5 billion. The 2022 budget had planned for coal exports of 18 million tons, but 31.7 million tons were exported, exceeding the target by nearly 75 percent. Tavan Tolgoi is now considering electronic exchange to negotiate better terms for its coal sales with China.


The price of copper is on the rise and exceeded $9,000 per ton, reaching the highest level since June 2022. According to the Mongolian finance minister, Rio Tinto’s Oyu Tolgoi underground mine will begin commercial production in April.


Resumed cross-border passenger and trade flows with China will allow Mongolia to achieve greater economic growth this year.

The Erenhot, the main gateway from Mongolia to China, saw cross-border passenger traffic reopen on January 8 after a three-year hiatus due to COVID-19 restrictions.


Prime Minister Luvsannamsrain Oyun-Erdene on January 5 initiated a minor but significant cabinet reshuffle. Oyun-Erdene has filled his Cabinet with more parliamentarians, further strengthening his position politically and legislatively.


Having 18 ministers concurrently serving in the 76-member Parliament would be key to advancing crucial reforms and Oyun-Erdene’s liberalization agenda.

The appointment of member of Parliament Khurelbaataryn Bulgantuya as Cabinet Minister responsible for border port issues is a welcome sign. Bulgantuya, 42, was educated at Yale, speaks Chinese and previously worked for Rio Tinto Mongolia.

A former deputy finance minister, she could bring meaningful reforms in cross-border transportation and management as Mongolia looks to ramp up its commodity exports.

Despite Mongolia’s economic progress, political pressure is high ahead of next year’s election, and politicians are pushing for more spending on pensions for the elderly before the Tsagaan Sar holidays in February. Lawmakers have proposed legislation to distribute Tavan Tolgoi coal mine profits to all citizens, which pro-business groups sharply criticized. The groups claim Tavan Tolgoi desperately needs capital investment, and free cash handouts would fuel inflation.

 

About Amar Adiya


Amar Adiya is Editor-in-Chief of Mongolia Weekly, an English newsletter on political analysis and business intelligence every week. He is also a regional director at Washington-based strategic advisory firm BowerGroupAsia and helps Fortune 500 companies understand and shape policies in the Asia Pacific region.

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