Moody's assigns Mongolia's bonds a B1 rating due to refinancing plans

Investing.com - Moody’s has today assigned a B1 rating to the upcoming senior unsecured USD-denominated bonds issued by the Government of Mongolia. These notes will have equal ranking with all existing and future senior unsecured debt of Mongolia. The proceeds will be used to fund a tender offer for bond buybacks and to refinance maturing debt.

The rating on the proposed notes is aligned with Mongolia’s B1 long-term issuer rating, with a stable outlook. Mongolia’s credit profile benefits from strong economic growth prospects, primarily supported by robust demand for key mineral exports (especially copper), along with a track record of effective debt and fiscal management. Structural demand for copper related to electrification and digital infrastructure supports medium-term growth, while continued increases in production will further enhance export performance.

Supported by strong nominal growth and prudent debt management, government debt burdens have decreased from about 74% of GDP in 2020 to approximately 43% by the end of 2025. Moody’s expects fiscal deficits to modestly widen in the coming years, reaching about 4.3% of GDP in 2026, due to slowing revenue growth and ongoing spending pressures. The agency forecasts the debt ratio will stabilize around 44% of GDP in 2026.

Mongolia’s credit strengths are balanced by its ongoing reliance on commodities, which makes fiscal and external indicators vulnerable to price fluctuations, especially coal prices. Although coal remains an important export, its price sensitivity to developments in China’s real estate and steel industries limits revenue visibility. Given the large maturing debt in the second half of this decade, external liquidity risks remain elevated, though these are mitigated by continued access to international capital markets and the government’s good track record of refinancing maturing debt.

Mongolia’s ESG Credit Impact Score is CIS-4, primarily driven by high exposure to environmental and governance risks. The country’s environmental risks reflect its heavy reliance on the production and export of hydrocarbons (notably coal), making it vulnerable to carbon transition risks. Governance risks indicate that administrative capacity and policy effectiveness remain weak, despite recent progress in structural reforms.

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