Parliamentary elections are scheduled to take place by June ----, and Mongolia s political environment will be volatile ahead of the elections. The two major parties, namely the Democratic Party and the Mongolian People s Party, are unlikely to win a convinc- ing mandate, and we expect a coalition government to be formed. ...However, the return of foreign inflows due to the second phase development of the Oyu Tolgoi gold and copper mine will prevent any excessive weakness. Following the decision by the Bank of Mongolia (BoM) to reduce its --week central bank bill by --- basis points (bps) to --.-- in late-December ----, we forecast that the central bank will cut its key policy rate by another ---bps to --.-- by the end of ----, with the aim of supporting the country s sluggish economy. Falling headline consumer price inflation due to shrinking money supply will provide scope for the central bank to ease its monetary policy stance over the coming months. Mongolia will continue to run fiscal deficits in the coming years as structurally low commodity prices temper revenue growth while public expenditure growth remains elevated as the government struggles to reduce spending in ---- as parliamentary elections loom. The country is increasingly at risk of a credit event as Mongolia and its state-linked entities are facing significant bond repayments beginning from ----.
...Source: BMI, BoM it has secured an USD-.-bn project finance facility provided by a syndicate of international financial institutions and export credit agencies from Canada, the US, and Australia, along with -- other commercial banks. We believe that the signing of the project finance (slightly more than the initial target of USD-.-bn) to fund the second phase expansion of the OT mine is positive for investment over the coming years. The construction sector (which shrank by --.- y-o-y in the Q---) will also likely benefit from the underground development of the mine over the coming years. Although we do not expect the development of the Tavan Tolgoi (TT) coal mine to start anytime soon, the signing of the draft law of regulation by -- members of parlia- ment (MP) is a positive step in fixing the issues surrounding the share ownership. The draft law mentions that the Erdenes Tavan Tolgoi Company must own not less than -- of TT mine, while Mongolian Railway has to possess not less than -- of the soon to be constructed new railroad. ...Investment would be damp- ened in the event that asset quality continues to deteriorate, hampering the banking system s lending capacity while still tight monetary policy weigh on the demand for loans. Indeed, the system s non-performing loans (NPL) ratio climbed to -.- in December ---- (versus -.- in the same period last year) while outstanding loan growth continue to contract by -.- y-o-y in December.
...
