Moody’s drops Mongolia, bank to B2

Moody's Investors Service said it downgraded Mongolia's foreign currency government bond rating to B2 from B1.

The outlook remains negative.

Concurrently, the agency lowered the government's issuer rating to B2, senior unsecured rating to B2 and senior unsecured medium-term note rating to provisional B2. The issuer's short-term rating remains at Not Prime.

In a related action, Moody's downgraded the rating of the government-owned Development Bank of Mongolia LLC to B2 from B1. The outlook remains negative.

The bank’s senior unsecured rating has been lowered to B2 and its senior unsecured medium-term note rating to provisional B2. Because the bank’s payment obligations carry a credit guarantee of the Government of Mongolia, its debt obligations justify a rating at the same level.

The long-term local currency country risk ceiling remains unchanged at Ba3. The long-term foreign currency deposit ceiling was revised to B3 from B2, while the foreign currency bond ceiling was revised to B1 from Ba3. All short-term ceilings remain at Not Prime. These ceilings act as a cap on ratings that can be assigned to the foreign- and local-currency obligations of entities domiciled in the country.

Moody's said its decision to downgrade Mongolia is driven by the country's strained external liquidity position, as reflected by a sharp loss in foreign-exchange reserves. Expansionary monetary and fiscal policies have added to demand pressures, fueled inflation, and heightened spillover risks to the banking system and the balance of payments. Accompanied by a continued rise in the external debt burden, these factors increase the country's vulnerability to external and domestic shocks relative to rating peers, the agency said.

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