Financial Times reports:
Mongolia outlook downgraded by Fitch
By Raphael Minder in Hong Kong
Published: December 10 2008 16:23 | Last updated: December 10 2008 16:23
Fitch, the credit rating agency, on Wednesday downgraded its outlook on Mongolia amid concerns that the resources-rich country will struggle because of high inflation and a weakening fiscal position.
The cut, to a negative outlook from “stable”, comes after Nambaryn Enkhbayar, Mongolia’s president, warned in an interview with the Financial Times that growth could halve if new mining investments failed to advance because of lower commodity prices and regulatory uncertainty.
“Growth this year is going to be about 9 per cent, but if we keep delaying all these investments, then the growth rate is going to go down to between 4 and 6 per cent, which would be very slow,” Mr Enkhbayar said. “Mongolia now has to speed up reforms and improve the legal environment so that we don’t lose our momentum.”
Mining’s proportional contribution to Mongolia’s gross domestic product has doubled in the past decade, putting it at the forefront of Asian nations that have benefited from the commodities boom.
Foreign involvement has recently sparked domestic political opposition over the ceding of control of resources, notably holding up plans by Rio Tinto and Ivanhoe to develop one of the world’s largest copper projects, Oyu Tolgoi.
In its report on Mongolia, Fitch underlined the threat from inflation, at 28 per cent in October, as well as the likelihood that recent fiscal surpluses, starting this year, would be transformed into deficits, of up to 6.2 per cent of GDP.
“The change in the commodity price cycle underscores an urgent need to improve economic policy co-ordination and implementation, which have been beset by uncertainty and inconsistencies, particularly regarding important mining projects,” wrote Vincent Ho, associate director in Fitch’s sovereign group.
Mr Enkhbayar expressed optimism that legislators would soon approve new investment rules. “This financial crisis has helped us in the sense that everybody is now more realistic,” he said. “Now they (legislators) understand that just hoping that commodity prices will always be very high is not enough to develop the country.”