Fitch announced on May 25, 2021 that it has re-affiliated Mongolia's credit rating at 'B' and the outlook at 'Stable'.
According to the press release, the economic situation in Mongolia is stable on the following grounds:
Mongolia's governance and per capita income are good compared to other B-rated countries. However, the increase in valuations is hampered by Mongolia's basic economic size, vulnerability to external sector risks, and political instability. Fitch's assessment of the "stable" outlook is based on the economic recovery this year, the ratio of government debt to GDP.
The agency expects the Mongolian economy to recover 5 percent in 2021. The economic downturn in 2020 was -5.4 percent, while the annual economic growth in the first quarter of 2021 was 15.5 percent due to the performance of the mining sector. Although the border for the export of mining products to China was closed in April and May due to the Covid-19 incident, the closure is considered temporary regarding the authorities' efforts to improve vaccination and testing measures in the border areas.
The agency expects the budget deficit to shrink from 9.5 percent in 2020 to 5.3 percent of GDP in 2021. The share of government debt in GDP is projected to exceed the B-rated countries average of 68 percent, reaching 74 percent by the end of 2021.
Fitch believes that Mongolia's economic growth and economic policies in 2021 will improve the outlook for the banking sector. Although restructuring loans due to Covid-19 account for 22% of total loans, the concessional loan plan for further economic recovery is expected to ease asset quality pressures in 2021.