Mongolia’s Rating Raised to B+ by Fitch on Economic Recovery

By Anil Varma

Nov. 24 (Bloomberg) -- Mongolia’s long-term debt ratings were raised by Fitch Ratings after the nation’s economy returned to growth and its foreign-exchange reserves climbed to a record.

Fitch increased the country’s long-term foreign- and local- currency rankings to B+ from B, reversing a January 2009 cut, and affirmed short-term ratings at B, it said in an e-mailed statement yesterday. The ratings have a stable outlook, it said.

Growth in Mongolia’s gross domestic product will be spurred by demand for its exports from China, according to the credit assessor. China, the world’s second-biggest economy, grew 9.6 percent last quarter, the fastest pace of any major country.

“A solid growth outlook in Mongolia’s key export market, China, supports its economic prospects in 2011 and 2012,” the ratings company said in the statement. “A generous and diversified endowment of natural resources supports long-term economic prospects.”

Fitch predicted Mongolia’s economy will expand 7.5 percent in 2011 and 8 percent in 2012. China bought 73 percent of the goods Mongolia exported in 2009, according to the statement.

Annual output from the Oyu Tolgoi copper and gold mine may rise to $3.5 billion by 2013, equal to more than 90 percent of Mongolia’s gross domestic product this year, based on current prices of the metals, according to Fitch.

Rare Earths

Mongolian President Tsakhia Elbegdorj on Nov. 16 called on Japanese companies to invest in development of rare earth metals, as well as coal, uranium and other resources.

Mongolia has emerged as a potential source of rare earths after China, which ships about 97 percent of the world’s supply, reduced its second-half export quota by 72 percent. Japan, the world’s biggest user of the metals, is looking for alternative suppliers after prices rose as much as sevenfold.

Rare earths are used in hybrid vehicles produced by companies including Toyota Motor Corp. and wind turbines made by Vestas Wind Systems A/S. They are also used in Lockheed Martin Corp. radar and General Dynamics Corp. tanks. The term rare earth applies to a group of 17 chemically similar metal elements including cerium, lanthanum and neodymium.

Mongolia’s decision in September not to draw the final installment of a $229 million loan from the International Monetary Fund underscores the nation’s economic recovery, Fitch said. Its foreign reserves increased to $1.7 billion on Sept. 30, from a of $500 million at the end of March 2009, according to the statement. The currency gained 16 percent by the end of October from its March 2009 low.

“The upgrades follow Mongolia’s successful completion of its IMF program, under which official foreign reserves have risen to a record high, and the economy has returned to growth,” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, as cited in the statement. “The key risk remains a return to unsustainable government spending growth, which could squander this progress.”

--Editors: Josh Fellman

To contact the reporter responsible for this story: Anil Varma at avarma3@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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