Mongolia raises debt ceiling as foreign investment dips

ULAN BATOR Jan 21 (Reuters) - Mongolia's parliament has voted to raise the country's debt ceiling to 58.3 percent of its gross domestic product, amid declining foreign investment and a number of sovereign bond sales to international investors.
Landlocked Mongolia's debts have spiraled as it struggles to meet its social commitments and pay for the infrastructure required to develop its mining industry, with its coffers drained by a 71 percent collapse in foreign direct investment from January to November last year, according to the most recent central bank data.
An amendment to the country's Fiscal Stability Law, agreed on Tuesday, raises the maximum allowable debt-to-GDP ratio to 58.3 percent from 40 percent. State-backed bonds totaling more than $2 billion from 2012 and 2013 have already pushed the country's debt level to nearly 60 percent, said Batdelger Tuvshintugs at Mongolia's Economic Research Institute.
"The Chinggis bond is the majority of the borrowing, $1.5 billion," he said. The bonds, named after the 13th-century Mongolian warrior known to most as Genghis Khan, will mature in 2018 and 2022.
The original 40-percent debt limit was based on recommendations by the International Monetary Fund and World Bank, Tuvshintugs said.
The debt ceiling will be reduced gradually until it reaches 40 percent again in 2018, parliament agreed.
The local currency, the tugrik, has fallen by more than a third against the dollar in the last two years, making both private and government debt more expensive to repay.
Tuvshintugs said the country might have to refinance. Apart from the Chinggis bonds, the Development Bank of Mongolia also borrowed $580 million through a bond offering guaranteed by the Mongolian government that needs to be repaid in 2017.
Mongolia sits on some of the world's most promising deposits of high-quality minerals such as copper and coal, but it has struggled to finance their development, with foreign investors wary about falling overseas demand, particularly in Mongolia's top customer China, as well as domestic political risks.
The decision to change the debt ceiling once again puts the integrity of the Mongolian government into question, said Tuvshintugs, with no one likely to pay any penalty for breaching the original 40-percent ceiling.
"Foreign investors want to see institutional quality improving, not worsening."



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