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Mongolia Country Risk Report Q1 2019

Mongolia Country Risk Report Q1 2019

The landslide victory by the Mongolian People's Party (MPP) in the June 29 2016 parliamentary elections will usher in a period of relative political stability and improved policy coordination over the coming years Meanwhile, Mongolia remains highly economically dependent on China and we expect relations between the two countries to advance further over the coming years, which will likely benefit the landlocked nation's trade and investment amid greater cooperation

Mongolia is progressing well on its nascent recovery that began in 2017 and we expect economic growth to head higher over the coming quarters Growth will likely be boosted by robust investment activity, helped by an accommodative monetary policy, while commodity export growth recovers

We still expect the MNT to face depreciatory pressures due to narrowing real interest rate differentials relative to the US, which will be mainly driven by rising inflation in Mongolia, and weakening terms of trade

Mongolia's public finances have started to improve in 2017, following a significant deterioration in 2016 and they are likely to improve over the coming years The MPP-led government aims to contain spending while increasing revenues by raising personal income taxes Key Forecast Changes

The Mongolian togrog has already weakened to record lows against the US dollar, and we are revising our average 2018 and 2019 forecasts to MNT2,485/USD and MNT2,709/USD (from MNT2,445/USD and MNT2,510/USD previously) to reflect our expectations for further depreciation

Key Risks Upside Risk: An aggressive ramp up of major mining projects such as the second phase expansion at the Oyu Tolgoi project and the Tavan Tolgoi coal mine would help galvanise investment activity significantly Downside Risk: In a worst-case scenario, a significant slowdown in Chinese economic growth and, by extension, demand for commodity imports would seriously hamper Mongolia's growth prospects Any deterioration in the country's business environment due to delays in other major mining projects and the failure to rein in its fiscal deficit could weaken investor confidence, which could force the BoM to hike rates unexpectedly (to the detriment of the banking sector), in order to shore up the currency Mongolia Country Risk Q1 2019


Executive Summary
Core Views
Key Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Mongolia's Solid Investment-Led Expansion Has Further Room To Go
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: MAIN EXPORT AND IMPORT PARTNERS
TABLE: MAIN EXPORTS AND IMPORTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
More Pain Down The Line For Mongolian Togrog
TABLE: CURRENCY FORECAST
Mongolia Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
The Mongolian Economy To 2027
Fierce But Volatile Growth In Store
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Mongolia To Engage In Closer Relations With Japan And South Korea
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Transforming Minerals Into Wealth
Global Macro Outlook
Inflation And Policy Risks Rising
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: MONGOLIA – MACROECONOMIC DATA AND FORECASTS

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