Mongolia's Swing From Bust to Boom Raises Question: Can It Last?

(Bloomberg) -- A year after receiving a package of financial aid led by the International Monetary Fund, Mongolia’s mineral-rich economy is making a comeback. But for a nation that swings between boom and bust, the question investors are asking is: how long can it last?

Higher commodity prices and resurgent Chinese demand for coal has powered growth and government revenues, pulling the landlocked economy back from the brink of a classic emerging market crisis. The upswing is also due to development of the massive Oyu Tolgoi copper-and-gold mine according to Fitch Ratings Sovereigns Director Andrew Fennell in Hong Kong. Controls on government spending have helped too.

The scorecard speaks for itself. Twelve months ago yields on government bonds were almost 20 percent, debt was close to 100 percent of GDP and reserves had slumped to just two months of imports, according to the IMF. The currency had fallen by 20 percent.

Now, a growth rate of 5.1 percent in 2017 means the fiscal balance has improved by 15 percentage points of GDP and the government is ticking all boxes required by its creditors.

Mongolia's Swing From Bust to Boom Raises Question: Can It Last?

“The short-term macroeconomic stabilization is really very dramatic and very strong,” Markus Rodlauer Deputy Director, Asia and Pacific Department at the IMF told reporters last month.

Still, the $11 billion economy nestled between China and Russia isn’t out of the danger zone. The IMF has warned that structural reforms still need to be implemented and much depends on the longevity of the upswing in commodity prices. Ratings firm Moody’s Investors Service has cautioned that Mongolia’s credit profile is vulnerable to that price cycle.

While China’s coking coal imports from Mongolia surged 132 percent in March from a month earlier, they were 5.6 percent lower from a year ago -- falling 26 percent in the first quarter, according to customs data.

“The turnaround is more based on good luck as commodity prices recovered due to the economic upturn globally,” said Lutz Roehmeyer, chief investment officer of Capitulum Asset Management, who has previously invested in Mongolian bonds.

©2018 Bloomberg L.P.