Page 25 - bne magazine September 2021_20210901

bne September 2021 Cover story I 25
in mining exports. Fitch forecasts Mongolia's economy to rebound by 5.0% in 2021, following a contraction of 5.4% in 2020. Growth of 15.5% y/y was reported in 1Q21, due in large part to strong export performance.
The rating agency Moody’s lifted Mongolia's outlook to stable from negative, affirming its B3 rating, which, it said, reflected its view that liquidity risks and external pressures had stabilised.
“Higher government borrowing requirements resulting from sizable stimulus in 2020 were financed primarily through a combination of concessional sources and a drawdown on fiscal reserves, thus relieving liquidity pressures. Recent refinancing has also reduced upcoming maturities in 2021 and 2022,” according to Moody’s. The refinancing, which took place in September 2020, “resulted in a substantial reduction of obligations due in 2021 and part of 2022” rating agencies said “resulted in
a substantial reduction of obligations due in 2021 and part of 2022".
According to Moody’s “Apart from the $133mn remaining maturity in 2021 (post the debt-refinancing), Mongolia's upcoming refinancing needs include about $800mn due in 2022 and 2023 each, and $600mn in 2024. At these levels, Mongolia's debt maturities are not substantial compared with peers.”
Fellow rating agency Fitch forecasts general government debt will edge down by 2pp to 74% of GDP by end-2021, and in the medium term, public debt will go on “modest downward trajectory”.
“The sovereign faces no marketable external bond maturities until December 2022. Foreign-currency reserves stood at a record high of $4.8bn at end-1Q21. Fitch forecasts FX reserves will rise to $5bn by end-2021, equivalent to 5.6x current-external payments, and against approximately $3.2bn in sovereign external debt maturities over 2022-2024.”
Montenegro
Montenegro originally sought funding for the Bar-Boljare motorway that will
run across the country from the Adriatic port of Bar to the Serbian border from
a variety of international lenders. The highway will replace the existing route over difficult mountainous terrain that has a high level of accidents and fatalities. The terrain is also set to make it the most expensive road per kilometre in Europe. As talks with other lenders fell through, Podgorica finally secured a loan from Chinese Exim Bank to cover 85% of the project cost. The government signed the $944mn loan deal with Exim Bank in 2014, and started drawing funds in 2015.
Five years later, Montenegro suffered the worst economic contraction across emerging Europe, as the tourism sector in particular slumped. A Eurobond issued days after the new government took office in December 2020 – that officials said was needed to save the economy from collapse – pushed up debt to 104.8% of GDP in 2020, according to a World Bank estimate.
Earlier this year, Montenegro was struggling to repay the first instalment of the loan and appealed to the EU for help. However, in July, the government signed an agreement to hedge its debt
to Exim Bank, enabling it to lower the interest rate on the loan to 0.88% in euro from 2% in US dollars. It repaid the instalment later the same month.
Pre-pandemic, following warnings
from international financial institutions over the size of the debt compared
to Montenegro’s tiny economy, the government had reined in expenditures, but was forced to hike spending again in 2020. In the first half of this year, spending was down compared to 2020, and Montenegro reported its biggest budget surplus ever in July.
Tajikistan
Back in 2011, when Tajikistan was unable to pay back a debt to China, Dushanbe agreed to hand over 1,158 square kilometres of disputed land in the Central Asian country (amounting to 0.7% of its territory) in exchange
for a debt write off. As Chinese state- controlled banks embarked on a lending spree for BRI projects, this agreement fuelled concerns over the potential for
China to use its position as a creditor to potentially take land and assets from distressed borrowers.
As of October 2020, Tajikistan, the poorest country in Emerging Europe, had external debt of $3.2bn, after it increased by $238mn during the year, according to an analysis by the Central Asian Bureau for Analytical Reporting (CABAR.asia). External indebtedness has risen steadily since 2014, from 23% of GDP to 40% of GDP. Tajikistan’s single largest creditor since 2008 is the Export- Import Bank of China (Eximbank).
The country’s second largest debt is
its September 2017 debut Eurobond, issued partly to fund construction
of the massive Rogun dam. London- based political risk analyst and writer Maximilian Hess called the bond a “cautionary tale” in a comment for Eurasianet and bne IntelliNews wrote an article questioning the government’s ability to service the debt shortly after it was issued. With the March 2020 selloff as the coronavirus started to spread around the world, the bond collapsed to as low as 60 cents on the dollar, and made only a modest recovery.
In 2020, Tajikistan was one of the low- income countries allowed by finance ministers and heads of the central banks of the G20 countries to temporarily suspend debt servicing during the pandemic. The government signed a memorandum with the Paris Club on September 3, 2020, under which it suspended payments on debt obligations to Chinese Eximbank
as well as the Kuwait Fund for Arab Economic Development and German development bank KfW.
Despite this, during the pandemic,
the government signed off five new
loan projects for $459.5mn, and plans
to request loans of $562mn from international partners this year, though as Hess writes, it is “anyone’s guess where Dushanbe will secure the $562mn in fresh loans it says it is seeking this year. As 2027 approaches, the spectre
of its $500mn Eurobond repayment
risks putting off institutional creditors, China and other potential deep-pocketed saviours such as the Gulf states.”
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