Moody’s Investors Service has upgraded on Thursday the Government of Mongolia’s long-term issuer ratings and the senior unsecured ratings to B3 from Caa1, and the senior unsecured MTN program rating to (P)B3 from (P)Caa1. The short-term issuer ratings are affirmed at Not Prime. The outlook remains stable.

The key factors driving the rating upgrade are an alleviation in liquidity and external pressures and prospects of a somewhat attenuated sensitivity of Mongolia’s credit metrics to fluctuations in commodity prices, if the reforms currently implemented and planned are adhered to.

The refinancing of government debt at the end of last year, combined with measures to narrow the fiscal deficit and windfall gains from higher commodity-related revenues reduce Mongolia’s financing needs. In addition, the measures currently implemented under the IMF program, if effective, will contribute to reduce – but not eliminate – the volatility of economic and fiscal outcomes as a result of potential sudden changes in commodity prices and demand.

The stable outlook on Mongolia’s B3 rating reflects balanced risks. On the upside, reforms may prove more effective at reducing Mongolia’s sensitivity to commodity cycles than we currently envisage. On the downside, and in particular in a less favorable commodity environment, liquidity and external pressures could intensify significantly again. Such a scenario may arise in the event of deviations from the objectives of the reforms planned over time.

Moody’s has also raised the local-currency bond and deposit ceilings to Ba2, from Ba3 previously. The long-term foreign currency deposit ceiling is raised to Caa1 from Caa2, and the long-term foreign currency bond ceiling to B1 from B3. All short-term foreign currency ceilings remain at Not Prime. These ceilings act as a cap on ratings that can be assigned to the foreign- and local-currency obligations of entities domiciled in the country.