We are in a deep state of economic crisis
"We are in a deep state of economic crisis," Choijilsuren Battogtokh, the finance minister in Mongolia, said in a nationally televised address on Tuesday, according to Bloomberg.
"We came into a situation where we may not be able to afford to finance salaries and operational costs of government departments, such as the Mongolian military who protect our borders and national security, the social and health employees who are in charge public health, as well as individuals in culture and sport."
He noted that the projected budget deficit is $2.6 billion - or 21% of GDP - and that the country's ratio of government debt-to-GDP will reach 78% this year, above the target of 55%. Additionally, Mongolia's central bank's foreign reserves are net -$429 million.
The government's "critical goal" is to avoid default, added Battogtokh.
In the aftermath of the finance minister's televised announcement, Mongolian bonds, which are rated five steps below investment grade, fell the most on record, according to Bloomberg's Nick Edwards.
Moreover, the Mongolian tugrik has now weakened against the US dollar for 19 days in a row, which Edwards reported is the longest streak since 1993. The currency is down by 0.4% at 2,147.50 per dollar as of 1:27 p.m. ET.
All of this comes at a time when the country has been dealing with weaker commodity prices and slower growth amid the slump in China, which is one of Mongolia's major export partners.
The economic slowdown is particularly noticeable given that country saw double-digit growth rates in the early 2010's.
As the Globe and Mail's Nathan VanderKlippe described it back in May: "...in a few short years, Mongolia has gone from Asia's golden child to its binge-drinking adolescent, with government borrowing to make payroll, cash-short consumers reduced to bartering for goods, and observers openly talking about the possibility of either a sovereign default - national bankruptcy - or a massive bailout."
"The economy appears to be a significant factor in the MPP's landslide victory," wrote The Diplomat's Peter Bittner at the time. "The majority Democratic Party has been widely blamed for mishandling the economy after a boom from 2010 to 2012 quickly turned to bust on their watch."
"In our view, Mongolia's economic situation is clearly challenging, and the government has limited flexibility on both the fiscal and debt fronts," argued Barclays' Avanti Save. "However, we also believe the government is engaging in some 'kitchen-sinking,' announcing all possible bad news at once, and blaming the previous government for the country's challenging fiscal and debt dynamics."
And so, this appears to setting up the stage for addressing some of these financial problems. Already, Bloomberg's Edwards reported that the government is likely looking at austerity measures and will be axing several stimulus programs. But the government may also be toying with the idea of looking for an IMF bailout.
"We do not believe the government wants to default or restructure. However, it recognizes that the total amount of external debt is very large," added Save. "Therefore, in our view, it is using a public forum to suggest that it needs a multilateral funding program, possibly from the International Monetary Fund."