Moody's Investors Service raised Mongolia's long-term issuer ratings and senior unsecured ratings from Caa1 to B3, an incremental change in the overall credit ratings scale of Moody’s. Mongolia’s previous rating of Caa1 is considered to be in poor standing and subject to very high credit risk. With the improvement to B3, Mongolia will now be classified as speculative but still subject to high credit risk and considered a non-investment grade. In terms of outlook, Mongolia was rated as stable. The key factors driving the rating upgrade are an alleviation in liquidity and external pressures and the improved prospect of better management of fluctuation in commodity prices if the current reforms are adhered to, said Moody’s. According to the ratings agency, the refinancing of government debt at the end of 2017, 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,” it said in a statement. The stable outlook on Mongolia's B3 rating reflects balanced risks. On the upside, Moody’s believes that reforms may prove more effective at reducing sensitivity to commodity cycles. However, on the downside, and in particular in a less favorable commodity environment, liquidity and external pressures could intensify significantly again. 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. In terms of the budget deficit, Moody’s observed that a more favorable commodity price environment and stronger demand for Mongolia's exports resulted in the current account deficit narrowing in 2017, to an estimated 5.3 percent of GDP from 6.1 percent of GDP in 2016. Moody's forecasts the current account deficit to narrow further to 4.6 percent of GDP in 2018. Coupled with funding from IMF and other bilateral lenders and stronger foreign direct investment, this helps the prospects of the foreign exchange reserves. And with the extension of upcoming maturing debt repayments, reserves coverage of debt payments has improved from very weak levels. Regarding economic growth, the ratings agency forecast that GDP growth will be 3.3 percent in 2018. In 2017, Moody’s said GDP growth exceeded their expectations with 4.2 percent. “This denotes some capacity of the economy to respond to a favorable external environment, and a greater resilience to fiscal and monetary policy tightening than we previously estimated,” Moody’s said. The fiscal deficit and debt burden are also narrowing at a faster pace than Moody’s previously expected, partly because of the buoyancy offered by a higher growth and commodity price environment. However, as a commodity-reliant economy, Mongolia's susceptibility to commodity price boom-bust cycles remains high, and is reflected in a wide range of possible outcomes in its deficit and debt metrics when subject to positive or negative economic or financial shocks, Moody’s added. Sustained and effective implementation of structural reforms leading to greater confidence that would help reduce macroeconomic volatility and fiscal pro-cyclicality in addition to helping the case for Mongolia’s increase in credit rating. Slow progress or potential ineffectiveness of reforms, renewed increase in fiscal deficit, or weakening of the external payments could be a burden to Mongolia’s credit rating, Moody’s said.