Private citizens in Mongolia are donating cash, jewellery, gold and even horses to help the government make a payment of close to US$600m to bondholders next month.
The cash-strapped nation has been embroiled in an economic crisis stemming from a collapse in foreign investment, slowing growth in China and weak commodity prices.
Last year, its currency, the tugrik, lost nearly a quarter of its value.
The government has been in talks with China and the International Monetary Fund for assistance, but investors are worried that any bailouts may not be negotiated in time, with the Development Bank of Mongolia’s US$580m of bonds due in March.
“If they don’t get the IMF bailout, where do they get the resources for this payment, without which they can’t do a new bond to refinance? It’s a chicken-and-egg situation,” said a Hong Kong-based trader.
The bonds were showing a bid of 98 cents on the dollar last Thursday, with a yield as high as 21.5% because of their closeness to maturity.
Although the Mongolian public has taken hits from welfare cuts, rising food and fuel costs and a tough winter, which is threatening to kill large numbers of livestock, donation pledges have been flooding in after a prominent economist and members of parliament launched a campaign.
Corporate groups and legislators have also been chipping in with cash contributions of as much as Tug100m (US$40,650).
Mongolia’s foreign currency reserves are at a seven-year low, according to credit rating agency Fitch, and redeeming DBM’s bonds could halve its total stockpile, which stood at US$1.1bn as of last September.
“The biggest issue for Mongolia is the very low level of FX reserves for financing this year, which is essentially why investors are closely watching out for an agreement with the IMF,” said Simon Quijano, emerging-markets strategist with Legal & General Investment Management.
“Of course, Mongolia could go for other financing options, but it is always the uncertainty on each of those options that causes unnecessary volatility,” he said.
Prime Minister Jargaltulga Erdenebat said that, while the government would accept the donations, it had already “found a solution” for the March bond payment and would spend the cash elsewhere.
“The government cannot prohibit the start of any citizen-run campaign,” he said in a statement released last Wednesday. “The cabinet has decided to spend voluntary donations on health, education and reducing smog, as well as public infrastructure.”.
A senior Mongolian finance official said late last year that the country was looking to refinance its debt through lower-interest loans, and insisted the payments would be met in full.