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S&P affirms Bangladesh’s rating ‘stable’ for sixth straight year

15Standard & Poor’s Ratings Services affirmed its BB- long-term and B short-term sovereign credit ratings for Bangladesh with “stable outlook” for the sixth consecutive year.

“We are affirming our ‘BB-/B’ foreign and local currency sovereign credit ratings on Bangladesh,” the top credit rating agency said in its research update yesterday.

The stable outlook reflects our expectation that Bangladesh’s steady growth path and strong donor support will endure to raise average income and sustain the country’s external profile over the next 12 months.

These factors are balanced against lingering governance and fiscal weaknesses, infrastructure deficiencies, and inflation risks.

Although the rating agency assesses Bangladesh’s external liquidity as strong, the country faces the vulnerabilities of a low-income economy, fiscal constraints, and heavy development needs, it said.

The S&P also said the stable outlook balances healthy growth prospects and an improving external profile against fiscal weaknesses and development needs.

The global rating agency may raise the ratings if measures aimed at expanding the revenue base and boosting collection efficiency materially improve fiscal performance, it adds.

The S&P may raise the ratings if measures aimed at expanding the revenue base and boosting collection efficiency materially improve fiscal performance and if the government materially reduces energy, infrastructure, and administrative bottlenecks and boosts investment, leading to a durable increase in trend growth for real per capita GDP, it added.

Bangladesh’s fractious domestic political conditions distract from stable policy making, in particular, widespread strikes and blockades have caused substantial economic disruption and combined with a weak institutional setting and infrastructure deficiencies, Bangladesh’s foreign direct investment have remained persistently low, the rating agency said.

It also put emphasis on monetary flexibility strength, evident in well-controlled inflation over a sustained period and deeper capital markets with market-based tools.

Low economic development, as represented by per capita GDP of $1,250 for

2015, and volatile political setting combined with administrative and institutional weaknesses are Bangladesh’s main rating constraint.

Despite numerous structural impediments to growth, in particular the shortage of electricity, the economy has a record of steady growth with minimal fluctuation, it added.

Notably, opposition party-led strikes since the 2014 elections have significantly hurt GDP growth for the fiscal year ending June 30, 2015.

“We forecast the change in general government debt to average 3.4% of GDP annually over fiscal 2015-2018, the global rater said adding that many basic social and infrastructure needs remain unmet, which implies the need for higher outlays over the longer term.”

Although the government’s debt burden is low, with net general government debt at our projection of 26% of GDP as of the end of fiscal 2015, its high interest expense at 18% of revenues limits fiscal flexibility, it added.

Bangladesh’s low external borrowings support the ratings. Remittance inflows averaging 9.1% of GDP over the past three years and an internationally competitive garment export sector generally ensure current account surpluses, it said.

Noting that foreign exchange reserves as of end March stood at $23.1bn, equivalent to an estimated six months of imports, it cautioned that the reserves would fall due to lower remittance inflows and stronger imports.

Source: Dhaka Tribune

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