An international business forecasting agency has downgraded Bangladesh's short-term political risk rating as well as economic growth outlook due to persistent political and social unrest.
In its latest analysis on Bangladesh, the London-based Business Monitor International said political instability would emerge as a major risk to the economy.
"While the intense political violence has recently abated, we believe that stability will still be hard to come by due to the ongoing security crackdown on opposition activists and the war crime tribunals against Islamist leaders," said the Bangladesh Business Forecast Report.
The firm downgraded the country's short-term political risk rating from a score of 65.8 out of 100 to 62.1.
It lowered down GDP growth to 5.7 percent from 6.5 percent for the current fiscal year, as political turmoil in recent months has weighed heavily on investment.
"While there are bright spots in the economy amid the deteriorating political environment, we see an increasing political risk profile which may warrant a downgrade to Bangladesh's structural real GDP growth outlook."
Business Monitor is a leading, independent provider of proprietary data, analysis, ratings, rankings and forecasts, covering 200 countries and 24 industry sectors.
Due to the prevailing intense political crisis that began in late February last year, investors are adopting a “wait and see” approach, the report said.
Private sector credit growth also experienced a sharp decline, it said.
"With faltering FDI inflows and private sector credit, we see further slowdown in investment rate."
It said external demand has been supported by a gradual recovery in the US and Europe, boosting exports.
"This bodes well for the garment export industry, which remains attractive to foreign buyers as it provides the cheapest supply of garments."
While looking at the opportunities for Bangladesh, the report said the possible emergence of a new generation of leaders in the BNP and the Awami League, the two major political parties, offers hope of a more reformist and less confrontational political scene in the long-term.
"There is a risk of an eventual political vacuum if the AL and the BNP fail to find next-generation leaders and if intra-party factional rifts fail to be repaired."
The report said Islamists could seek to exploit any extended political deadlocks to further their agenda.
The firm said political and social tensions remain unabated and look set to escalate further after Prime Minister Sheikh Hasina went ahead with the parliamentary election even though it had been boycotted by the opposition parties.
"This endless political unrest presents a heightened risk that will weigh on the nation's economic outlook."
The report also includes a 10-year forecast to 2023 on Bangladesh. The firm said it believes a real GDP growth rate above 6 percent for Bangladesh is sustainable in the long-term given the increasing size of the workforce.
"However, to achieve growth in the 7-8 percent range and higher, productivity will need to improve. Until this happens, GDP per capita—while on an upward trajectory—will remain relatively low."
It also calls for an improvement in business environment for accelerating economic growth, as the country's business environment suffers from very high levels of corruption and poor infrastructure.
The report said the environment for conducting business in Bangladesh is among the worst in the world and in the 118th place worldwide.
It said infrastructure is a major drawback, with the country ranking 115th worldwide in the category.
The analysis also said the government debt to GDP ratio would decline gradually towards an estimated 33.8 percent by 2022-23, as the government continues to consolidate its fiscal position.
The report said natural disasters—which may become more frequent and intense as a result of global climate change—would continue to hit the economy from time to time.
"The rising population density could put an unbearable strain on Bangladesh's limited land and resources."