Turmoil may lower credit rating: Moody's
The dragging political turmoil and its negative impact on exports, investment and economic growth will most definitely weigh down Bangladesh's credit outlook, the leading ratings agency Moody's said yesterday.
At present, Moody's rating for Bangladesh is a stable Ba3.
The renewed political tensions are “credit negative” for Bangladesh because it is weighing on export performance, investment activity and headline growth, the ratings agency said in its most recent credit outlook.
Moody's mentioned that political tensions have historically flared up in the run-up to elections, marked by frequent street protests that receded afterwards and thus had a limited effect on economic activity.
“This time, however, protests have been marred by violent outbreaks, and have persisted for a prolonged time.”
Export growth, which had been immune to political turmoil in the past, has begun to weaken since the start of the current fiscal year, it said.
In the first seven months of fiscal 2014-15, exports grew by just 2.1 percent year-on-year, in contrast to 15.1 percent recorded by the Export Promotion Bureau for the same period of the previous fiscal year.
It particularly highlighted the contracting garment exports, which account for 84 percent of the country's total export earnings.
Labour and safety standards in the industry have been under scrutiny by global textile purchasers since 2012, and efforts to comply with more stringent standards have likely contributed to a decline in orders, Moody's said.
However, prolonged political unrest will weigh on export growth, as the transport blockade has hindered the factories' ability to deliver goods to major ports.
The political tensions also risk undermining the reform progress made under the International Monetary Fund's Extended Credit Facility programme.
Successful completion of the programme involves the passage of further structural measures, including the introduction of a new value-added tax law and steps to improve the state-owned banking system.
“Such measures become more challenging to achieve in a factious political environment.”
Meanwhile, a finance ministry official said an IMF mission was due in the country this month to review the progress made by the government before the multilateral lender dispatches the next instalment of the $1 billion credit. But the mission is unlikely to come for the political turmoil.
Moody's also said that despite the rising political tensions casting a shadow on Bangladesh's economy, the country's external payments position has not yet been significantly affected.
Foreign exchange reserves as of early February had risen to $22.2 billion from $18.1 billion a year ago. External debt is relatively low at 20.7 percent of GDP, and is primarily concessional, which also limits vulnerability to volatility in external capital flows.
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