Bangladesh has stable economic outlook
Bangladesh has held on to its stable credit profile from three global rating agencies, in what can be viewed as an endorsement of the way the central bank and the government are steering the economy.
For the ninth year in a row Moody's and Standard & Poor's gave Bangladesh 'Ba3' and 'BB-' ratings respectively. Fitch gave a 'BB-' for the fifth time.
The Bangladesh Bank published the country's latest sovereign credit ratings from the three agencies on its website on Sunday.
However, the agencies have identified the banking sector, especially the state-owned banks, and the prospect of political uncertainty surrounding the upcoming general election as major risks.
“The stable outlook reflects our expectation that Bangladesh's consistent economic growth trajectory and strong donor support will continue to raise average income and broadly sustain the country's external profile over the next 12 months,” S&P said in its report.
The rating agency may raise the ratings if measures targeted at growing the revenue base and boosting collection efficiency materially improve Bangladesh's fiscal performance.
It may also upgrade Bangladesh if the government significantly reduces energy, infrastructure and administrative bottlenecks, resulting in higher investment and eventually a sustained increase in trend growth for real per capita GDP.
Conversely, S&P may downgrade Bangladesh if fiscal slippages result in rising public debt and external donor support declines materially.
Low economic development, as represented by per capita GDP of $1,620 for 2018, is one of Bangladesh's main rating constraints. This income level offers a weak and narrow revenue base, in turn limiting the fiscal and monetary flexibility needed to respond to exogenous shocks.
“Nevertheless, Bangladesh's real per capita GDP growth of about 5.4 percent over the 2012-2021 period indicates consistently strong real GDP growth despite numerous structural impediments, in particular the shortage of power,” it added.
Moody's echoed the same concerns about the narrow government revenue base.
“We expect Bangladesh's government revenue to GDP ratio to remain among the lowest within our rated universe, given the delay in the implementation of the VAT law.”
Moody's assessed Bangladesh's economic strength as “Moderate (+)”, which is similar to Sri Lanka and Costa Rica.
It also assessed that Bangladesh's banking sector risk as “Moderate (-)”, which indicated that the country's banking sector is not performing well enough.
The country's state-owned commercial banks account for 30 percent of banking system assets and exhibit significantly weaker asset quality, profitability, and capital adequacy than private commercial banks.
Gross non-performing loans of state-owned banks amounted to 29.3 percent of total loans in the third quarter of 2017, compared to 6 percent for private commercial banks, and have been rising since 2015, said the Moody's.
“The banking sector's health and governance standards are generally weak, particularly in public sector banks,” Fitch said in its report.
It also said Bangladesh exhibits one of the highest real GDP growth rates in the sovereign space.
However, the economy is less developed on a number of metrics than many of its peers.
The average per capita GDP remains low compared with the 'BB' range median of $5,611, although major improvements have taken place over the past decade on a number of social metrics.
Political and safety risks remain substantial, Fitch said.
“Continued strong political polarisation could again lead to widespread violence and blockades, especially nearer to the general elections.”
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