Moody’s sees strong growth for Bangladesh

Moody's Investors Service said Bangladesh's Ba3 government bond rating is supported by the country's stable and strong growth performance and modest debt burden.

However, low per capita income, persistent fiscal deficits and a factious political environment pose credit constraints, the company, a leading provider of credit ratings, research and risk analysis, said in a statement.

Moody's conclusions were reflected in its just-released credit analysis that examines the sovereign in four categories: economic strength, which is assessed as moderate; institutional strength -- very low; fiscal strength -- low; and susceptibility to event risk -- moderate.

The report is an annual update for investors, and is not a rating action, according to the statement.

Moody's report points out that for the fiscal year ended June 30, 2015, Bangladesh's GDP growth edged higher to 6.5 percent and the government projects a 7.1 percent expansion in fiscal 2016, supported by industrial activity and backed by a track record of macroeconomic stability.

However, weak infrastructure constrains potential growth for the country, it said.

Exports have remained in the positive territory, despite subdued levels of global trade. “But the undiversified nature of the export basket -- skewed towards textiles -- presents risks because Bangladesh could lose its export share to other emerging competitors over time.”

As a net oil importer, Bangladesh is a beneficiary of lower oil prices, the company said.

However, continued contraction in remittance -- due to slowing growth in the Gulf Cooperation Council economies, the primary source of remittances -- is likely to dent the external benefits of lower oil prices.

The government's weak revenue base also represents a credit constraint, resulting in persistent fiscal deficits, according to the statement.

“Such deficits would be higher were it not for Bangladesh's low development spending, which in turn limits the provision of public services.”

Fiscal risks are mitigated by government debt ratios that remain modest, with debt primarily from concessional sources, it said.

Moody's assessment of Bangladesh's vulnerability to event risks as ‘moderate’ is driven by political risks, it added.