Moody’s places Bangladesh’s ratings under review

Major global rating agency Moody's has placed Bangladesh's long-held credit rating of Ba3 on review for downgrade, in a development that stands to make the country's foreign transactions and borrowing tougher.

The move comes in response to Bangladesh's deteriorating external position, which raises external vulnerability and government liquidity risks in a way that may not be consistent with its current rating, Moody's said in an update yesterday.

Bangladesh's "rapidly" declining foreign exchange reserves adequacy, acute energy crisis and dollar liquidity shortage have raised concerns about the government's ability to service external debt payments.

"The inability of the government to arrest the deterioration of reserves despite the taka devaluation and implementation of unorthodox policy measures highlights the severity of the situation."

Risks to reserves adequacy are heightened by uncertainties around the composition of reserves.

The central bank currently includes assets from the Export Development Fund, swap lines with the government of Sri Lanka and "other assets with questionable liquidity" as part of its official reserves. 

"In Moody's view, reserves adequacy will be materially weaker if these assets do not meet liquidity requirements."

While Moody's expects that Bangladesh will continue to secure official financing through international financial institutions, with the IMF programme expected to unlock further financing, the financing options available to the government to stabilise the balance of payments remain limited due to the absence of international issuance and limited domestic capital markets, while FDI is very limited.

Furthermore, the IMF programme conditions are yet to be finalised, "raising uncertainties around the government's ability to meet them and their economic and social impact".

The rating review will focus on understanding the scope and conditions under which IMF support will be provided, it said.