Bangladesh’s economic outlook stable: S&P

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“We are affirming our ‘BB-/B’ foreign and local currency sovereign credit ratings on Bangladesh, the top credit rating agency said in its research update, released on Wednesday.

Although the rating agency assesses Bangladesh’s external liquidity as strong, it feelsa the country faces the vulnerabilities of a low-income economy, fiscal constraints, and heavy development needs.

The S&P also said the stable outlook balances healthy growth prospects and an improving external profile against fiscal weaknesses and development needs.

The global rating agency may raise the ratings if measures aimed at expanding the revenue base and boosting collection efficiency materially improve fiscal performance.

“We may also upgrade Bangladesh if the government materially reduces energy, infrastructure, and administrative bottlenecks and boosts investment, leading to a durable increase in trend growth for real per capita GDP,” it noted.

Likewise, the rating agency may also raise the ratings if Bangladesh’s monetary flexibility strengthens, evident in well-controlled inflation over a sustained period and deeper capital markets with market-based tools.

“Although we assess Bangladesh’s external liquidity as strong, the country faces the vulnerabilities of a low-income economy, fiscal constraints, and heavy development needs,” said the S&P update.

But the S&P worst worries revolve round Bangladesh’s confrontational politics.

“Bangladesh’s fractious domestic political conditions distract from stable policymaking. In particular, widespread strikes and blockades have caused substantial economic disruption.

Combined with a weak institutional setting and infrastructure deficiencies, Bangladesh’s foreign direct investment have remained persistently low.

“Notably, opposition party-led strikes since the 2014 elections have significantly hurt GDP growth for the fiscal year ending Jun 30, 2015. Although economic activity has resumed, the confrontational stance between the incumbent Awami League and opposition Bangladesh Nationalist Party harbours the potential for conflict,” said the S&P update.

But it has other worries as well.

“The ratings on Bangladesh reflect the country’s low economic development and limited fiscal flexibility owing to a combination of constrained revenue generation capacity, significant shortage of basic infrastructure and government services.

“The country’s volatile political setting combined with administrative and institutional weaknesses represent additional rating constraints. We weigh these factors against a relatively modest external debt burden, reflecting support from substantial donor engagement, and large remittances from the Bangladeshi diaspora.”

Low economic development, as represented by per capita GDP of US$1,250 for 2015, is Bangladesh’s main rating constraint, the S & P update said .

“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 5.2% is healthy and in line with peers’ at this income level,” said the update.

“Despite numerous structural impediments to growth, in particular the shortage of electricity, the economy has a record of steady growth with minimal fluctuation.”

Last month, another top global ratings agency, Moody’s Investor Service, had projected Bangladesh’s outlook as stable for the current year.

In its analysis, Moody’s had justified its projection, saying the country’s growth volatility is lower than almost all other countries they rated.

Bangladesh has again been rated Ba3 with a stable outlook by Moody’s.

The rating was same as its previous analysis in February in which it had said the violence and disruptions to trade and economic activity since Jan 5 were adversely impacting Bangladesh’s export performance, investment activity and economic growth.

Source: Bd news24