Dhaka, Bangladesh (BBN) – Terrorist attacks may erode investor confidence that could cast a adverse impact on Bangladesh’s ability to attract direct foreign investment (FDI), global credit-rating agency Moody’s said.
The Moody’s latest analysis came following a terrorist attack in Bangladesh’s capital of Dhaka on Friday that killed 20 people and injured several more.
“It was the most damaging of a series of attacks targeting foreigners and minorities over the past year, and highlighted political risks that are factored into our government bond rating, through our assessment that Bangladesh’s vulnerability to political event risks is moderate,” the US-based Moody’s Investors Service said in its latest commend, released on Monday.
However the frequency of violent attacks such as the one last week is rising, signaling rising political risks that could further distract the authorities from their economic and institutional goals, it added.
Besides, prolonged political or geopolitical instability could erode investor confidence and a worsening of the external payments position. “The most direct impact would be on Bangladesh’s ability to attract foreign investment.”
The Moody’s also found that adverse trends in foreign investment would be particularly detrimental for garment exports, a predominant growth driver.
Exports comprise 16.3 per cent of Bangladesh’s GDP (Gross Domestic Product), and sustaining foreign investment in the textile sector, which accounts for 80 per cent of the total export basket, is crucial for growth.
Bangladesh’s economic expansion has been exceptionally stable, averaging 6.2 per cent year-on-year over the last decade, amid political transitions, natural disasters, and temporary factory shutdowns related to labor conditions, it noted.
Moreover, Bangladesh is one of the few countries in Asia Pacific that has continued to clock growth in exports as global demand has weakened. These gains come despite stiffer competition from Vietnam, where lower value-added exports are also increasing strongly.
Between July 2015 and April 2016, Bangladesh’s total exports increased by 9.2 per cent year-on-year. Pharmaceuticals, raw jute, knitwear and woven garments, and engineering goods exports powered the increase.
“Bangladesh’s domestic politics have long been tumultuous. Relations between the two main parties are highly polarized, culminating in frequent and disruptive strikes and protests,” the Moody’s observed.
Nonetheless, historical trends suggest that neither FDI nor export growth has been particularly sensitive to such tensions, which have tended to escalate in the run-up to elections.
However, last week’s terrorist incident came in the wake of a rising number of attacks targeted at foreigners and minorities, suggesting that risks of political disruption have risen substantially over the past year.
The number of terrorist events in the country climbed to 465 in 2015, from 18 in 2012, according to the Global Terrorism Database.
A Moody’s analysis finds that terrorist attacks can have long-lasting effects on a country’s economy, ranging from growth to investment and borrowing costs.