Dhaka, Bangladesh (BBN)- Global credit-rating agency Fitch has projected Bangladesh’s economic outlook as stable further for the current year with a note about political and banking-sector risks.
Bangladesh is rated ‘BB-’ that stands for a stable outlook, according to the Fitch Ratings latest report, released from Hong Knog on Thursday.
The rating agency has affirmed the country’s long-term foreign and local currency issuer default ratings (IDRs) at ‘BB-’. The long-term IDRs are stable.
The country ceiling is affirmed at ‘BB-’ and the short-term foreign-currency IDR at ‘B’.
The credit-rating agency rated Bangladesh’s outlook as stable for a second consecutive year.
The sovereign credit rating is a strong tool for positioning Bangladesh in the global financial arena by providing relevant information and related indicators about the country’s overall economic situation, according experts.
“Bangladesh’s rating balances high, stable real GDP (gross domestic product) growth and persistently strong foreign-currency earnings from remittances and garment exports, against weak structural features, most prominently significant political and banking-sector risk,” the Fitch explained.
It also said the country’s real GDP growth is high at a five-year average of 6.3 per cent compared with the ‘BB’-category median of 4.3 per cent.
“GDP growth has been remarkably stable over the years when Bangladesh was hit by both political turmoil and natural disasters,” the agency noted.
It also said the severe political turmoil in the first quarter of 2015, in which more than 100 people were killed, had a relatively small impact on the official GDP data.
Fitch expects growth to reach 6.5 per cent in the financial year to 30 June 2016 (FY 16) and FY 17.
“Strong political polarisation is negative for Bangladesh’s credit profile,” it noted.
The agency observed normalcy has returned to the streets for now, but after two consecutive years marked by months of severe political violence, blockades and general strikes, a recurrence or escalation cannot be ruled out.
The main risk to the sovereign credit profile is that the political turmoil would deter foreign investors and buyers, especially of readymade garments, from doing business in Bangladesh, thereby inflicting long-term harm on the economy, according to the Fitch.
“The banking sector is vulnerable to shocks, as both asset quality and governance are weak, especially in state-owned banks,” the rating agency noted. “The Bangladesh Bank seems committed to strengthening the poor governance in the banking sector.”
Bangladesh scores poorly on a broad range of governance indicators, including the World Bank governance indicator, it pointed out, adding that the general level of development remains low, as illustrated by weak United Nations human development indicators.
The global rating agency also said Bangladesh reached the World Bank’s lower middle-income status in July 2015, but GDP per capita of US$1,297 remains well below the ‘BB’ peer-category median of US$4,473.
The government’s revenue intake of 10.8 per cent of GDP is the lowest of all rated countries with the exception of Nigeria, implying limited fiscal space for capital expenditures, according to the report.
“The general government debt level of 34.7 per cent of GDP compares well with the ‘BB’ median of 41.6 per cent. However, the budget deficit of 5.0 per cent is higher than the ‘BB’ median of 3.6 per cent, and since planned consolidation is limited, government debt is likely to slightly rise in the coming years,” the Fitch hinted.
It also said that exports of readymade garments and remittances from overseas workers form the two main pillars of Bangladesh’s economy, ensuring high growth and comfortable external balances.
On the one hand, this shows the comparative advantage of Bangladesh’s large, unskilled population. On the other hand, limited diversification implies a risk in case the readymade garment sector or remittances face an external shock.
BBN/SSR/AD