Singapore (BBN)- The outlook for the Bangladesh's Ba3 foreign and local currency bond ratings is stable, Moody's Investors Service, a US-based credit rating agency, said on Tuesday.
Moody's sovereign ratings for Bangladesh's are based on low levels of economic and institutional strength, as well as low-to-moderate government financial strength, balanced against a low susceptibility to event risk.
According to a new report titled, "Credit Analysis: Bangladesh, Government of", while Bangladesh has achieved a track record for macroeconomic stability over the past decade, gross domestic product (GDP) per capita remains the lowest amongst all rated countries.
Moreover, a reliance on private consumption--supported by worker remittances--and a poorly diversified export sector leave the country vulnerable to a further slowdown in global growth, the global top rating agency said.
“Since 2011, overheating pressures manifested themselves in rising prices and a deterioration in the balance of payments. While these have been contained recently, fundamental factors behind the shock--such as infrastructure constraints in the power sector--still need to be resolved in order to assure a sustainable growth trajectory of around 7.0 percent annum,” it noted.
Bangladesh's rating is constrained by institutional weaknesses. Notably, poor governance have constrained capacity improvements and could be a risk to funding.
However, conditionalities built in to the international monetary fund (IMF) program that commenced in April 2012 bolsters the outlook for reform, the agency said.
It also said the government's low to moderate financial strength reflects a weak revenue base and structural pressures from subsidies, but are offset by trend improvement in the debt trajectory, relatively low debt service requirements, and ongoing efforts to reform revenues.
While deficits have remained manageable at 4-5 percent of GDP, funding-related stresses in the past year contributed to a greater dependence on domestic bank financing, which in turn has fanned inflationary pressures and a mild crowding out of private sector credit.
However, continued access to low-cost, long-term external financing limits exchange rate and sovereign debt rollover risks.
“While the contentious political landscape has dented investor confidence, event risks are remote. This assessment reflects a largely stable banking system, as well as the low likelihood that future political developments would result in a sudden shift in the policy framework,” it noted.
BBN/SSR/AD-18Sept12-2:13 am (BST)
