Singapore (BBN)- Moody’s Investors Service says that political tensions and weakness in Bangladesh’s (Ba3 stable) governance — in the run-up to the country’s parliamentary elections, due early next year–are a credit constraint.
These views are discussed in Moody’s just-released credit focus titled, “Bangladesh: Weak Governance and Political Tensions Constrain Sovereign Creditworthiness.” 
Although Bangladesh’s previous electoral cycles were also accompanied by an increased incidence of strikes and protests in the year prior to elections, Moody’s believes that this time newly emerging factors may place greater strain on the sovereign’s credit profile. 
First, election dynamics are more challenging this time owing to the abolition of the neutral caretaker government system and the emergence of Islamist forces in an otherwise secular state. 
Second, weak governance could have economic consequences. 
A spate of industrial accidents, particularly surrounding the garment industry, have dented the country’s reputation as a low-cost garment producer. Lax government
oversight of worker safety has left the industry subject to intense international scrutiny, with the US suspending, albeit with a limited scope, trade benefits to Bangladesh. 
In the event that the European Union ratchets up sanctions, export growth could suffer. 
Moody’s says that as the elections approach, political tensions are likely to rise, and envisages three scenarios with the first two weighing on the sovereign credit profile: The first scenario involves political differences remaining unresolved to the extent that the military is forced to intervene, thereby delaying the electoral process and prolonging political uncertainty, undermining foreign investment and economic growth. 
In the second scenario, elections are held, but tensions continue unabated. Even if elections are held according to schedule, continued strikes and political tensions would likely weigh on investor sentiment and adversely affect economic growth.
Moreover, Moody’s notes that the lack of a permanent solution to the electoral mechanism suggests that escalating tensions and violent protests will likely resume during the next election cycle. 
The final scenario assumes a mutually agreeable electoral process that is accepted by both parties. This would be credit neutral, since it would lead to a more stable political situation with limited event risks — factors that are incorporated into the Ba3 sovereign rating. 
BBN/SSR/AD-28Sept13-11:25 am (BST)