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Moody's retains Ba3 rating despite hovering political uncertainty
Leading international credit rating agency Moody's yesterday gave a stable outlook to Bangladesh's credit rating, a resounding endorsement for the government seeing that the uncertainty in the political arena is yet to dissipate completely following the parliamentary elections.
“The stable outlook reflects prospects for continuing economic stability despite recent electoral pressures,” it said while retaining the credit rating of Ba3 for Bangladesh.
Political turmoil and divisiveness, as seen in January 2014 ahead of parliamentary elections, have been a recurrent feature in Bangladesh.
“Nevertheless, we expect ongoing tax and subsidy reforms to eventually strengthen the budget and provide more fiscal space, enabling the government to expand capital expenditure.”
Moody's said its affirmation of the stable outlook for Bangladesh is based on the view that the country's underlying credit strengths have withstood the impact of recent political tensions, industrial accidents in the garment sector and the poor financial health of state-owned commercial banks.
A healthy outlook for economic growth, progress on policy reform and limited vulnerability to fiscal and external funding stress were key drivers for the decision.
It said despite political turbulence and headwinds to the garment industry on the back of a number of industrial accidents, the outlook for economic growth remains largely favourable.
It estimates that real gross domestic product (GDP) growth will moderate only mildly, to around 5.8 percent year-on-year in the fiscal year ending June 2014, from a 6.2 percent average over the last decade.
“Even factoring in this deceleration, Bangladesh's growth during 2003-13 has been significantly above the median for Ba rated countries.”
Moody's said political uncertainty likely led to some investment delays, while a contraction in remittances from workers abroad depressed consumption expenditure.
“However, increases in minimum wages in the garment industry and in civil servants' allowances, as well as dissipating political tensions are expected to contribute to a recovery in consumption.”
It said pressures on the balance of payments that emerged in 2011 have eased, with the current account reverting to a surplus.
“Although remittance inflows have contracted, export growth so far has withstood the international scrutiny facing the garments industry.”
The rating agency praised Bangladesh's progress on significant policy reform underpinned by the International Monetary Fund programme under a three-year Extended Credit Facility.
“The government has also implemented several important fiscal reforms under the programme.”
The measures may turn into credit-positive developments if growth shifts to a higher trajectory, government debt affordability and fiscal flexibility improve and external liquidity strengthens further, said the rating agency.
Moody's said the poor financial health of state-owned banks could result in the crystallisation of contingent liabilities that add to the fiscal burden.
“However, given the small size of the banking system, the shrinking role of state-owned banks and improvements in central bank oversight and supervision, we expect these risks to be limited.”
The positive rating, which comes barely four months after the present government took office for the second consecutive term, was welcomed by the central bank with much gusto.
“The continuation of the existing rating is no real surprise as it is based on a fairly balanced assessment of the economy,” Hassan Zaman, chief economist of Bangladesh Bank, told The Daily Star.
“If we can get the key mega-infrastructure projects going and maintain macro-economic stability then we should be able to move one grade higher next year,” he added.
source: Stable credit outlook for Bangladesh | Moody's retains Ba3 rating despite hovering political uncertainty
Leading international credit rating agency Moody's yesterday gave a stable outlook to Bangladesh's credit rating, a resounding endorsement for the government seeing that the uncertainty in the political arena is yet to dissipate completely following the parliamentary elections.
“The stable outlook reflects prospects for continuing economic stability despite recent electoral pressures,” it said while retaining the credit rating of Ba3 for Bangladesh.
Political turmoil and divisiveness, as seen in January 2014 ahead of parliamentary elections, have been a recurrent feature in Bangladesh.
“Nevertheless, we expect ongoing tax and subsidy reforms to eventually strengthen the budget and provide more fiscal space, enabling the government to expand capital expenditure.”
Moody's said its affirmation of the stable outlook for Bangladesh is based on the view that the country's underlying credit strengths have withstood the impact of recent political tensions, industrial accidents in the garment sector and the poor financial health of state-owned commercial banks.
A healthy outlook for economic growth, progress on policy reform and limited vulnerability to fiscal and external funding stress were key drivers for the decision.
It said despite political turbulence and headwinds to the garment industry on the back of a number of industrial accidents, the outlook for economic growth remains largely favourable.
It estimates that real gross domestic product (GDP) growth will moderate only mildly, to around 5.8 percent year-on-year in the fiscal year ending June 2014, from a 6.2 percent average over the last decade.
“Even factoring in this deceleration, Bangladesh's growth during 2003-13 has been significantly above the median for Ba rated countries.”
Moody's said political uncertainty likely led to some investment delays, while a contraction in remittances from workers abroad depressed consumption expenditure.
“However, increases in minimum wages in the garment industry and in civil servants' allowances, as well as dissipating political tensions are expected to contribute to a recovery in consumption.”
It said pressures on the balance of payments that emerged in 2011 have eased, with the current account reverting to a surplus.
“Although remittance inflows have contracted, export growth so far has withstood the international scrutiny facing the garments industry.”
The rating agency praised Bangladesh's progress on significant policy reform underpinned by the International Monetary Fund programme under a three-year Extended Credit Facility.
“The government has also implemented several important fiscal reforms under the programme.”
The measures may turn into credit-positive developments if growth shifts to a higher trajectory, government debt affordability and fiscal flexibility improve and external liquidity strengthens further, said the rating agency.
Moody's said the poor financial health of state-owned banks could result in the crystallisation of contingent liabilities that add to the fiscal burden.
“However, given the small size of the banking system, the shrinking role of state-owned banks and improvements in central bank oversight and supervision, we expect these risks to be limited.”
The positive rating, which comes barely four months after the present government took office for the second consecutive term, was welcomed by the central bank with much gusto.
“The continuation of the existing rating is no real surprise as it is based on a fairly balanced assessment of the economy,” Hassan Zaman, chief economist of Bangladesh Bank, told The Daily Star.
“If we can get the key mega-infrastructure projects going and maintain macro-economic stability then we should be able to move one grade higher next year,” he added.
source: Stable credit outlook for Bangladesh | Moody's retains Ba3 rating despite hovering political uncertainty
