S&P reaffirms Bangladesh’s rating with stable outlook
DHAKA, May 31 (BSS) – Standard & Poor’s Ratings Services today affirmed its ‘BB-’long-term and ‘B’ short-term foreign and local currency sovereign credit ratings on Bangladesh with stable outlook.
The transfer and convertibility (T&C) assessment remains ‘BB-’.
The country got the same rating and outlook from this US-based rating agency for the third consecutive year. The first yearly rating was done in 2010.
With the latest one, Bangladesh is rated the second highest in South Asia behind India (BBB) and ahead of Sri Lanka (B+) and Pakistan (B-). Other countries in the BB category include Turkey, Philippines, Indonesia and Vietnam.
“The stable outlook reflects strong growth prospects and ongoing donor support, which ensures low-cost and long-maturity external debt and minimizes refinancing risk,” the S&P said in a statement on the rating.
The stable outlook reflects strong growth prospects and ongoing donor support, which ensures low-cost and long-maturity external debt and minimizes refinancing risk. These factors are balanced against lingering inflation risk and balance-of-payments pressure as imports expand.
The rating agency also draws attention to limited fiscal flexibility due to low revenue generation capacity and expenditure rigidities stemming from significant physical and human capital development needs, and a large subsidy regime.
Low economic development and an adversarial domestic political setting are also seen as major barriers to achieve further improvement.
“We project the country’s total revenue at 13 percent of GDP (including grants) in fiscal 2012, which ranks as one of the lowest among sovereigns we rate,” said Standard & Poor’s credit analyst Agost Benard and added that the limited fiscal flexibility contributed to years of public underinvestment, stunting the country’s growth potential.”
The agency said Bangladesh’s low wealth level at a per capita GDP of US$637 (2011) is a key rating constraint, but it believes that such low incomes afford minimal policy and political flexibility when responding to exogenous shocks, or if severe policy adjustments are needed to avoid default.
It said Bangladesh’s weak institutions and governance hamper investment and development, while its volatile political setting detracts from legislative efficiency and harbors the potential for instability. These factors are additional rating constraints.
The rating agency, however, said that these constraining factors are balanced against strong growth and external support.
“In our view, the strength of key economic segments – garment, remittances and agriculture – will sustain growth in line with recent trends, rising to about 6.7 percent by 2015, as global demand recovers, Benard added.
The S&P observes that Bangladesh benefits from substantial bilateral and multilateral donor engagement as donors provide direct budgetary support, which, together with education and health services to the general population, eases the burden on the government.
“We could raise the ratings if the government succeeds in expanding the revenue base and improving collection efficiency, leading to a material improvement in its fiscal performance. We could also upgrade Bangladesh if alleviating energy, infrastructure, and administrative bottlenecks unlocks rising investment, leading to a sizable and sustainable increase in real GDP growth,” it said.
Conversely, it said we could downgrade the sovereign if fiscal slippages result in rising public debt and external donor support declines materially.
We could also lower the ratings in the event of a reversal of corrective policy actions taken so far to address fiscal and balance-of-payments pressures, or other substantial deviation from the policies required under the IMF Extended Credit Facility program.
Earlier on April 30 and May 3, S&P delegate visited Bangladesh and met with Bangladesh Bank (BB), the National Board of Revenue (NBR), economic and energy advisers to the prime minister, representatives of donors and chambers and think-tanks to prepare the rating.