Country’s rating outlook stable: Moody’s report

Country’s rating outlook stable: Moody’s report
FE Report

Global credit rating agency Moody’s Investors Service Monday rated Bangladesh’s outlook as stable for the second consecutive year despite pressure on the country’s overall balance of payments (BoP).

“Tax reforms and infrastructure enhancement efforts are supporting Bangladesh’s Ba3 rating,” the Moody’s said, adding that the rating outlook is stable.

Moody’s rating has put Bangladesh at par with the Philippines. In the South Asian context, Bangladesh’s position is three-step higher than Pakistan and one-step ahead of Sri Lanka, but below India.

“It’s a big achievement for Bangladesh. It will boost foreign investors’ confidence further to invest in Bangladesh,” Bangladesh Bank (BB) Deputy Governor Ziaul Hasan Siddiqui told reporters at a press conference Monday at the conference room of the central bank.

Such rating put Bangladesh on a comfortable position, he said, adding that it will also facilitate the country’s foreign trade.

Sovereign credit rating is a strong tool for positioning Bangladesh in the global financial arena by providing relevant information and related indicators about its overall economic situation, experts said.

“The rating would face downward pressure if a major shock to confidence, perhaps emanating from political or fiscal setbacks, or a deterioration of the balance of payments, resulted in a substantial reversal of gains in the external payment position or adversely altered the improving trends in government and external debt trajectories,” the Moody’s said in its updated report.

Mr. Siddique also said the Moody’s has forecast that the country may face pressure on its BoP.

The overall balance showed a deficit of US$711 million during July-January period of this fiscal against the surplus of $2.138 billion in the corresponding period of the previous fiscal due to deficit of $1.174 billion in financial account, according to the central bank statistics.

Pressure on the country’s BoP has increased in recent months due to widening trade gap, lower growth of inward remittance and deficit balance in the financial account.

The BoP entered the negative territory in November last after a long time and the deficit widened further in January this year, the BB officials said.

“The economy of Bangladesh is treading the path to a higher growth potential, but is also facing modest near-term risks. With declining poverty, improved food security, favourable demographics, and recent efforts to enhance infrastructure, conditions for higher growth are visible,” the Moody’s said.

However, a recent deceleration of remittance inflows, and a rising trade imbalance are resulting in modest near-term pressures on the external balance of payments, it added.

Economic and banking event risks are low, and polarized politics do not threaten the policy framework, the rating agency said, adding that macro-financial stability, low external indebtedness, and improving banking fundamentals are key support factors.

“Excessive government interventions in the stock market or in state enterprises may raise contingent fiscal pressures somewhat. But these are expected to remain within the liquid resources of the broader public sector,” it noted.

The policy framework is reasonably effective, but deeper reforms will help sustain higher growth targets, the Moody’s said.

The on-going tax and budgetary reforms and reasonably effective monetary management can absorb the modest-sized near-term balance of payments pressures, it added.

However, amidst Bangladesh’s rising energy intensity and pent up demand for capital goods, land reforms and improvements in governance are important, the Moody’s noted.

“These could attract greater foreign direct investment which would be useful in countering the possible materialization of sustained external pressures,” it said.

The global rating agency said Bangladesh’s rating could move up if sustained increases in economic growth were to be supported by infrastructure improvements, enhanced regional integration and a broadening of the tax revenue base.

“These developments could support improvements in government debt affordability and overall fiscal flexibility; and also encourage greater foreign investment which could fortify the reasonably healthy external payments position,” it noted.

The Moody’s last rating action on Bangladesh was on April 12, 2010, at which time the local and foreign currency issuer ratings were assigned a Ba3, with a stable outlook.

Citibank NA worked as an adviser for the Moody’s rating.


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