Violence may affect Bangladesh's credit rating

The ongoing political violence amid the BNP sponsored transport blockade interspersed with frequent calls for strikes is likely to pull down Bangladesh's credit ratings, the leading global ratings agency Moody's has said.

News Deskbdnews24.com
Published : 14 Feb 2015, 04:18 AM
Updated : 14 Feb 2015, 08:46 AM

At present, Moody's rating for Bangladesh is a stable Ba3.

The present violence and the disruptions to trade and economic activity it is causing is described by Moody's as “credit negative” for Bangladesh.

It said in a statement that these disruptions since Jan 5 are adversely impacting on Bangladesh's export performance, investment activity and economic growth.

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Moody's made an interesting observation in its statement -- it said political violence has 'historically flared up in the run-up to elections' and therefore its negative impact on the economy was shortlived.
“This time, however, protests have been marred by violent outbreaks, and have persisted for a prolonged time.”
Export growth, which had been immune to political turmoil in the past, has begun to weaken since the start of the current fiscal year, the Moody's statement said.
In the first seven months of 2014-15 FY, exports grew by just 2.1 percent year-on-year, in contrast to 15.1 percent recorded by the Export Promotion Bureau for the same period in last fiscal year.
It particularly highlighted the contracting garment exports, which account for 84 percent of the country's total export earnings.
Apart from labour and safety concerns, the prolonged political violence is impacting on export growth, as the transport blockade impacts on the capability of the garment producers to meet export schedules due to inability to deliver goods to ports for shipment.
The political tensions also risk undermining the reform progress made under the International Monetary Fund's Extended Credit Facility programme.

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Successful completion of the programme involves the passage of further structural measures, including the introduction of a new value-added tax law and steps to improve the state-owned banking system.
“Such measures become more challenging to achieve in a fractious political environment.”
But Moody's observed that despite the rising political tensions impacting adversely on Bangladesh's economy, the country's forex reserves and external payments scenario had not yet been significantly affected.
Foreign exchange reserves as of early February had risen to $22.2 billion from $18.1 billion a year ago. External debt is relatively low at 20.7 percent of GDP.