Moody’s Investors Service says that Bangladesh’s Ba3 foreign currency government bond rating reflects its track record of macroeconomic stability, a modest debt burden, and limited externalvulnerabilities with an ample foreign reserve buffer.
But a fractious political environment, narrow tax revenue base, and a very low level of per capita income constrain the rating.
Moody’s conclusions were contained in its just-released credit analysis “Bangladesh” and which looks at the country’s credit profile in terms of Economic Strength (assessed as “moderate (-)”); Institutional Strength (“very low (+)”); fiscal strength (“Low (-)”); and susceptibility to event risk (“Moderate”).
These represent the four main analytic factors in Moody’s Sovereign Bond Rating Methodology. The analysis constitutes an annual update to investors and is not a rating action. Bangladesh is rated Ba3 with a stable outlook.
Growth expanded by 6.1 per cent in the fiscal year ended 30 June 2014, and is expected to rise at a similar pace this year. At these levels, GDP growth is significantly above the 3.5 per cent median for peers in the Ba-rating category. And—despite natural disasters, political tensions, and a global slowdown—growth volatility is lower than for almost all other countries rated by Moody’s. However, potential growth is constrained by infrastructure deficiencies.
Tensions between Bangladesh’s ruling party and the main opposition escalated early this year, on the anniversary of national elections held in January 2014. Politics remain a looming risk to Bangladesh’s robust economic performance, says Moody’s.
Although fiscal deficits are manageable, public finances are constrained by weak revenue collections. Authorities have recently embarked on wide-ranging revenue reforms based on automated systems. Moody’s says such reforms, if successful, would result in a considerable widening of the tax base.
Following two consecutive years of surpluses, the current account slipped into negative territory this fiscal year due to a widening trade deficit.
However, the country’s financing needs are modest and easily met through low-cost, concessional external borrowing, while foreign reserves are buoyant and near a record high.
