Obviously, the negative evaluation of Bangladesh's creditworthiness has to do with, among other factors, declining forex reserve, worsening external debt and liquidity position. The rating agency further cautioned that in case the country's net external debt or gross external financing needs including usable reserves surpasses 100 per cent of current account receipts on a sustained basis, then it will have to further downgrade the ratings both for the long and short terms. However, referring to the Asian Development Bank (ADB)'s calculation revising Bangladesh economy's growth estimate (for fiscal 2022-23) upwards at 6.0 per cent on July 23, a central bank's spokesperson played down S&P's evaluation stressing that the country's macroeconomic fundamentals were strong. True, the ADB's April projection of GDP growth at 5.3 per cent has been revised in line with Bangladesh Bureau of Statistics (BBS)'s estimate. But for the growth rate to sustain, the other important economic indices on which the credit rating agencies' evaluations hinge cannot be ignored. Frankly speaking, S&P has only stated the obvious seeing that the foreign exchange reserve situation has so far shown no sign of improving. The foreign debt obligations, too, cannot be just wished away. It may be recalled at this point that during the 2021-22 financial year, Bangladesh came up against a historic trade deficit worth US$33.24 billion, while the government's current account deficit stood at US$18.69 billion. And the Balance of Payment (BoP) deficit, too, then reached US$5.38 billion. In fact, the external trade in that year faced an unprecedented situation with the import bill hitting a record US$ 89 billion. Small wonder that the government had to put a brake on imports and adopt austerity measures to curtail spending in foreign currency. As a result, the import has decreased by 14.11 per cent. As a consequence, during July-May of FY2022-23, the country's trade deficit came down to US$17.16 billion. These are definitely positive outcomes, though they have come at a cost. The international development partners including the independent rating agencies have no doubt been keeping an eye on these developments.
So, when operating within the existing international economic order, there is hardly any scope of bypassing the evaluations made by different standard international agencies that keep track of the global economic and financial trends. Potential investors and lenders follow these assessments made by these agencies before they make any investment decision in a third country or respond to a request for advancing a sizeable amount of loan. Such assessments often prove to be critical, if the recipient country happens to be a least developed or developing one facing the kind of challenges that Bangladesh is now standing up to. The higher the perception of risk about a country in the eyes of these rating agencies is, the costlier the credits from the international lenders for both private and public sectors of the country in question. So, there is no question of turning a blind eye to the all-important issue of the financial account deficit which lies behind the ongoing foreign exchange crisis.
Meanwhile, the International Monetary Fund (IMF) has come up with some observations about the progress the government has so far made in implementing the reforms it (the global lender) recommended. Notably, the international lender in January this year advanced a loan worth US$4.7 billion to Bangladesh to protect what it said the country's overall economic stability. That was subject to effecting certain reforms including creating capacity for social and development spending, strengthening financial sector, modernising policy framework and making people more resilient to the impact of climate change. The country has already received the first instalment of the loan. Though the first review about the country's performance will be made in the Fall (October through November), the present observation is about if the country is moving in the right direction. On this score, the global lender's director for the Asia and Pacific Department (APD), Krishna Srinivasan, without qualifying, only mentioned the steps the government has been taking to meet the programme objectives. These include the steps taken to cut government subsidies, increasing energy prices and the move towards market-determined exchange and bringing about a structural change in the monetary policy framework by way of hiking policy rate and ending the lending rate cap. But the weakness of the financial sector needing necessary reform did not miss the IMF executive's notice. In fact, the need for a drastic reform in the financial sector cannot be overstressed.
The US Department of State, on the other hand, reporting on the "2023 Investment Climate Statements: Bangladesh" made some positive comments on Bangladesh's efforts at improving the business climate and highlighted the growth of the capital market. At the same time, it pointed to the financial sector's dependence on the banks. It did not fail to mention the scams that some 11 banks fell victim to in 2022 leading to a collective shortfall of US$3.1 billion.
Overall, the issues facing the country on its economic front are of enormous proportions. Hopefully, the government would be able to take the challenges in its stride.
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