Bangladesh presents a stable outlook on the economic front but restive politics remains a looming risk to a robust performance, global credit-rating agency Moody's said once more in its latest analysis of the country's situation.
Bangladesh is rated Ba3 with a stable outlook, according to the Moody's analysis released Wednesday with a note of caution about the limiting factors stemming both from economics and politics.
Bangladesh's Ba3 foreign currency government bond rating reflects its track record of macroeconomic stability, a modest debt burden, and limited external vulnerabilities with an ample foreign reserve buffer, the US-based Moody's Investors Service said in its analysis report.
"But a fractious political environment, narrow tax-revenue base, and a very low level of per-capita income constrain the ratings," it said to explain the shadows of risk factors hanging over the brighter outlook.
The credit-rating agency now rated Bangladesh's outlook as stable for the sixth consecutive year.
Economic growth expanded 6.1 per cent in the fiscal year ended 30 June 2014, and is expected to rise at a similar pace this year, too.
The analysis also shows that, 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," says the report.
However, potential growth is constrained by infrastructure deficiencies, according to the rating agency.
To underpin its observations on the downside, the US agency made a point that 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 remains a looming risk to Bangladesh's robust economic performance," it said.
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.
"Such reforms, if successful, would result in a considerable widening of the tax base," the Moody's observed.
Following two consecutive years of surpluses, the current account slipped into negative territory this fiscal year due to a widening trade deficit, according to the analysis.
However, it noted, 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.
The Moody's also said upward triggers to the rating would stem from fiscal-and labour-market reforms that support investment and economic growth over the long term.
Improvements in infrastructure and in the investment environment would also be credit-positive, according to the ratings.
The agency forecast that downward pressure would emerge if political setbacks strain the economic or fiscal profile, the crystallisation of contingent liabilities in the banking system weighs on fiscal strength, or there is a fundamental deterioration in the country's external position.
"Our assessment of Bangladesh's moderate susceptibility to event risks is driven by a fractious political environment. Although the state-owned banking system's health is weak, its portion of the overall system is shrinking, thus mitigating systemic financial risk," the Moody's said in its 22-page analysis.
However, it finds Bangladesh's external vulnerabilities very low given the favourable external debt profile and ample foreign reserves.
Citibank N.A. worked as an adviser for the Moody's ratings. The Moody's last revealed rating on Bangladesh was on April 17, 2014. Then also the country was rated 'Ba3' with a stable outlook.
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