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Alert from S&P over current BD situation

Economy faces fresh risks from political volatility

FE REPORT | August 08, 2024 00:00:00


American ratings agency S&P says the political crisis in Bangladesh has further undermined its economic growth, fiscal performance and external metrics, especially foreign exchange, but pins hope on possible fast turnaround.

The latest alert came Wednesday from the Melbourne office of S&P Global Ratings, which says credit metrics may still support the ratings at the current level if the situation stabilizes soon.

Earlier in July, S&P lowered Bangladesh's creditworthiness to B+ from BB- on the back of a sustained decline in its foreign-exchange reserves.

"The protests that led to the abrupt resignation of former Prime Minister Sheikh Hasina on Aug 5, 2024 have exacerbated downside risks to economic growth, fiscal performance, and external metrics," it says in the latest appraisal of economic health of the nation in the aftermath of the August-5th student-mass uprising.

The agency feels the damage to credit metrics may be contained if the sociopolitical situation normalizes soon and Bangladesh (B+/Stable/B) forms a new government.

"While credit buffers have diminished, we would not expect immediate strong pressures on the credit ratings," it says to dispel worry, while warning that continued disruptions to social stability could weigh more heavily on credit metrics, dampening economic growth and government revenue.

One of top-ranking global ratings agencies, S&P forecasts that in this scenario, exports would be materially lower than their expectations, with a more prolonged impact on Bangladesh's external balance sheet.

Materially lower exports could weaken the generation of foreign exchange (forex), further diminishing the central bank's usable reserves.

A normal flow of remittances will also be crucial for Bangladesh to avoid a more acute forex shortage, it notes.

Other possible negative developments would include prolonged disruptions to communications systems that affect normal financial payments.

The S&P Global Ratings Australia Pty Ltd holds Australian financial services licence under the Corporations Act 2001.

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