The international credit rating agency Moody's has hinted at downgrading Bangladesh's country credit rating due to the ongoing political violence.
Moody's current credit rating for Bangladesh is 'Ba3' which generally means a stable economic situation. Such ratings provide international investors with a tool to evaluate future relative creditworthiness of any country.
In its latest analysis on 'credit implication of current events' the agency said that intensifying political unrest was negative for Bangladesh, as 'it is weighing on the sovereign's export performance, investment activity and headline growth.'
As per the agency's global rating scale, "obligations rated Ba are judged to be speculative and are subject to substantial credit risk." The agency also adds numerical modifiers 1, 2 and 3 to each generic rating classification and modifier 3 indicates a ranking at the lower end of that generic rating category.
Just one step down from 'Ba3' will put Bangladesh in the 'B1' category meaning the country's global 'obligations are subject to high credit risk.
The analysis finds export growth, which had been immune to political turmoil in the past, has begun to weaken. During the first seven months (July-January) of the current fiscal year, exports grew by just 2.1 per cent.
"Prolonged political unrest will likely weigh on export growth and hinder the country's investment environment," it added. "The transport blockade has hindered factories' ability to deliver goods to major ports."
Moody's apprehended that "protracted political tensions also risk distracting the government from its economic reform program."
In this connection, the analysis referred to the International Monetary Fund's (IMF) $900 million extended credit facility. It mentioned that the country already secured $644 million in financial assistance by "implementing several important reforms."
But, "the successful completion of the program involves the passage of further structural measures, including introduction of a new value-added tax and steps to improve the state-owned banking system," it added.
"Such measures become more challenging to achieve in a factious political environment," said Moody's. Dr Mustafa K Mujeri, director general (DG) of Bangladesh Institute of Development Studies (BIDS), however, did not find something very devastating in such an analysis.
"Credit rating reflects resilience capacity of an economy to face unseen turmoil and downgrading of international credit rating will reduce the confidence of international investors," Dr Mujeri told the FE. "But there will be no immediate effect, as Bangladesh doesn't hold any sovereign bond in the international financial market."
"There are some private foreign borrowings, but the amount is very low and Bangladesh economy doesn't depend on such borrowings," he added. Dr Mujeri, however, opined that the current political turmoil was severely affecting the country's economic activities and growth potentials.
Moody's, however said that despite rising political tensions, the country's external payment position had not yet been significantly affected.
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