Bangladesh risks negative credit ratings for external finance factors, including sustained declines in foreign-exchange reserves, says global rating-agency Fitch Ratings.
"In our most recent rating assessments, we stated that external finance factors, potentially including marked or sustained declines in foreign-exchange reserves, could be a driver of negative rating action in sovereigns such as Bangladesh," it observes in a latest assessment report.
Earlier, another assessment by Moody's had forewarned that Bangladesh's heightened external vulnerability and liquidity risks stay persistent, and together with institutional weaknesses uncovered during the ongoing crisis, the sovereign's credit profile remained as before in B1 grade.
According to US-based Fitch Ratings, Bangladesh has improved its reserves transparency with the adoption of the IMF definitions in June following credit negotiations.
It says the International Monetary Fund or IMF data show Bangladesh's reserves declined 31 per cent over January-July last. "But we estimate the decline could be around 16 per cent if the new definitions applied throughout the period," the ratings agency says.
The Fitch Ratings mentions Bangladesh in its latest report on the reserves trends that diverge among Asia-Pacific sovereigns.
The central bank of Bangladesh has published its reserves position as per the IMF guidelines called balance of payments and investment position manual (BPM6) since last July, in line with agreements reached in loan negotiations.
The manual provides guidance to member countries on the compilation of BoP statistics. There are differences between the IMF definition and the Bangladesh Bank calculation by about US$ 7.0 billion.
As per IMF arithmetic, the foreign-exchange reserves stood at $23.0 billion while Bangladesh Bank's own definition put it at $29.2 billion, as of August 31.
The global agency on rating of financial strengths and weaknesses of nations says reserve dynamics may have a greater impact for frontier-market sovereigns, including Bangladesh, especially where reserves-coverage ratios are low and external liquidity positions fragile.
International credit-rating agency Moody's Investors Service (Moody's) downgraded Bangladesh's long-term ratings to B1 from Ba3. This rating action concludes the review for the downgrade initiated in December 2022.
Moody's assessment is that Bangladesh's heightened external vulnerability and liquidity risks are persistent, and that, together with institutional weaknesses uncovered during the ongoing crisis, the sovereign's credit profile is consistent with a B1 rating.
The rating agency says reserves dynamics among APAC sovereigns appear to be diverging, with potential implications for their credit profiles.
Some central banks have been able to accumulate reserves on current-account improvements or investment inflows, while others still see their currencies under pressure from US Fed tightening prospects.
One of the conditions the IMF put forth to Bangladesh was to begin calculating reserves using BPM6 by last June with a view to enhancing transparency in Bangladesh Bank and the quality of reporting. The International Monetary Fund informed Bangladesh of the method that has to be used to calculate the actual forex-reserve status.
There were some other conditions. The amount used to form the export development fund (EDF), long-term fund (LTF) and green transformation fund (GTF), money given to Biman Bangladesh Airlines through Sonali Bank for buying aircraft and the money spent for dredging Rabnabad channel of Payra port have to be deducted in calculating the amount of actual reserves.
The global lender gave an approval to the proposal on USD 4.7-billion loan on condition of meeting some specific conditions in different sectors.
Bangladesh got USD 476.27 million as the first installment of the loan in February.
One of the main conditions was to have actual forex reserves of USD24.46 billion in June and raising it to USD 25.3 billion in September and USD 26.8 billion in December.
jasimharoon@yahoo.com
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