Citigroup reaction on credit ratings

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FE Report
Sovereign ratings initiations are encouraging, but addressing infrastructure constrains remains a key concern of Bangladesh, the US-based Citigroup said in a statement Tuesday.
"Growth in roads and telecommunications has been on track; while the power sector is a relative laggard," the Citigroup said in its report released Tuesday from Mumbai, India.
The Citigroup also sees significant scope for improvement in ports, which play a major role in determining the country's export competitiveness.
"Although infrastructure coverage in Bangladesh has improved considerably from levels in the early 1990s, much more remains to be done," the report said, adding that inadequate and weak infrastructure continues to impose substantial costs on the economy and is a major hurdle to growth, with the World Bank's Global Competitiveness Report ranking infrastructure in Bangladesh as amongst the lowest in the world.
With the country's 44 power plants producing 3800 megawatt (MW) a day against demand for 5300MW, power shortages are amongst the biggest deterrent to investments, the Citigroup said.
Only 47 per cent of the population has access to electricity. But in the area the country faces challenges like inadequate coverage, distorted tariffs, inadequate investments, and depleting natural gas reserves, according to the report.
"To this end, exploring alternatives to natural gas, policy clarity on coal mining, and moving to a market-based pricing for electricity and gas appears imperative. In a bid to raise per capita power consumption, the government has declared a vision to provide 'power for all' by 2020," it added.
Other initiatives include negotiating power exchange projects with neighbouring countries, and importing liquefied natural gas (LNG).
The Citigroup also said Bangladesh compares favourably with other South Asian peers on its maiden sovereign ratings, which could help lower borrowing costs, and bode well for external sector and the currency.
"While policy continuity and robust fundamentals bode well for ratings, public finances remain an area of concern," the report said, adding that limited fiscal flexibility is a key constraint for both rating agencies.
This is reflected in high public and external debt ratios (government debt is projected at 40 per cent of GDP in 2010 and external debt at 70 per cent of external receipts); fiscal constraints, with weak revenues (the tax-GDP ratio of 8.5 per cent is amongst the lowest of all rated sovereigns); higher interest payments, and high government debt to revenue ratio the impact of limited public finances on investment growth.
However, Moody's sees low rollover risks coupled with low reliance of the banking sector on external funding as mitigating factors. Infrastructure constraints are also a key negative.