Moody’s reduces Bangladesh’s loan ratings due to political risk 

Moody's Ratings (Moody's) has reduced the long-term loan ratings of the Bangladesh government considering it as political risk. 

According to its outlook, Moody's has reduced ratings to B2 from B1 and affirmed short-term issuer ratings at Not Prime. The outlook has been changed to negative from stable.

The negative outlook reflects downside risks to Bangladesh's growth outlook beyond our current expectations, which could further strain the country's already weak fiscal position and exacerbate external vulnerabilities, Moody’s said.

The downgrade reflects heightened political risks and lower growth, which increases government liquidity risks, external vulnerabilities and banking sector risks, following the recent political and social unrest that led to a change in government, Moody’s said on Monday.

Ongoing political uncertainty and weakening growth lead Bangladesh to rely increasingly on short-term domestic debt to finance its deficit, raising liquidity risks, the global ratings agency said.

“Additionally, higher risks to asset quality amplify structurally weak capital and liquidity in the banking system, increasing contingent liability risks for the sovereign. Despite improving remittance flows and loan disbursements from development partners, external vulnerability risk remains weaker due to a sustained decline in the reserve buffer over the past years”, it said.

With elevated social risks, the absence of a clear election roadmap, the deterioration of law and order, and the nascent reemergence of community-based tensions also raise political risk.

These risks stem from weaker domestic demand and supply disruptions due to recent protests and disruptions to law and order that cloud the export outlook and lower prospects for the ready-made garments sector.

It said while the interim government remains committed to a broad reform agenda, its capacity to execute remains uncertain.

Furthermore, the political capital to push through challenging reforms could diminish if the interim government cannot swiftly deliver outcomes, including taming inflation and addressing high unemployment, Moody’s added.

Source: Agencies