Fitch affirms Bangladesh's issuer default rating at 'BB-'; outlook stable

The rating agency, Fitch Ratings, on Friday, affirmed Bangladesh's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a stable outlook.

The rating reflects Bangladesh's strong growth prospects, government debt that is below the 'BB' median, and a manageable external debt repayment profile. This is balanced by low government revenue, low per capita income, a weak banking sector, and deficient governance indicators, Fitch said in a statement.

The stable outlook reflects the move to greater exchange-rate flexibility. Also, the prospect of continued support from external official creditors will help Bangladesh navigate a challenging external environment posed by the Ukraine war and rising global interest rates.

While the growth prospects of Bangladesh's economy are strong, its economic activity is expected to slow to 5 per cent in the fiscal year ending June 2023 (FY23), given the temporary measures to contain imports and curb electricity consumption.

However, growth should pick up to 6.4 per cent in 2024 as these measures are eased along with a fall in commodity prices. The recovery from the Covid-19 pandemic has continued, with Gross Domestic Product (GDP) expanding by 7.3 per cent in FY22.

Growth has been broad-based; supported by private consumption with the aid of remittances, government spending, investment, and a surge in ready-made garment exports of 35 per cent Year-on-Year (YoY) basis, it added.

Referring to the external interface of the economy, Fitch said the pressure on the country's international reserves has reduced. Its foreign-exchange reserves fell by 16 per cent to $38.9 billion in 8 months of 2022 amid surging imports and foreign-currency intervention by the central bank. But, the pressure on reserves should ease following policy measures to curb imports, a hike in administered fuel prices of nearly 50 per cent, and greater exchange-rate flexibility.

Fitch said the current-account deficit is expected to narrow to 3 per cent of GDP in 2023 and 2.3 per cent in 2024, from 4 per cent in 2022. The foreign exchange reserves will average at $34 billion, or 4.7 months of current external payments, in 2023-2024.

There are, however, downside risks to our forecasts from a renewed surge in global fuel and food costs stemming from the Russia-Ukraine war. The forex reserve buffer is adequate relative to external financing needs, including external debt repayments, but limited transparency in reserve management could increase uncertainty and hurt the credibility of the policy framework.

The actual level of available liquid FX reserves could be lower than gross figures suggest since a portion is allocated to the Export Development Fund and Bangladesh Investment Development Fund, it added.