S&P Affirms Bangladesh's sovereign rating at 'BB-' as economy recovers

Global Rating agency Standard and Poor's (S&P) has affirmed Bangladesh's sovereign long term rating at "BB-" as it's resilient economy gradually recovers from the effects of th Coronavirus (Covid-19) pandemic.

The agency also affirmed short term "B" rating for South Asian economy. The outlook remains stable.

Bangladesh's economy is gradually recovering, although Covid-19 risks to fiscal and external metrics are likely to persist over the coming year.

"Bangladesh's resilient economy stands out against the sovereign's weak revenue generation capacity, which is likely to limit fiscal consolidation progress, S&P said in a statement.

"The stable outlook reflects our expectation that the country's healthy growth prospects will overcome the risks associated with the Covid-19 pandemic over the next 12 months."

The ratings on Bangladesh reflect the country's modest per capita income and diminished fiscal flexibility. This is due to o a combination of limited revenue-generation capacity and elevated debt-servicing costs. Evolving administrative and institutional settings represent additional rating constraints.

The agency said it weighs these factors against consistently fast economic growth and a balanced external position. This shows substantive engagement with bilateral and multilateral development partners, large remittances from overseas Bangladeshi citizens back to the country, and a globally competitive garment sector.

Despite stout near-term challenges, Bangladesh is expected to continue to achieve higher-than-average economic growth compared with its peers, it added.

The economic recovery momentum will continue to build over the next one to two years following a real expansion of 5.5 per cent in the fiscal year ended June 2021.

The severe Covid-19 outbreak may act as a near-term brake on economic activity, but the impact is unlikely to derail the nascent recovery.

Pointing challenges for thw economy, S&P said that Bangladesh's highly concentrated political landscape may constrain the effectiveness of institutions and limits checks and balances on the government.

Bangladesh's economy has been hit by the pandemic following a steep deceleration in Q4FY20 when strict lockdown measures were imposed in the early phase of the outbreak.