Uncertainty remains heightened in Bangladesh amid political transition: Fitch

Fitch Ratings on Thursday said the fall of Bangladesh’s Awami League government amid fierce protests in July and August raised uncertainty about the sovereign credit profile.

 “Downward pressure on Bangladesh’s rating could increase if the political transition faces challenges, including prolonged political violence, or leads to policy paralysis and exacerbates fiscal or external stresses,” says the world’s one of the leading credit rating agencies.

Fitch downgraded Bangladesh’s rating to ‘B+’/Stable, from ‘BB-’/Negative, in May 2024.

The fall in rating reflected sustained weakening of the country’s external buffers, leaving the country more vulnerable to external shocks.

 “We believed that this weakening would be challenging to reverse, despite reforms under an IMF-backed programme, including a shift towards greater exchange-rate flexibility,” Fitch says.

It adds: “We believe the protests are likely to affect economic metrics in the current quarter, hurting growth and tax revenue collection, as well as pushing up consumer price inflation, which reached 11.7 per cent yoy in July 2024”.

There is also likely to be an impact on readymade garment (RMG) exports and remittance inflows, Bangladesh’s two key sources of foreign earnings.

At this stage, Fitch Ratings assume these effects to be temporary, and that political stability is restored and sustained.

The appointment of an interim government on 8 August appears to have eased the immediate political instability, but Bangladesh’s society remains highly polarised and the longer-term political direction uncertain.

A roughly 11 per cent recovery in the Dhaka Stock Exchange’s DSEX Index between end-July and 13 August signals moderate investor confidence in the interim administration, suggesting large-scale capital flight is a low risk for now.

jasimharoon@yahoo.com