Bangladesh's credit rating

The latest credit rating of Bangladesh — a demotion from B1to B2 — by the Moody's Investors Service (popularly known as Moody's) has indeed aroused some amount of concern in areas of investment, external trade and private sector foreign borrowing. Like Fitch and Standard & Poor's, Moody's evaluation of a country's creditworthiness is highly regarded globally. So Bangladesh's downgraded credit rating is indeed a cause for concern. This is for the first time that Bangladesh's credit rating has a negative outlook for a decade. Starting from early in 2014, Bangladesh enjoyed a credit rating of Ba3 upto 2022. Now Ba3 is above the B1 but below Ba2. By May 30, 2023 the credit rating slid down to B1 but still the outlook of investment was stable. But the latest credit rating of B2 by November 18, 2024 might narrow the investment prospect of the country. It is because B1/B+ may be below the investment grade but it is the highest in the non-investment grade category.

Evidently, Bangladesh showed the first sign of wobbling even when its credit rating was Ba3 as reckoned by the global rating agency on December 9, 2022 when it was under watch for possible downgrading and the investment outlook was under review. Surprisingly, though, on May 30, 2023, although the downgrading could not be arrested, the outlook of investment was still stable. However, one has reasons to believe that official data manipulated by the previous government had some influence on the credit ratings done in the recent past. Because the ratings are not absolute but speculative in nature, at times some positive developments in one or more areas of a country's economy can avoid negative outlooks. Now the million-dollar question is, if Bangladesh can pull off any such success in any of its economic sectors to have a turnaround. Or, it will head for the unpalatable situation projected by the Moody's. The credit rating agency has explained in details why Bangladesh has lost grounds both in terms of investment and non-investment category ratings.

It is quite to the point when Moody's comments that 'heightened political risks and lower growth, which increases government liquidity risks, external vulnerabilities and banking sector risks' are the culprit in case of Bangladesh's latest slide in creditworthiness. All the international credit rating agencies' evaluation is devoted to alerting the investors in advance of the likelihood of default and the extent of potential losses. The credit rating agencies evaluate borrowers on the basis of probability of default and loss, allowing investors the opportunity of making informed choices on broader comparisons for investment anywhere in the world.

Moody's has taken into account the increased flow of remittance into the country and the loan disbursements from development partners but the decline in reserve buffer can hardly be arrested because the short-term loan repayments along with those on big loans have been cramming together. Add to this the accumulating energy bills, the drain on the country's forex reserve is unlikely to ease. More importantly, contractionary monetary policy and weaker domestic demand are certainly a constraint to the economy's take-off. Where it is likely to hurt most is the government's inability to tame inflation and address the rising unemployment. So far, lowering of tariff on import of some essentials has little impact on market volatility. But this was the area for reining in within a short term. Some essentials including the staples have registered a price fall in international market but not in Bangladesh. Unemployment is an issue that needs a longer term for bringing it under control and the exercise calls for investment which is now suspect following decline in the credit rating.