Moody’s Cuts Bangladesh Further Into Junk on Political Risks
(Bloomberg) -- Moody’s Ratings downgraded Bangladesh’s sovereign rating on Monday, citing heightened political risks and lower growth prospects for the South Asian nation.
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The ratings agency slashed the nation’s ratings to B2 from B1, sending it deeper into junk territory and lowered its outlook to negative from stable. Nations like Rwanda, Cambodia and Mongolia are rated at a similar grade.
“The downgrade reflects heightened political risks and lower growth, which increases government liquidity risks, external vulnerabilities and banking sector risks,” analysts Young Kim and Gene Fang said in a statement. Ongoing political uncertainty and weakening growth lead Bangladesh to rely increasingly on short-term domestic debt to finance its deficit, raising liquidity risks, they said.
The rating cut highlights the economic challenges a fledgling interim government, led by Nobel prize winner Muhammad Yunus, faces as the nation grapples with dwindling foreign exchange reserves and lost business amid the recent political upheaval. Fitch Ratings also downgraded Bangladesh’s sovereign rating in May, underscoring the need for the nation to shore up its forex stockpile, even after securing a $4.7 billion bailout from the International Monetary Fund last year.
Foreign-exchange reserves stood at $19.8 billion as of October 2024, covering more than three months of imports, down from $21.7 billion in June 2024.
While economic activity has largely normalized under the interim government, lapses in law and order have hurt domestic demand and weighed on activity in the ready-made garment sector, Moody’s said, lowering its growth projection for the fiscal year through June 2025 to 4.5% from 6.3% earlier.
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, the credit assessor said.
Bangladesh’s currency is among Asia’s worst performers this year, falling more than 8% against the dollar, according to data compiled by Bloomberg.
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