Weak economy: Moody’s downgrades Bangladesh’s credit rating

Desk Report:: The deficit of the government of Bangladesh’s debt or foreign debt repayment capacity has begun. According to Moody’s Investors Service (Moody’s) index, the credit rating of various countries has dropped from B3 to B1, that is, it has decreased by two steps.

The organization’s recent assessment highlighted the tumultuous state of Bangladesh’s economy and liquidity risk as well as the government’s institutional weakness in dealing with the ongoing economic crisis. It has been said that Bangladesh is suitable for B1 category instead of B3 in the credit quality index of the organization in view of its foreign debt repayment capacity.

In fact, the ongoing dollar crisis and the continued decrease in foreign exchange reserves are increasing the pressure on the economy of Bangladesh day by day. The government is trying to control the cost of imports to keep this pressure at a bearable level, but due to this, the country has already started a fuel shortage.

Again, despite taking various measures, the government has been able to bring the import under complete control – this is not the case. According to Moody’s Investors Service, the country has not yet withdrawn its unorthodox measures, such as multiple exchange rates and fixed interest rates. As a result, the economy of Bangladesh is not stable.

Moody’s said in the final phase of the assessment that Bangladesh’s tax collection rate is low relative to the size of its economy, and frequent devaluations of the Bangladeshi currency pose further challenges to debt servicing capacity.

Moody’s assessment, however, has also given indirect guidance to resolve this crisis in the economy. The agency hopes the foreign funding will help ease some of the external and fiscal pressures.

However, even if the pressure eases, Bangladesh’s economy will remain weak in the coming days compared to the pre-pandemic situation and there will be a revenue shortfall due to high levels of debt, Moody’s said. In particular, Moody’s believes that the implementation of the fiscal reform programs that have been undertaken will take many more years to reap the benefits.

Although the economy is under pressure, Bangladesh is receiving financing and assistance from international financial institutions at low interest rates almost regularly. As a result, Moody’s expects that there will not be as much pressure as expected in the foreign and revenue sectors.

Moody’s also noted that Bangladesh’s debt burden is at a moderate level compared to other countries in a similar situation, and foreign debt repayment conditions will remain under control due to long-term borrowing at low interest rates.