S&P Global Ratings has lowered Bangladesh’s long-term outlook from stable to negative, citing concerns that the country’s external liquidity position could deteriorate over the next year while foreign exchange reserves continue to be under pressure.
Tuesday, the ratings agency projected that the economy will grow between 6% and 6.4% annually between 2024 and 2026.
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The growth of Bangladesh’s gross domestic product (GDP) slowed to 6.03 percent in the fiscal year ending in June 2023. Moazzem stated that there was a need for action in the areas of subsidy management and energy imports, which are the foreign exchange reserve situation’s greatest vulnerabilities.
“The government must take bold action in this regard, including substituting energy imports with gas exploration and energy imports with power, solar-based agriculture, and other renewable energy measures,” he added.
The South Asian nation is struggling to pay for imported petroleum due to a dollar shortage, and its dollar reserves have decreased by more than a third to $29.85bn as of July 19 since Russia’s invasion of Ukraine.
Bangladesh’s long-term and short-term sovereign credit ratings were reaffirmed by S&P at BB- and B, respectively, with the caveat that they could be lowered if external debt or liquidity metrics deteriorate further.
“Weaker-than-anticipated current account receipts, a larger overall current account deficit, or a failure to materially increase foreign exchange reserves would indicate downward pressure on the rating,” S&P said.
The agency added that Bangladesh requires favorable trade and financial flows to stabilize its external parameters over the next 12 months.
This year, the country of nearly 170 million people has already been forced to secure a $4.7bn loan from the International Monetary Fund due to rising import prices for petroleum and food.
According to Khondaker Golam Moazzem, director of research at the think tank Centre for Policy Dialogue, the negative outlook reflects the deteriorating economic conditions and could impede foreign investment, further eroding international lenders’ confidence.
“This would result in either increased uncertainty or increased costs to weigh the growing risks of repayment uncertainty,” he said.