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Moody's Investors Service says that Bangladesh's Ba3 government bond rating is supported by the country's stable and strong growth performance and modest debt burden. However, its very low per capita income, persistent fiscal deficits and a factious political environment pose credit constraints.
Moody's conclusions were contained in its just-released credit analysis, 'Bangladesh' which examines the sovereign in four categories: economic strength, which is assessed as "moderate"; institutional strength "very low (+)"; fiscal strength "low (+)"; and susceptibility to event risk "moderate".
The report constitutes an annual update to investors and is not a rating action.
Moody's report points out that for the fiscal year ended 30 June 2015 (FY2015), Bangladesh's GDP growth edged higher to 6.5% and the government projects a 7.1% expansion in FY2016, supported by industrial activity and backed by a track record of macroeconomic stability.
However, weak infrastructure constrains potential growth.
Exports have remained in positive territory, despite subdued levels of global trade. But, the undiversified nature of the export basket--skewed towards textiles--presents risks because Bangladesh could lose its export share to other emerging competitors over time.
As a net oil importer, Bangladesh is a beneficiary of lower oil prices. However, continued contraction in remittances--due to slowing growth in the Gulf Cooperation Council economies, the primary source of remittances--is likely to dent the external benefits of lower oil prices.
The government's weak revenue base also represents a credit constraint, resulting in persistent fiscal deficits. Such deficits would be higher were it not for Bangladesh's low development spending, which in turn limits the provision of public services.
Fiscal risks are mitigated by government debt ratios that remain modest, with debt primarily from concessional sources.
Moody's assessment of Bangladesh's vulnerability to event risks as "Moderate" is driven by political risks.
