Moody's Investors Service says that Bangladesh's Ba3 sovereign bond rating reflects the country's stable and healthy growth path, progress in implementing structural reforms under an Extended Credit Facility program with the International Monetary Fund that began in 2012, and limited vulnerability to fiscal and external funding stresses.
In addition, the country's external liquidity position is comfortable, with foreign reserves providing ample cushion against maturing debt obligations.
Moody's conclusions were contained in its just-released credit analysis on Bangladesh which examines the fundamental drivers underlying the sovereign rating. The report constitutes an annual update to investors and is not a rating action.
Moody's report points out that Bangladesh's headline growth and exports were not meaningfully impacted by heightened political turbulence over the last year in the run-up to parliamentary elections in January 2014, or by disruptions caused by industrial accidents in the garments sector.
However, the weak financial performance of the four state-owned commercial banks (SOCBs) could result in the further crystallization of contingent liabilities that add to the fiscal burden, although ongoing reforms, if successfully implemented, would improve SOCB competitiveness and restore their financial viability over time.
Upward triggers to Bangladesh's rating would stem from sustained, strong economic growth supported by structural improvements, particularly in infrastructure; a broadening of the tax revenue base, which would improve fiscal fundamentals and flexibility; and reform of the labor market and industrial working conditions, which would ensure continued favorable export prospects, while also encouraging greater foreign investment.
On the other hand, the rating would come under downward pressure if political setbacks strain the country's economic or fiscal profile, or the crystallization of contingent liabilities in the banking system is larger than Moody's anticipates, thereby weighing on fiscal strength. A fundamental deterioration of the balance of payments would also be credit negative.