Standard & Poor’s, the international rating agency, on Thursday reaffirmed its ‘BB-’ rating for Bangladesh with a stable outlook of the economy.
The country retained the agency’s ‘BB-’ long-term and ‘B’ short-term foreign and local currency sovereign credit ratings, which were given in 2011 and 2010.
The S&P said that the rating on Bangladesh incorporated the country’s limited fiscal flexibility due to low revenue-generation capacity and expenditure-side rigidities stemming from significant physical and human capital development needs, and a large subsidy regime.
Low economic development and an adversarial domestic political setting are rating constraints, it said.
These constraining factors are weighed against strong and stable economic growth, and ongoing substantial donor and multilateral engagement, which conditions policy formulation and will help sustain improvement in debt ratios, said the agency.
‘We project the country’s total revenue at 13 per cent of GDP [including grants] in fiscal 2012, which ranks as one of the lowest among sovereigns [countries] we rate,’ said
S&P’s credit analyst Agost Benard.
‘Limited fiscal flexibility has contributed to years of public underinvestment, stunting the country’s growth potential.’
The agency reiterated that it could raise the ratings if the government succeeds in expanding the revenue base and improving collection efficiency, leading to a material improvement in its fiscal performance. ‘We could also upgrade Bangladesh if alleviating energy, infrastructure, and administrative bottlenecks unlocks rising investment, leading to a sizable and sustainable increase in real GDP growth.’
It warned that the ratings could be downgraded if fiscal slippages result in rising public debt and external donor support declines materially.
‘We could also lower the ratings in the event of a reversal of corrective policy actions taken so far to address fiscal and balance-of-payments pressures, or other substantial deviation from the policies required under the IMF Extended Credit Facility programme,’ it said.
A Bangladesh Bank press release on Thursday said that Bangladesh is rated second highest in South Asia behind India (BBB-) and ahead of Sri Lanka (B+) and Pakistan (B-).
It claimed that other countries in the BB category along with Bangladesh, include Turkey, the Philippines, Indonesia and Vietnam.
The S&P website, however, showed that the ratings of Turkey (BBB-) Philippines (BB+) and Indonesia (BB+) were better than Bangladesh.
S&P visited Bangladesh between April 30 and May 3.
They held meetings with BB officials led by governor Atiur Rahman.
They also met speaker Abdul Hamid, prime minister’s adviser Tawfiq-e-Elahi Chowdhury, finance secretary Mohammad Tareque, ERD additional secretary Arastoo Khan, as well as NBR officials.
S&P also had detailed discussions with private sector representatives.