Bangkok--29 Apr--Standard & Poor's
Solid growth prospects and strong donor commitment mitigate severe fiscal constraints, a low-income economy, and heavy development needs in Bangladesh.
We affirmed our 'BB-' long-term foreign and local currency sovereign credit ratings on Bangladesh.
The outlook is stable.
Standard & Poor's Ratings Services said today that it had affirmed its 'BB-' long-term and 'B' short-term foreign and local currency sovereign credit ratings on the People's Republic of Bangladesh. The outlook is stable. The transfer and convertibility (T&C) assessment remains 'BB-'.
The ratings on Bangladesh are constrained by the sovereign's limited fiscal flexibility due to low revenue-generation capacity, against relatively high public and external debt and significant physical and human capital development needs. Strong and stable economic growth and ongoing substantial donor engagement, which support continued improvement in debt ratios, underpin the ratings. Improved central bank reserve coverage is another supporting factor for the ratings.
The relatively high public and external debt levels are one of the main factors constraining the ratings on Bangladesh. Net general government debt at a projected 36% of GDP in 2011 is well above that of peers, and the associated interest burden of 18% of general government revenues is more than double the median for similarly rated countries and of peers. The external debt component, at 66% of current account receipts in 2010, is similarly high.
"Bangladesh's limited fiscal flexibility owing to a narrow revenue base and high infrastructure needs also constrains the rating. We project the country's total revenue at 12.3% of GDP in fiscal 2011," said Standard & Poor's credit analyst Agost Benard. "Significant energy and infrastructure deficiencies and administrative and bureaucratic weaknesses also constrain the ratings. These factors prevent Bangladesh from achieving higher economic growth."
Bangladesh's strong real per capita income growth, favorable growth prospects, and a moderately strong foreign exchange reserve buffer support the ratings. Real per capita GDP growth averaged 4.7% in the past five years, and has taken place in the context of stable fiscal and monetary conditions. As infrastructure deficiencies are gradually alleviated, there could be upside potential to our current growth forecast of 6%-7%. Usable reserves are at approximately 4.7 months of current account payments in 2010, up from two months in 2000. Substantial bilateral and multilateral donor engagement also underpins the ratings on Bangladesh.
The stable outlook reflects strong growth prospects and ongoing donor support, which ensures low-cost and long maturity external debt that minimizes refinancing risk. These factors are balanced against emerging balance of payments pressures as remittance growth slows and imports expand, and the risks posed by rising inflationary pressures and a weakened banking sector.
We could raise the ratings if the Bangladesh government persists with implementing measures to expand the revenue base and improve administrative and collection efficiency, leading to a material rise in its revenue. We could also upgrade Bangladesh if rising investment leads to a sustainable increase in real GDP growth. Conversely, we could downgrade the sovereign if fiscal slippages result in rising public debt and external donor support declines materially. We could also lower the ratings if incipient balance of payments pressures accentuate and result in a significant erosion of external liquidity through lack of appropriate policy responses.
RELATED CRITERIA AND RESEARCH
Sovereign Credit Ratings: A Primer, published May 29, 2008
This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.
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Media Contact:
David Wargin, Washington, DC (1) 202.383.2298,
[email protected]
Analyst Contacts:
Agost Benard, Singapore (65) 6239-6347
KimEng Tan, Singapore (65) 6239-6350