Bangladesh shows solid growth prospects: S&P

Bangladesh shows solid growth prospects which will prevail against the risks associated with the Covid-19 pandemic over the next 12 months, says global rating agency S&P.

"We forecast real GDP growth will climb to 7% in fiscal 2022 on relatively weak base effects and a continued normalization of external and domestic demand conditions, particularly in the second half of the fiscal year," said the latest global ratings of Standard & Poor's released on Wednesday.

It has kept Bangladesh's creditworthiness stable at "BB-" long-term and "B" short-term on its rating scale.

Bangladesh's economic recovery momentum will continue to build over the next one to two years following a real expansion of 5.5% in the fiscal year ended June 2021, it forecasts.

Though severe Covid-19 outbreak may act as a near-term brake on economic activity, the impact is unlikely to derail the nascent recovery supported by recovery in global demand, S&P says in its latest readings on Bangladesh's economic trend.

"Despite stout near-term challenges, we expect Bangladesh to continue to achieve higher-than-average economic growth compared with its peers," it reads.

The ratings reflect Bangladesh's modest per capita income and diminished fiscal flexibility owing to a combination of limited revenue-generation capacity and elevated debt-servicing costs.

But it weighs the country's "consistently fast economic growth and a balanced external position" reflecting substantive engagement with development partners, large remittances and a globally competitive garment sector.

It, however, warns that Bangladesh's highly concentrated political landscape may constrain the effectiveness of institutions and limits checks and balances on the government.

Reviewing the impacts of Covid-19 pandemic on the economy and Bangladesh's strides to overcome, S&P Global says domestic restrictions and volatile external conditions drove a weak expansion of just 1.7% in the country's critical manufacturing sector, contributing to a multi-year low real GDP expansion of just 3.5% in fiscal 2020.

"Over the past year, the economy has embarked upon a gradual recovery, with a progressive normalization of external demand conditions helping to stabilize output and employment in Bangladesh's manufacturing sector," it says.

Trade flows and associated employment in external-oriented industries, such as garment manufacturing, have improved, with real GDP growth recovering to 5.5% in fiscal 2021, it adds.

The rating agency points out that modest per capita income, which it estimates at about US$2,363 for fiscal 2022, remains one of Bangladesh's main rating constraints and limits the fiscal and monetary flexibility needed to respond to exogenous shocks.

Focusing on politics, the agency notes that Bangladesh's highly concentrated domestic political conditions may undermine the predictability of future policy responses.

"The confrontational stance between the ruling Awami League and opposition Bangladesh Nationalist Party (BNP) reflects deep division between the historically prominent political parties," the S&P report reads.

Given its evolving institutional settings, infrastructure deficiencies, high levels of perceived corruption, and uneven business environment, Bangladesh's foreign direct investment has remained persistently low, it says.

"The political landscape in Bangladesh remains polarized, with considerable power centered with the ruling Awami League. The opposition coalition's decision to join parliament has helped to restore a degree of stability to the fractious environment. That said, the opposition's representation in parliament remains extremely small, limiting checks and balances on the government."

Against this backdrop, Bangladesh's economic outcomes nevertheless have been strong compared with peers and are expected to remain so in the medium term, S&P Global views.