Bangladesh's external conditions to stabilise in a year: S&P

Bangladesh's economic recovery remains on a sound footing despite an elevated current account deficit and declining foreign exchange reserves, and real GDP growth is expected to average 7% per year over the next three years, says S&P Global Ratings. 

In its latest report released Thursday, the rating agency expected that Bangladesh's external conditions would gradually stabilise over the next 12 months with solid economic growth continuing to support gradual fiscal consolidation.

The rating agency kept its outlook stable for Bangladesh reaffirming 'BB-' long-term and 'B' short-term sovereign credit ratings.

S&P Global Ratings said high commodity prices, surging domestic demand, and tighter monetary conditions are exerting pressure on Bangladesh's external profile.

"Bangladesh's net external debt position has weakened. A longer period of high commodity prices and extremely strong import demand could give rise to additional weakness in the Bangladeshi taka and a sustained drain on foreign exchange reserves, which would further undermine Bangladesh's external buffers," said the agency.

"Despite its moderate net debt position, the Bangladesh government's interest burden is considerable. Its foreign currency-denominated debt, though predominantly borrowed from multilateral and bilateral sources, is subject to exchange rate risk."

The normalisation of economic activity domestically and abroad is supporting strong momentum in Bangladesh's labour market and export industries.

However, Bangladesh's highly concentrated political landscape may constrain the effectiveness of institutions and limit checks and balances on the government, said the credit rating agency.