Bangladesh risks negative credit ratings due to decline in reserves: Fitch Ratings

Bangladesh risks negative credit ratings due to external finance factors, including marked or sustained declines in foreign exchange reserves, according to global credit rating agency Fitch Ratings. 

Reserve dynamics may have a greater impact on frontier market sovereigns, especially where reserve coverage ratios are low and external liquidity positions fragile, it said in its latest assessment report published on Thursday (7 September). 

"In our most recent rating assessments, we stated that external finance factors, potentially including marked or sustained declines in foreign-exchange reserves, could be a driver of negative rating action in sovereigns such as Bangladesh," the report mentioned. Fitch Ratings also kept the Maldives, Mongolia and Vietnam on the list of countries that risk negative rating action in the report on the reserves trends that diverge among Asia-Pacific sovereigns. Bangladesh also improved reserve transparency by adopting IMF definitions in June.

"IMF data show its [Bangladesh] reserves declined 31% over January-July, but we estimate the decline could be around 16% if the new definitions applied throughout the period," the rating agency said. 

Moody's keeps long-term outlook stable, downgrades rating

Earlier on 30 May, Moody's Investors Service downgraded Bangladesh's rating for the first time while keeping the country's long-term outlook stable, which indicates the rating agency does not anticipate any significant changes in the economy's creditworthiness or its ability to meet its financial obligations. Moody's assessment came due to heightened external vulnerability and liquidity risks amid a deterioration in foreign exchange reserve. This indicates continued pressure on Bangladesh's external position, exacerbating import constraints and, as a result, energy shortages. 

The multiple exchange rate regimes and the lending rate cap also came into consideration in the country's downgrade.