Bangladesh’s economy faces new risks due to ongoing political volatility, according to S&P Global Ratings. The American credit rating agency reported that the country’s sovereign credit support has weakened since the downgrade of its long-term sovereign credit rating on July 30. However, S&P noted that if the political situation stabilizes soon, the current credit metrics might still support the ratings.
The resignation of former Prime Minister Sheikh Hasina on August 5, following widespread protests, has heightened the downside risks to economic growth, fiscal performance, and external metrics. S&P indicated that the extent of damage to the credit metrics might be limited if Bangladesh (B+/Stable/B) quickly forms a new government and restores socio-political stability. “Although credit buffers have diminished, we do not expect immediate strong pressures on the credit ratings,” S&P stated in a bulletin released today. However, the agency warned that continued social instability could have more severe implications, potentially dampening economic growth and government revenue.
In this adverse scenario, exports could fall significantly below expectations, leading to a more prolonged impact on Bangladesh’s external balance sheet. A substantial decline in exports would weaken foreign exchange generation, further reducing the central bank’s usable reserves. The bulletin also emphasized the importance of maintaining a steady flow of remittances to prevent a more acute foreign exchange shortage. Additionally, prolonged disruptions to communication systems that affect normal financial transactions could pose further risks to the economy.
S&P’s report underscores the urgent need for Bangladesh to address its political instability to safeguard its economic future. The formation of a new government and the restoration of social stability are crucial steps to mitigating these risks and ensuring economic resilience.
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