Fitch Ratings affirms Bangladesh's IDR at 'BB minus'; outlook stable

The stable outlook reflects Fitch’s view that the move to greater exchange-rate flexibility and the prospect of continued support from external official creditors will help Bangladesh navigate a challenging external environment posed by the Ukraine war and rising global interest rates, the company said in a release.

Foreign-exchange reserves fell by 16 per cent to $38.9 billion in the first eight months of this year amid surging imports and foreign-currency intervention by the central bank.

However, Fitch Ratings believes pressure on reserves should ease following policy measures to curb imports, a hike in administered fuel prices of nearly 50 per cent and greater exchange-rate flexibility.

Fitch also expects the current-account deficit to narrow to 3 per cent of the gross domestic product (GDP) in 2023 and 2.3 per cent in 2024, from 4 per cent in 2022, with foreign exchange reserves averaging at $34 billion, or 4.7 months of current external payments, in 2023-2024.

Downside risks to the forecast are from a renewed surge in global fuel and food costs stemming from the Russia-Ukraine war.

Fitch believes Bangladesh is negotiating an International Monetary Fund (IMF) programme, possibly for 2023, to finance climate change-related measures.

It does not think the country faces refinancing stress in the near term, but an IMF programme could support its external position and benefit policy credibility.

Bangladesh's external debt service is low relative to peers, averaging at 6 per cent of current external receipts over 2023-2024 against the 12 per cent 'BB' median. External refinancing risk is reduced by the external-debt creditor composition, at 53.8 per cent multilateral and 46.2 per cent bilateral.

Fitch expects economic activity to slow to 5 per cent in the fiscal ending June 2023, given the temporary measures to contain imports and curb electricity consumption.

However, growth should pick up at 6.4 per cent in 2024 as these measures are eased along with a fall in commodity prices, Fitch added.

Fibre2Fashion News Desk (DS)