Fitch Ratings expects economic activity in Bangladesh to stay strong, and forecast a gross domestic product (GDP) growth of 6.5 per cent in fiscal 2023-24 (FY24) and 7.1 per cent in FY25.

Growth is likely to remain broad-based, supported by private consumption with the aid of remittances, government spending, investment and the continued resilience of readymade garment (RMG) exports, it said.

The RMG sector's exports were up by 8.1 per cent in FY23.

The rating recently revised its outlook on Bangladesh's long-term foreign-currency issuer default rating (IDR) to negative from stable, and affirmed the IDR at 'BB minus'. The negative outlook reflects a deterioration in external buffers, which has increased vulnerability to shocks.

It also reflects the rating agency’s view that the country's incremental policy response, including exchange-rate system changes, and continued support from external official creditors, has been insufficient to stem the fall in foreign reserves and resolve domestic US-dollar liquidity strains.

Foreign-exchange reserves will be under pressure, driven by rising imports and foreign-currency intervention by the central bank, Fitch Ratings forecast.

The foreign-exchange reserve outlook is challenging, amid a still-managed exchange rate, elevated oil prices and a further relaxation of import restrictions, which will widen the current-account deficit through to 2025.

It remains uncertain whether the shift to a single exchange-rate mechanism from multiple rates will stem the decline in reserves due to implementation challenges, while high inflation might prevent greater exchange-rate flexibility.

Bangladesh should be able to meet its external debt obligations over fiscal 2024-25, even with lower external buffers, the rating agency noted. External debt service is low relative to peers, averaging at about 5 per cent of current external receipts over 2023-2025, against a 'BB' median of 11 per cent.

Fibre2Fashion News Desk (DS)

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