S&P Global Ratings has downgraded Bangladesh's long-term foreign and local currency sovereign credit ratings to 'B+' from 'BB-'. The outlook for these ratings is stable. Simultaneously, the 'B' short-term ratings have been affirmed, and the transfer and convertibility assessment has been revised to 'B+' from 'BB-'.

The stable outlook reflects the view that Bangladesh's per capita real growth rate will remain robust compared to peers, despite facing near-term challenges from tighter financial conditions. The balance between downside and upside risks to its external balance sheet is now seen as broadly even, as per S&P Global.

A potential downgrade could occur if Bangladesh's external position deteriorates further, such as if narrow net external debt surpasses 100 per cent of current account receipts on a sustained basis. Factors contributing to this could include lower-than-expected generation of current account receipts, a higher current account deficit than forecasted, or a failure to significantly increase foreign exchange reserves.

Conversely, an upgrade is possible if Bangladesh significantly improves its external metrics. This would likely be indicated by a substantial rise in current account receipts or foreign exchange reserves, ensuring that gross external financing needs remain below 100 per cent of current account receipts plus usable reserves on a sustained basis.

The downgrade is attributed to ongoing pressure on Bangladesh's external metrics, particularly the continuous decline in foreign exchange reserves. This decline persists despite import compression measures by Bangladesh Bank and a smaller current account deficit. S&P notes that gross external financing needs now surpass the combined total of current account receipts and usable reserves.

The 'B+' ratings reflect several challenges, including Bangladesh's modest per capita income and limited fiscal flexibility due to low revenue generation capacity and a high interest burden. Additionally, evolving administrative and institutional settings pose further constraints.

However, these factors are balanced by consistently strong economic growth, a moderate public debt burden, and an external position bolstered by substantial engagement with bilateral and multilateral development partners, significant remittances from overseas Bangladeshi workers, and a globally competitive garment manufacturing sector.

Fibre2Fashion News Desk (DP)