According to Fitch Ratings, a renowned international ratings company, Bangladesh continues to have good growth prospects and a sustainable external debt repayment profile despite global economic challenges and mounting inflationary pressures domestically.
Fitch again gave Bangladesh a “BB-” rating in its latest credit rating. While it is noted that there is commercial or financial flexibility to support the servicing of financial commitments, the assessment suggests increased sensitivity to default risk.
The South Asian country is trying to recover from the aftermath of the pandemic while coping with the aftermath of the conflict in Ukraine, which has driven up consumer spending.
The government raised fuel prices by up to 50% in response to the destabilizing effects of the war on the global energy market. The country’s foreign exchange reserves have also come under pressure, which has been exacerbated by the depreciation of the taka against the US dollar.
Pressure on reserves is expected to ease in light of policy measures to restrict imports, an increase in fuel prices and increased exchange rate flexibility, he said. Although foreign exchange reserves fell 16% to $38.9 billion over an eight-month period in the previous fiscal year, he added.
According to Fitch, foreign exchange reserves would stabilize in FY23 and average $34 billion, enough to cover more than four months of import payments.
In addition, it projects a reduction in the current account deficit to 3.0% of GDP in 2023 and 2.3% in 2024.
Economic growth could drop to 5.0% in FY23 due to temporary measures taken to control imports and reduce electricity consumption.
However, if these restrictions are eased and commodity prices are stabilized, he expects growth to pick up to 6.4%.