Bangladesh economy faces fresh risks from political volatility: S&P

Bangladesh's political crisis has further undermined sovereign credit support since S&P Global Ratings lowered its long-term sovereign credit rating on July 30 this year, but credit metrics may still support the ratings at the current level if the situation stabilises soon, the American credit rating agency said today.

The protests that led to the abrupt resignation of former Prime Minister Sheikh Hasina on August 5 have exacerbated downside risks to economic growth, fiscal performance, and external metrics, it said.

The damage to credit metrics may be contained if the socio-political situation normalises soon and Bangladesh (B+/Stable/B) forms a new government, the S&P said in a bulletin today.

"While credit buffers have diminished, we would not expect immediate strong pressures on the credit ratings."

Continued disruptions to social stability could weigh more heavily on credit metrics, dampening economic growth and government revenue.

"In this scenario, exports would be materially lower than our expectations, with a more prolonged impact on Bangladesh's external balance sheet. Materially lower exports could weaken the generation of foreign exchange (forex), further diminishing the central bank's usable reserves."

A normal flow of remittances will also be crucial for Bangladesh to avoid a more acute forex shortage, the bulletin read.

Other possible negative developments would include prolonged disruptions to communications systems that affect normal financial payments, it said.