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Global Credit Research - 25 Apr 2013
Singapore, April 25, 2013 -- Moody's Investors Service says that Bangladesh's Ba3 rating
and stable outlook reflect Moody's assessment of four factors:
its "low" economic, institutional and government financial
strengths, as well as its "low" susceptibility to risks
from financial, economic and political events.
According to a just-released Moody's report titled,
"Credit Analysis: Bangladesh," the country's
strong and stable growth support its rating. Macroeconomic stability
was regained in 2012, as seen in the shift in the current account
back to surplus and the decline in inflation. However, persistent
labor disruptions and bank stability pose risks going forward.
Importantly, the International Monetary Fund's Extended Credit
Facility (ECF) approved in March 2012 is providing a framework for prudent
policies. The government has passed two major pieces of legislation
-- the Bank Companies Act (BCA), which aims to enhance the
mandate of Bangladesh Bank, the country's central bank;
and a landmark revision to the VAT law.
The rating also incorporates economic, government financial,
and institutional weaknesses . Fiscal imbalances have constrained
Bangladesh's government financial strength, mainly because
of its extremely low revenue to GDP ratio of 13% resulting not
from a policy of low taxation, but from a low tax base and poor
compliance.
Bangladesh's governance weaknesses became more apparent in the past
year, as seen in the World Bank's suspending funding for the
Padma Bridge Project in June 2012 and a state-owned bank's,
Sonali, misappropriation of funds a few months later.
The incident involving Sonali Bank highlighted the weak governance structure
of state-owned commercial banks and prompted the government to
significantly tighten the regulatory framework to prevent the recurrence
of such incidents.
Moreover, escalating political tensions in the run-up to
parliamentary elections -- due between October 2013 and January 2014
-- are a deterrent to investment and are disruptive to economic growth.
Although political strife is unlikely to spiral out of control,
Moody's would view prolonged unrest as credit negative.
Moody's report is an annual update to the markets and does not constitute
a rating action. Subscribers can access the report at http://www.moodys.com/research/Bangladesh-Government-of-Analysis--PBC_151932.
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Moody's: Bangladesh's Rating Outlook Stable, but With Political and Financial Risks
No Related Data.
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