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18 Apr 2011
Singapore, April 18, 2011 -- Moody's Investor Service says tax reforms and infrastructure enhancement
efforts are supporting Bangladesh's Ba3 rating. The rating
outlook is stable.
An updated analysis of the rating is provided in Moody's 2011 annual
sovereign report .
RATIONALE FOR THE RATING:
1. Bangladesh's economy is treading the path to a higher
growth potential, but is also facing modest near-term risks.
With declining poverty, improved food security, favorable
demographics, and recent efforts to enhance infrastructure,
conditions for higher growth are visible. However, a recent
deceleration of remittance inflows, and a rising trade imbalance
are resulting in modest near-term pressures in the external balance
of payments.
2. The policy framework is reasonably effective, but deeper
reforms will sustain higher growth targets. Ongoing tax and budgetary
reforms and reasonably effective monetary management can absorb the modest
sized near-term balance of payments pressures. However,
amidst Bangladesh's rising energy intensity and pent up demand for
capital goods, land reforms and improvements in governance are important.
These could attract greater foreign direct investment which would be useful
in countering the possible materialization of sustained external pressures.
3. Despite the recent external headwinds, Bangladesh's
overall external financing position is comfortable and its government
debt service, manageable. Meanwhile, government debt
burden and its affordability are gradually improving. These credit
features benefit from access to official and low cost external finance.
The government's very low revenue base remains a key drawback,
but tax reforms are being undertaken.
4. Economic and banking event risks are low, and polarized
politics do not threaten the policy framework. Macro-financial
stability, low external indebtedness, and improving banking
fundamentals are key support factors. Excessive government interventions
in the stock market or in state enterprises may raise contingent fiscal
pressures somewhat. But, these are expected to remain within
the liquid resources of the broader public sector.
RATIONALE FOR THE OUTLOOK:
The rating outlook is stable. Given the prospects for steadily
rising growth in a very low-income economy, the outlook balances
an expected moderation in the external balance of payments from a rather
comfortable position, against improving tax collection from very
low levels.
WHAT COULD CHANGE THE RATING -- UP:
Bangladesh's rating could move up if sustained increases in economic growth
were to be supported by infrastructure improvements, enhanced regional
integration and a broadening of the tax revenue base. These developments
could support improvements in government debt affordability and overall
fiscal flexibility; and also encourage greater foreign investment
which could fortify the reasonably healthy external payments position.
WHAT COULD CHANGE THE RATING -- DOWN:
The rating would face downward pressure if a major shock to confidence,
perhaps emanating from political or fiscal setbacks, or a deterioration
of the balance of payments resulted in a substantial reversal of gains
in the external payment position or adversely altered the improving trends
in government and external debt trajectories.
PREVIOUS RATING ACTION & METHODOLOGY:
Moody's last rating action on Bangladesh was on April 12, 2010,
at which time the local and foreign currency issuer ratings were assigned
a Ba3, with a stable outlook.
The principal methodology used in this rating was Moody's Sovereign Bond
Methodology published in September 2008.
The report is entitled "Credit Analysis: Bangladesh."
It can be accessed at www.moodys.com.
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Moody's: Tax reforms and infrastructure measures back Bangladesh's Ba3 rating
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