Bangladesh's credit rating may worsen if prolonged political or social unrest derails progress on structural reforms and affects growth or if the interim government deviates from its commitments to reforms, according to Moody's Ratings.

Prolonged social unrest could continue to weigh on domestic consumption, which accounted for about 66 per cent of the country's gross domestic product (GDP) in the past five years.

However, a modest recovery in merchandise exports would balance this risk in the second half of 2024, it noted.

The country’s economy may grow at 5.5-6 per cent in fiscal 2024-25 (FY25), but inflationary pressure since mid-2022 persists, which has led to a curb in domestic consumption and a decline in real wages, it said.

A prolonged shutdown of businesses would weigh on their and individuals' ability to repay loans, increasing the risk of non-performing loans, Moody's said.

A reduction in remittances would lead to a fall in banks' foreign currency liquidity, said the US rating agency.

"It is unclear whether the political and social unrest will subside following Hasina's departure and questions remain over the formation of the interim government headed by Yunus, an economist who founded microfinance institution Grameen Bank," Moody's was quoted as saying by domestic media reports.

"We expect short-term disruptions in remittance and financial flows as risk-averse individuals, investors, and companies pause in repatriating or investing their capital in Bangladesh amid the heightened political uncertainty, weakening the government's external position," it noted.

"A loss of confidence among retail depositors, prompting them to withdraw their deposits as a safeguard against potential bank failures or economic downturns, could also strain banks' liquidity,” it added.

Fibre2Fashion News Desk (DS)

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