The global rating agency Moody’s has ranked Bangladesh 13th for controlling corruption among more than 100 countries it rated.
It also ranked the country 9th for government effectiveness, 10th for rule of law, according to Moody’s latest report of credit analysis on Bangladesh released yesterday.
“Poor public service quality and institutional weaknesses have led to disruptions in the disbursement of donor support in the past, as evidenced by the World Bank’s suspension of financing related to the Padma Bridge in 2012,” said the report.
Moody's earlier gave a B3 stable outlook to Bangladesh's credit rating for the fourth consecutive year.
“Bangladesh's Ba3 sovereign bond rating reflects the country's stable and healthy growth path, progress in implementing structural reforms under an Extended Credit Facility program with the International Monetary Fund and limited vulnerability to fiscal and external funding stresses,” says Moody's Investors Service.
In addition, the country's external liquidity position is comfortable, with foreign reserves providing ample cushion against maturing debt obligations.
Moody's conclusions were contained in its just-released credit analysis on Bangladesh which examines the fundamental drivers underlying the sovereign rating.
Its report points out that Bangladesh's headline growth and exports were not meaningfully impacted by heightened political turbulence over the last year in the run-up to parliamentary elections in January 2014, or by disruptions caused by industrial accidents in the garments sector.
Upward triggers to Bangladesh's rating would stem from sustained, strong economic growth supported by structural improvements, particularly in infrastructure; a broadening of the tax revenue base, which would improve fiscal fundamentals and flexibility. It said
Reform of the labor market and industrial working conditions, which would ensure continued favorable export prospects, while also encouraging greater foreign investment, it said.
On the other hand, it said, the rating would come under downward pressure if political setbacks strain the country's economic or fiscal profile, or the crystallization of contingent liabilities in the banking system is larger than Moody's anticipates, thereby weighing on fiscal strength.
However, the weak financial performance of the four state-owned commercial banks (SOCBs) could result in the further crystallization of contingent liabilities that add to the fiscal burden, it noted.
“Although ongoing reforms, if successfully implemented, would improve SOCB competitiveness and restore their financial viability over time.”
Moody’s said the poor financial strength of state-owned banks also adds to banking-sector vulnerabilities, although we view contagion risks as limited.
The IMF has estimated total recapitalization needs for the banking system at 1.0-3.5% of GDP. In September last year, the government once disbursed Tk4,100 crore or 0.3% of GDP, to the state-owned banks when their aggregate capital shortfall was over Tk8,000 core.
According to the finance ministry, the government plans to inject more funds into four state-owned commercial banks – Sonali, Janata, Agrani and Rupali –to make up for the significant capital shortfall that has alarmed both the World Bank and IMF.
Banking division has already proposed to provide Tk6000 crore to the state-owned banks for addressing their address capital inadequacies.
As of December last year, capital shortfall of Sonali Bank stood at Tk249 crore, Rupali Tk107 crore, Janata Tk404 crore and Agrani Tk92 crore, according to the Bangladesh Bank.
“The timely implementation of the reform measures should eventually restore financial viability to the SOCBs, but we will be monitoring the stability of the banks and the possibility of contingent liabilities stemming from their operations,” said Moody’s.