S&P Global, a major US-based credit ratings agency, has downgraded Bangladesh's long-term sovereign rating from BB- to B+. This decision reflects the growing pressure on the country's external accounts and the impact of recent violent protests.
A key factor in the downgrade is the ongoing decline in Bangladesh's foreign exchange reserves, despite efforts by the central bank to curb imports and a smaller current account deficit.
According to S&P, "Gross external financing needs now exceed the sum of current account receipts and usable reserves."
Despite these challenges, S&P has maintained a stable outlook for the country.
The downgrade comes during a turbulent period marked by deadly protests over job quota reforms. These demonstrations have resulted in the deaths of at least 163 people and significant damage to government property. In response, the authorities imposed a curfew on July 20, allowing public and private offices to operate under relaxed curfew hours. However, economic activities have not yet fully recovered.
The agency also expressed concerns about the country's political environment, describing it as "highly concentrated," which could affect the predictability of future policy decisions.
The political landscape in Bangladesh is deeply divided. The ruling Awami League secured a fourth five-year term in the January 2024 general elections, which the main opposition party, the Bangladesh Nationalist Party (BNP), boycotted. This has resulted in a lack of significant opposition in parliament, limiting checks and balances.
Additionally, foreign direct investment in Bangladesh remains low, likely due to challenges such as evolving institutional settings, infrastructure deficiencies, and bureaucratic inefficiencies.
As Bangladesh navigates these economic and political challenges, the focus will be on stabilizing its external accounts and addressing the underlying issues contributing to the unrest.
