The forecast comes after the US Trade Representative announced on June 27 that the US would suspend Bangladesh from eligibility for trade benefits under the Generalised System of Preferences (GSP) program due to the country’s insufficient progress towards reforms on worker rights and safety standards.
“While the direct effect on Bangladesh’s exports to the US would likely be very limited, the move may dampen the broader investment flow to Bangladesh, eventually posing risks to its external position,” said Moody’s in its analysis.
The Nafta bloc, which includes the US, Canada, and Mexico, buys 25.5% of Bangladesh’s total exports, whereas the European Union absorbs a much larger 52.5%, it said. Under the GSP program, 127 beneficiary developing countries are eligible to export specific products to the US duty free.
In 2012, the total value of goods that Bangladesh exported to the US under GSP amounted to $34.7m, representing just 0.1% of its total exports.
The rating agency said items covered under the GSP scheme include tobacco, sports equipment, and plastic articles. In contrast, the EU grants preferential access to Bangladesh’s RMG exports, it said.
It said, however, indirect implications could be greater. “The move may have negative signaling effects, since it could further deter investors who are already faced with the frequent occurrence of strikes and uncertainty over the future labour environment.”
These factors have yet to have a visible effect on exports, which were up 10.7% for the 11 months ended May 2013 from the same period a year earlier.
“The resulting strain to Bangladesh’s credit profile could detract from the considerable progress in fiscal and banking sector reform that the country has made under its $969m Extended Credit Facility with the International Monetary Fund,” said Moody’s.
The poor employment conditions of Bangladesh have been in the global arena's spotlight in recent months due to fatal accidents in the ready-made garment (RMG) factories.
“Over the past year, the RMG industry – an important driver of growth in Bangladesh, comprising nearly 80% of total exports and employing more than 3m people – has been under increasing scrutiny due to a spate of tragic accidents that point to poor working conditions and safety standards,” said the rating agency.