Fitch Ratings predicts that economic growth in Bangladesh will be strong. They forecast GDP growth in Bangladesh of 6,5% for fiscal 2023-24, (FY24), and 7,1% for FY25.
It said the growth would likely remain broad, backed by remittances from private consumers, government spending and investment as well the resilience of exports of readymade clothing (RMG).
Fitch Ratings predicts strong economic growth in Bangladesh in the next two years, with GDP growing by 6.5 percent in FY24.
The outlook for the long-term default rate of foreign currency issuers has been revised from stable to negative.
Likely, broad-based economic growth will be supported, amongst other things, by the durability of clothing exports.
Exports in the RMG sector increased by 8.1% during FY23.
Ratings recently changed its outlook for Bangladesh’s foreign currency issuer default ratings (IDR) from stable to negative and confirmed the IDR as ‘BB-minus’. The rating’s negative outlook is due to a decline in the external buffers that has led to an increased vulnerability.
It also reflects the rating agency’s view that the country’s incremental policy response, including exchange-rate system changes, and continued support from external official creditors, has been insufficient to stem the fall in foreign reserves and resolve domestic US-dollar liquidity strains.
Fitch Ratings expects the reserves of foreign currency to be impacted by a combination of rising imports as well as central bank interventions in foreign currencies.
It is difficult to predict the future of foreign exchange reserves, given that oil prices are still high, but also because import restrictions will be further relaxed, which could lead to a larger current-account gap by 2025.
Due to the implementation difficulties, it is still unclear whether the switch to a single mechanism for exchange rate will stop the decrease in reserves. However, high inflation may prevent a greater degree of exchange rate flexibility.
The rating agency stated that Bangladesh will be able meet its obligations to pay external debt in fiscal year 2024-25 even with less external buffers. In comparison to its peers, Bangladesh’s external debt service averages at around 5 percent of current foreign receipts between 2023-2025. This compares with a “BB” median of 11 percent.
Fibre2Fashion News Desk