Bangladesh’s institutional strength to event risk very low: Moody’s

Staff Correspondent | Published: 21:55, Oct 11,2017 | Updated: 00:01, Oct 12,2017

 
 

Global credit rating agency Moody’s Investors Service said that the institutional strength and susceptibility to event risk of Bangladesh is very low (VL+).
The agency came up with the finding in its report on ‘Sovereigns - Frontier Markets: Divergent credit paths’ published on Wednesday.
Speaking about the role of weak institutions in the frontier markets, it said that amid deteriorating fiscal positions, FMs’ response to the shock was constrained by weak institutions.
‘In countries with weak institutions, policy effectiveness and capacity to implement reforms are limited,’ it said.
Moody’s said that the strength of institutions determines a sovereign’s ability to counter negative shocks, such as a rise in global capital costs.
Moody’s, however, said that Bangladesh along with two other frontier markets— Nigeria and Vietnam— has performed better to withstand higher interest rates in context of rising global interest rates.
FMs now pay more proportionally in interest payments than emerging markets, it said.
In 2016, the FMs’ median interest to revenue ratio was 8.9 per cent compared with 7.7 per cent for Ems, the report said.
Besides, Bangladesh has managed to retain its rating (Ba3) for Bangladesh’s sovereign credit.
Speaking about the impact of global rising interest rate on 36 FMs, Moody’s said that FMs will show differentiated credit exposure in rising interest rates globally, just as they demonstrated divergent shock absorption capacities
during the commodity price slump of 2014-2015.
In addition, the debt levels of FM sovereigns will remain elevated and they will continue to spend more on debt service costs in the next year, it said. 

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