Moody’s downgrade does not reflect economic progress since July rebound – Cenbank

The international rating agency Moody’s on November 19 downgraded Bangladesh’s sovereign rating from B1 to B2 and maintained the short-term issuer rating at Not Prime, while simultaneously changing the outlook to negative.

UNB

November 22, 2024, 16:15

Last modified: November 22, 2024, 04:21 pm

File photo of Bangladesh Bank/BSS

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File photo of Bangladesh Bank/BSS

Bangladesh Bank has ignored Moody’s recent downgrade of Bangladesh’s sovereign credit rating, arguing that it does not accurately reflect the significant political and economic progress achieved since July 2024, according to a press release issued on Thursday (Nov 21).

The international rating agency Moody’s on November 19 downgraded Bangladesh’s sovereign rating from B1 to B2 and maintained the short-term issuer rating at Not Prime, while simultaneously changing the outlook to negative.

The rating agency cited increased political risks and potential economic problems as the reasons for the downgrade.

However, the central bank argues that these estimates miss key reforms and improvements initiated by the caretaker government following a historic political transition earlier this year, it said.

As a result of the student uprising, a provisional government led by Nobel laureate Professor Muhammad Yunus came to power in August 2024. The new government launched large-scale reforms aimed at stabilizing the economy, fighting corruption and strengthening public administration. he added.

Economic reforms and stabilization measures

Bangladesh Bank has outlined several key policies and achievements under the current administration that it believes demonstrate positive economic progress:

1. Political stability and governance reforms: The interim government, with broad support from political parties and key stakeholders, introduced sweeping reforms in areas such as public administration, the financial sector, and anti-corruption efforts.
2. Reconstruction of the banking sector: BB addressed legacy problems in the banking sector, including mismanagement and corruption, by replacing boards of directors in 11 banks and introducing daily monitoring to improve liquidity and performance. This decision has already shown signs of stabilization in these banks.
3. Macroeconomic stabilization: The economy has faced serious challenges since the government took office, including large balance of payments imbalances, falling foreign exchange reserves and inflationary pressures. However, since August 2024, external sector performance has stabilized. The exchange rate remained stable at around 120 tenge per US dollar, supported by strong remittance inflows and rising exports. The country’s foreign exchange reserves have stabilized at around $19 billion and its external account imbalance has improved.
4. Inflation control: To combat inflation, BB implemented a combination of supply and demand policies. On the demand side, monetary tightening measures were introduced, including raising the policy rate from 8.5% to 10%. On the supply side, taxes on essential goods were cut and measures were taken to address supply chain disruptions, especially in agriculture. While food inflation remains high due to floods, non-food inflation has improved over the past three months.

More comprehensive assessment needed

Bangladesh Bank expressed confidence that Moody’s downgrade does not reflect the broader picture of ongoing reforms and economic stabilization. The central bank says the rating agency’s assessment is a “backward” view and does not fully take into account positive developments under the new government, it said.

“Moody’s is looking in the rearview mirror as the car moves forward,” Price Bank said, calling on the agency to conduct a more thorough and practical review of Bangladesh’s reforms and economic prospects. BB believes that with continued reforms, supported by both domestic policy support and international partnerships, the economy is on the path to recovery.

Bangladesh Bank has called for a more comprehensive assessment of the country’s economic situation, which involves consultation with key stakeholders and first-hand observations. Only with this approach, BB argues, will Moody’s be able to provide a fair and accurate assessment of Bangladesh’s evolving economic landscape, it said.

Looking to the future

Despite remaining challenges, Bangladesh’s economy is undergoing significant transformation. The caretaker government’s efforts to stabilize the economy and lay the foundation for sustainable growth reflect a positive long-term outlook that Bangladesh Bank believes will eventually be recognized by international rating agencies, it said.

As the country continues to implement necessary reforms and receives support from international development partners, the central bank remains confident in the economy’s resilience and ability to withstand future challenges.