Recent political strikes are weighing on Bangladesh’s economic growth, heightening its vulnerability to event risks, and threatening to derail reform progress, a credit negative for the country, Moody’s said in its recent credit outlook.
The credit rating agency also warned that prolonged unrest is likely to undermine Bangladesh’s democratic institutions and distract the government from effective policy-making.
A strong anti-incumbency sentiment has resulted in a pernicious cycle between the two major political parties, the April 11 issue of Moody’s Credit Outlook commented.
In the lead-up to January elections, the increasing frequency of strikes, which are increasingly violent, are the vehicle political parties use to further their interests rather than as an occasional expression of public opinion, it said.
Over the past year, significant progress has been made on economic reform, with the government closely engaged with the International Monetary Fund (IMF) under a US$958 million extended credit facility.
The successful completion of the programme entails adherence to fiscal targets, and steps to improve financial stability, it said, adding that the process will likely be complicated without the support of all political parties.
Strikes also send a negative signal to foreign investors, which is reflected in Bangladesh’s low ratio of foreign direct investment to GDP, Moody’s said.
“While official statistics are unavailable, the increased frequency of strikes with their more common occurrences of violence, are detrimental to Bangladesh’s economic stability.”
It continued: “So far, growth has averaged a steady pace of 6 percent over the past decade, but we expect GDP growth for the fiscal year ending in June to moderate to 5.9 percent from 6.3 percent the previous year. This is still substantially higher than the average real GDP growth rate of 3.7 percent for Ba-median countries or 5.2 percent for B-median countries.”
Even though escalating political tensions in the run-up to elections are common in Bangladesh, the situation this time around has been further complicated by two key issues: the lack of a neutral caretaker government to oversee elections; and the judgments meted out by war crimes tribunal for crimes against humanity during the Liberation War in 1971 from rule by West Pakistan, it said.
Although protracted political tensions would weigh on Bangladesh’s credit quality, event risks stemming from the strikes appear to be manageable, for now, it said.
“A strong entrepreneurial class, which is most affected by such disruptions, is likely to lobby for political consensus, and increasing international involvement from the World Bank, IMF, Asian Development Bank and other stakeholders and investors is likely also to play a role in moderating political tensions.”
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