Moody's downgrade doesn't reflect economic progress since July upsurge: Cenbank

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

The international credit rating agency Moody's on 19 November lowered Bangladesh's sovereign rating from B1 to B2 and maintained its short-term issuer rating as Not Prime, while also shifting the outlook to negative.

The rating agency cited heightened political risks and potential economic challenges as reasons for the downgrade.

However, central bank contends that these assessments overlook key reforms and improvements initiated by the interim government following a historic political transformation earlier this year, said the release.

In the wake of a student-led uprising, an interim government, headed by Nobel laureate Professor Muhammad Yunus, took office in August 2024. The new government has launched wide-ranging reforms aimed at stabilising the economy, tackling corruption, and strengthening governance, it added.

Economic reforms and stabilisation measures

Bangladesh Bank outlined several key measures and achievements under the current administration that it believes demonstrate positive economic strides:

1. Political stability and governance reforms: The interim government, with widespread support from political parties and major stakeholders, has undertaken sweeping reforms in areas such as public administration, the financial sector, and anti-corruption efforts.
2. Banking sector overhaul: BB has addressed the legacy issues in the banking sector, including mismanagement and corruption, by replacing boards of directors in 11 banks and implementing daily monitoring to improve liquidity and performance. The decision has already shown signs of stabilisation in these banks.
3. Macroeconomic stabilisation: The economy faced significant challenges upon the government's takeover, including large imbalances in the balance of payments, falling foreign reserves, and inflationary pressures. However, since August 2024, the external sector indicators have stabilised. The exchange rate has held steady at around Tk120 per USD, supported by strong remittance inflows and export growth. The country's foreign exchange reserves have stabilised at approximately $19 billion, and external account imbalances have improved.
4. Inflation control: To combat inflation, BB has implemented a combination of demand and supply-side policies. On the demand side, monetary tightening measures have been introduced, including raising the policy rate from 8.5% to 10%. On the supply side, essential goods taxes have been reduced, and measures have been taken to address supply chain disruptions, particularly in agriculture. While food inflation remains high due to floods, non-food inflation has shown improvement over the past three months.

A more comprehensive assessment needed

Bangladesh Bank has expressed its belief that Moody's downgrade fails to acknowledge the broader picture of ongoing reform efforts and economic stabilisation. The central bank argues that the rating agency's assessment is a "backward-looking" perspective and does not fully account for the positive changes under the new government, said the release.

"Moody's is looking through the rear-view mirror while the car is moving forward," the cenbank stated, urging the agency to conduct a more thorough and on-the-ground review of Bangladesh's reforms and economic outlook. BB believes that with continued reforms, backed by both domestic political support and international partnerships, the economy is on a path to recovery.

Bangladesh Bank has called for a more comprehensive assessment of the country's economic situation, one that involves consultations with key stakeholders and first-hand observations. Only with such an approach, BB asserts, can Moody's provide a fair and accurate evaluation of Bangladesh's evolving economic landscape, added the release.

Looking ahead

Despite the challenges that remain, Bangladesh's economy is undergoing significant transformation. The interim government's efforts to stabilise the economy and lay the groundwork for sustainable growth reflect a positive long-term outlook, which Bangladesh Bank believes will eventually be recognised by international credit rating agencies, the release also said.

As the country continues to implement necessary reforms and receive support from international development partners, central bank remains confident in the resilience of the economy and its ability to weather future challenges.