Moody's says pressure on Bangladesh rising but crisis risk low

The pressure on Bangladesh's economy is building, even though the nation's default risk is low, according to Moody's Investors Service.

"The main message is that although foreign-exchange reserves have dropped lately – this is from high levels, and the sovereign's external vulnerability indicator is low," said Camille Chautard, a sovereign analyst at Moody's in Singapore. 

Bangladesh is seeking a loan from International Monetary Fund to reduce macro economic risks and create financial buffers as surging import costs drain its foreign reserves. 

Authorities have announced power cuts and are cracking down on money hoarders amid a dollar shortage. The country's foreign currency reserves declined to $39.67 billion as of July 20 from $45.51 billion a year earlier. 

The $416 billion economy was among the fastest-growing in the world for years until the war in Ukraine caused supply disruptions and soaring commodity prices added to Bangladesh's woes. 

Bangladesh has sought the IMF loan to meet any future needs but it's not facing an economic crisis, Finance Minister AHM Mustafa Kamal said on Wednesday.

"We expected a deterioration in the current-account deficit due to lower remittances, lower demand for exports, and of course high fuel and food prices," Moody's Chautard said. "These pressures are indeed building and the situation has also deteriorated due to severe flooding recently."

— With assistance by Arun Devnath

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.