The US ratings agency Moody's has projected that Bangladesh's foreign exchange reserves will stabilise over the next few months, despite repeatedly mi
The stabilisation will be supported by recent improvements in the current account balance, which has shown modest surpluses partly due to ongoing import restrictions. Additionally, the narrowing financial account deficits are expected as business uncertainties eased after the general elections in January, Moody’s stated.
As per Moody’s, Bangladesh’s forex reserves position will stabilise over next few months despite repeatedly not fulfilling IMF’s target and drastic fall in global currency holdings over past two years.
Continued disbursements of concessional financing by international financial institutions will also contribute to the improvement, it said in a report.
Continued disbursements of concessional financing by international financial institutions will also contribute to the improvement. This reflects progress on benchmarks and targets specified by the current $4.7 billion loan programme from the International Monetary Fund (IMF).
Before June 2022, Bangladesh’s reserves exceeded $40 billion, but they have since declined due to higher outflows driven by elevated commodity prices and lower inflows from remittances and export receipts.
As of May 21, this year, reserves stood at $18.61 billion, according to central bank (Bangladesh Bank) data.
Moody’s report comes after a periodic review of Bangladesh’s ratings, maintaining its B1 long-term issuer rating with a stable outlook.
“The stable outlook reflects Bangladesh’s continued access to concessionary financing and support from international financial institutions,” the report stated.
Moody’s expects external financing to help alleviate pressures on external and fiscal metrics, enabling stabilisation of external buffers, though at a weaker level than before the pandemic. The stable outlook is also supported by Bangladesh’s economic resilience, driven by its globally competitive readymade garment industry, the second largest in the world.
However, this resilience is balanced against Bangladesh’s low per capita income, infrastructure and human capital constraints, low economic competitiveness, and high dependence on the garment sector even as Moody’s highlighted that while the garment industry will continue to contribute significantly to GDP, exports, and incomes, weaker global demand and financial account deficits have weakened Bangladesh’s external position and increased liquidity pressures.
Fibre2Fashion News Desk (DR)
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