The recent downgrade of Bangladesh’s sovereign rating by Moody’s from B1 to B2 is a stark reminder of the fragility that has permeated the nation’s banking and economic sectors.
Our newspaper on Tuesday reported that this shift into speculative-grade territory, now aligning Bangladesh with countries like Rwanda and Cambodia, underscores the urgent need for introspection and reform.
At the heart of this downgrade lies a confluence of rising political risks and weakening growth prospects.
The political landscape has been marred by uncertainty and unrest, which has not only destabilised governance but has also dampened domestic demand.
The garment sector, a cornerstone of the economy, is particularly vulnerable, facing a clouded export outlook exacerbated by supply-chain disruptions.
As the nation grapples with these challenges, the implications for economic growth are dire; Moody’s has revised its GDP growth forecast for the fiscal year ending June 2025 to a mere 4.5 per cent, down from 6.3 per cent.
The banking sector, already strained, faces amplified asset-quality risks.
The increasing reliance on short-term domestic debt to finance fiscal deficits only heightens liquidity risks, leaving banks in a precarious position.
With capital and liquidity positions already weak, the potential for a banking crisis looms large if these issues are not addressed promptly.
The government must prioritise strengthening the banking system to restore confidence among investors and the public alike.
Moreover, external vulnerabilities remain elevated, particularly in light of declining foreign exchange reserves.
Despite some improvement in remittance inflows and loan disbursements from development partners, the overall economic outlook remains bleak.
The Bangladeshi taka has depreciated significantly, making it one of Asia’s worst-performing currencies in 2024, further complicating the economic landscape.
The urgency of the situation cannot be overstated.
The government must take decisive action to bolster foreign exchange reserves and implement structural reforms that enhance economic resilience.
This includes fostering a stable political environment, improving law and order, and ensuring that the banking sector is equipped to withstand external shocks.
In fact, the fragility of Bangladesh’s banking and economic sectors calls for immediate and comprehensive reforms.
Without a concerted effort to address these vulnerabilities, the nation risks further downgrades and a prolonged period of economic instability.
We urge the authority to take immediate action in now time for the sake of our economic independence.
