Moody’s Investors Service, a global credit rating agency, believes that there is a moderate level of risk to the balance of payments (BOP) due to the decrease in foreign exchange reserves of Bangladesh.
In a report, Moody’s said, there is a moderate risk that Bangladesh may face a balance of payment crisis. Not only Bangladesh, Moody’s has mentioned four countries in South Asia, which may fall into such a crisis. Among the four countries, Pakistan and Sri Lanka are most at risk. The fourth country that may fall into this crisis is India.
According to Moody’s report, the market of Bangladesh is not so open, there is not much variety of export products; Coupled with this is poor macroeconomic management and high political risk. Due to these reasons, the country’s foreign currency reserves are decreasing.
Reserves or foreign exchange reserves in Bangladesh are continuously decreasing. Reserves fell to $19.5 billion last Thursday, though the country’s reserves stood at $40.7 billion in August 2021. But in the last 18 months, the reserves have been steadily declining due to the rise in dollar exchange rate, high inflation in the global market and decline in remittances or remittances.
There is no possibility that the reserves will increase in the next few days. All the reasons that led to the decline in reserves still exist. India’s reserves at this time are 598 billion US dollars; At the end of October, Pakistan’s reserves were $3.5 billion; Sri Lanka’s reserves stood at $3.5 billion on November 3.
Among South Asian countries, India has the lowest risk. Moody’s says the country’s economy is diversified; The export sector is also quite large. The country’s macroeconomic management is also good; For that their foreign currency reserves are also good.
Moody’s report also said that due to the small export sector of Bangladesh, Pakistan and Sri Lanka, there is a high risk of falling into balance of payment crisis. Although India is in a relatively good position, if the market is not opened up, they too may be in danger. Moody’s says India’s growth may suffer in the long term if markets are not liberalized further; They may then be at risk of securing employment for the growing youth population. Moody’s believes that Bangladesh is in a better position than Pakistan and Sri Lanka. According to them, Bangladesh is in a better position than them in export because of its good position in the ready-made garment sector.
South Asian countries do not have many open trade agreements with other countries. That’s why they don’t get much advantage of the larger market. Also, their market is not so open, so their growth may be affected in the long term.
Moody’s believes that these four countries in South Asia will suffer because of that. Comparing the four countries as a whole, Moody’s said Bangladesh, Sri Lanka and Pakistan lag behind India in terms of political stability, good governance, trade infrastructure, policy and labor quality.
Apart from this, all the three countries are facing various levels of macroeconomic imbalances. This will make it difficult for them to make necessary investments in infrastructure and education.
Moody’s has kept the credit ratings of these four countries unchanged: Bangladesh’s credit rating has been kept stable at B1; Stable at BAA3 in India; Pakistan’s CAA3 is stable and Sri Lanka’s CA is stable.
Earlier in May, Moody’s downgraded Bangladesh’s credit rating from BA3 to B1. This is the first time they have downgraded Bangladesh’s credit rating since 2010.