The ongoing political unrest and violent general strikes are weighing on Bangladesh’s economic growth by heightening the vulnerability and threatening to derail reform progress, said Moody’s in its latest credit outlook. The US-based credit rating agency in the report released on Thursday said the GDP growth of the country would fall to 5.9 per cent from last year’s 6.3 per cent.It said the strikes also sent a negative signal to foreign investors, which was reflected in the country’s low ratio of foreign direct investment to GDP 0.9 per cent in 2012.
Over the past year, significant progress has been made on economic reform, with the government closely engaged with the International Monetary Fund under a $958 million extended credit facility.
The successful completion of the programme entails adherence to fiscal targets and steps to improve financial stability, it said adding that the process would likely to be complicated without the support of all political parties.
Prolonged unrest is likely to undermine country’s democratic institutions and distract the government from effective policy making, it said.
In the lead-up to January elections, the increasing frequency of strikes or hartals which are increasingly violent are the vehicle political parties use to further their interests rather than as an occasional expression of public opinion, it said.
The Moody’s mentioned two major reasons for the recent political unrest-lack of a neutral caretaker government to oversee elections and judgments meted out by a war crimes tribunal for crimes against humanity during the Liberation War in 1971.
‘Escalating political tensions in the run-up to elections are common in Bangladesh but the situation this time has been further complicated by two key issues,’ it said.
It also said in the past a neutral interim government had overseen elections but in late 2011 the incumbent Awami League abolished the caretaker government system which main opposition Bangladesh Nationalist Party opposed strongly.
Although protracted political tensions would weigh on Bangladesh’s credit quality, even risks stemming from the strikes appear to be manageable, for now, said the Moody’s report.
A strong entrepreneurial class which is most affected by such disruptions is likely to lobby for political consensus, it said, adding that ‘increasing international involvement from the World Bank, IMF, Asian Development Bank and other stakeholders and investors is likely also to play a role in moderating political tensions.’
In September last year the Moody’s announced that Bangladesh sustained its rating at Ba3, with stable economic outlook for the third consecutive year, but warned that poor governance could be a risk to funding.
‘Bangladesh’s rating is constrained by institutional weaknesses. Notably, poor governance has constrained capacity improvements and could be a risk to funding,’ it said.
-With New Age input
