The US-based credit rating agency Moody’s on Thursday warned that continued political violence and recurrent disasters in garment sector may further damage investors’
confidence in Bangladesh, posing a risk to credit rating.
The warning of the firm came following the clash between activists of Islamist outfit Hefajat-e-Islam and members of law enforcing agencies that left more than 30 people killed earlier this week and loss of lives of more than 900 people in the garment factory disaster at Savar on April 24.
Referring to a warning issued in April by Moody’s, the firm said although strikes and protests are common in Bangladesh, this year those things have occurred with greater frequency and are becoming increasingly violent.
‘In the lead up to parliamentary elections, scheduled to be held between October 2013 and January 2014, strikes have become a more common tool for political parties to further their interests,’ it said.
The biggest repercussions of political unrest are likely to be for the readymade garment sector, which is one of the most important drivers of growth in Bangladesh, comprising 80 per cent of total exports and employing more than 3 million people.
‘The industry, which thrives on Bangladesh’s low labour costs, is already under scrutiny because of a spate of dangerous industrial accidents that point to poor worker conditions and safety standards,’ it said.
Referring to the killing of 740 people [the figure rose to around 950 on Thursday] in the collapse of Rana Plaza that housed five garment units at Savar, it said that a number of Western retailers that source from Bangladesh’s garment factories have already threatened to stop orders.
Even before the collapse of Rana Plaza, the Walt Disney Company announced that it would end production of merchandise in Bangladesh. Since the collapse, Walmart, Gap, Carrefour and others have called for more stringent labour standards.
Continued strikes would only further deter such investors.
It said although strikes and industrial mishaps have yet to result in any visible effect on exports, which were up 10.2 per cent for the nine months ending in March 2013 versus the same period a year earlier.
‘Foreign direct investment, which was already low at 0.9 per cent of GDP in fiscal 2012 versus the other countries in Ba rating with 2.3 per cent will likely decrease further in such an uncertain operating environment,’ it said.
‘While the damage from the unrest could still be contained through a mix of policy measures and political consensus, prolonged tensions would weigh on the credit profile,’ said the agency.
-With New Age input
