FROM PAGE B1

The country is already grappling with stubbornly high inflation, which rose to 9.2 percent in February from 8.6 percent in January, and an extended moderation in growth following the collapse of the Awami League-led government in mid-2024.

The war will also be an unwelcome headwind against Bangladesh’s improving external position, notes S&P Global.

It explains that the accumulation of a more meaningful foreign exchange buffer and the current account’s modest surplus so far this fiscal year will help alleviate immediate stresses that could arise from a period of acutely high energy prices.

In addition, lower remittances would have the dual effect of tilting external flows unfavourably and reducing domestic private consumption momentum.

In that event, further delays to Bangladesh’s economic recovery could lead to a significant erosion of the country’s long-term growth rate or a deterioration in its external position, such that net external debt surpasses 100 percent of current account receipts on a sustained basis, the agency warns.

S&P Global notes that Pakistan, Sri Lanka, and Bangladesh are showing signs of economic recovery. The three countries have made progress, but sustained high energy prices and potential disruptions to trade and remittances could derail their fragile economies.

However, it states that Bangladesh—with government revenues at only around 9 percent of GDP—has fewer options to cap electricity and fuel prices through fiscal means.

Laos is comparatively less exposed due to its hydropower-based electricity generation and balanced fiscal position.

All four governments are likely to see significant deterioration in credit metrics—through inflation and currency channels—if the Middle East conflict is prolonged, according to the report. However, the impact on ratings may be limited, as the generally low rating levels have already captured a significant share of the risks.

Bangladesh’s long-term rating stands at B+, with a stable short-term outlook. The B+ rating reflects the economy’s modest per capita income and limited fiscal flexibility, owing to a combination of low revenue-generation capacity and the government’s high interest burden.

S&P Global concludes, “Our ratings on Bangladesh can likely withstand the shorter-term economic disruptions associated with our base case scenario.”