Another Blow To Credit Ratings

Long-term credit outlook is in decline Hints that economy is not doing fine.

Recently credit rating agency Standard and Poor Global Ratings has lowered Bangladesh’s long-term outlook to negative in the wake of government’s inability to clear dollar payments to international clients¹. Earlier, Moody’s had downgraded Bangladesh’s credit rating. Back then, government labelled the move as geopolitical one. But Dubai and Singapore based private banks made strict loan conditions following the rating.

Earlier a news report divulged that Petrobangla, a public corporation for extracting and procurement of fuel and energy, is facing difficulty in clearing dues of foreign energy companies. A Singapore based company and Total Energies owe a total of $110 million to Petrobangla. In addition, Chevron owes $280 million². They threatened to stop furnishing gas if the dues are not cleared soon.

Bangladesh has not increased its capacity to extract more gas and oil and to refine crude oil. Even former Chinese envoy to Bangladesh in a press conference wondered why Bangladesh wanted to buy oil from China when it is a net importer of oil. Saudi government on several occasions proposed the government to set up a new refinery. Only recently BPC installed oil pipeline and storing facilities for crude oil in Moheshkhali , a tiny island off the coast of Chattogram.It will save the govt Taka 8 billion annually.

Prior to this latest incident of payment debacle in energy sector, government had earlier intervened to clear dues of $293 million to Chinese government for smooth operation of Payra thermal power plant. Rampal power plant had also gone through similar intervention.

Back in April, a news report said that Facebook’s Bangladeshi public relation firm decided to limit its operation of collecting ads for Facebook. In a letter addressed to its clients, the firm put the blame on acute dollar crisis and obstacles in repatriating the ad revenue to the USA.

It was not the first incident of dollar crisis faced by private firm. Earlier, news report also surfaced claiming private companies who had borrowed from foreign institutions face uphill task to pay back instalment and interest as most banks refused to sell dollar crossing some limit. At the end of December 2022,commercial borrowing stood at around $8 billion and total credit stood at around $92.7 billion.³

In the first two weeks of current fiscal year,government borrowed Taka 10 billion from the central bank by purchasing treasury bonds and bills,which is literally printing money and injecting into economy⁴.

Back in April, in a piece titled “Food Security Under Scanner”,I wrote: “Another thing I have recently noticed that this year alone govt has to pay Taka 1 trillion as interest payments. This means it has to compromise spending on other sectors or to print money to meet the debt obligation. As this is an election year,govt may also embark upon politically motivated development projects to unite the loyalists. Often the money may stem from printing more money. This will push up the price level further, depreciating Taka further and increasing the woes of consumers.” ⁵

There is no surprise in S&P's pessimistic rating. Telenor Asia's head in an interview to a local daily has made it clear winding down of their investment in Bangladesh hinges on political situation⁶. Beximco Group,which earlier took over the operations of Glaxosmithkline here,has offered Telenor to purchase all its shares if it departs from Bangladesh. According to a report by UNCTAD, investment on relocating factories from Occidental countries to Bangladesh was declined by 59% in 2022.

Fed's policy rate hike, rising inflation, tensed political atmosphere, huge debt obligation offer dismal picture in investment. In general, investors' confidence reflected in these recent ratings. More quickly we resolve our political differences ,earlier will be our economic recovery.

Notes And References

1. “S&P Lowers Bangladesh’s Outlook To Negative,Credit Rating Unchanged “,Jebun Nesa Alo,The Business Standard, July 25,2023. For more read at https://www.tbsnews.net/economy/sp-lowers-bangladeshs-outlook-negative-credit-rating-unchanged-671570
2. ”Dollar Er Obhabe Gaser Daam Bokeya,Ditey Hocchey Jorimana(Gas Bill Due Because Of Dollar Crisis,Fines Keep Rising)”,Daily Prothom Alo,July 25,2023.
3. “Rising Debt Says It All”,Rezaul Hoque,April 22,2023.https://hoquestake.blogspot.com https://hoquestake.blogspot.com/2023/04/rising-debt-says-it-all.html?m=1
4. “Record Poriman Taka Chhapiye Sorkar Ke Dichhey Kendriyo Bank(Central Bank Printed Record Money And Handed To Government) “,Rakib Hasnat,BBCBangla,July 23,2023. For more read at https://www.bbc.com/bengali/articles/c4nr8j9vjn4o
5. “Food Security Under Scanner “,Rezaul Hoque,April 07,2023.https://hoquestake.blogspot.com. For more read at https://hoquestake.blogspot.com/2023/04/food-security-under-scanner.html?m=1
6. “Rajnoitik Poristhitir Upor Nirvar Korchhey Bangladesh e Telenor Er Babshyaik Bhobishot(Telenor's Business Future Hinges On Political Situation) “,Bonikbarta, July 27,2023. For more read at https://tinyurl.com/2kymfpse