credit analysis bangladesh, government of · macroeconomic stability, its modest debt burden, and...

$: CREDIT ANALYSIS Bangladesh, Government of · macroeconomic stability, its modest debt burden, and limited external vulnerabilities with an ample foreign reserve buffer. A fractious$
CREDIT ANALYSIS

SOVEREIGN & SUPRANATIONAL APRIL 28, 2015

RATINGS

Bangladesh Foreign

Currency Local

Currency Gov. Bond Rating Ba3 Ba3 Country Ceiling Ba2 Baa3 Bank Deposit Ceiling B1 Baa3

Table of Contents:

OVERVIEW AND OUTLOOK 1 RATING RATIONALE 2

Economic Strength: Moderate [-] 2 Institutional Strength: Very Low [+] 5 Fiscal Strength: Low [-] 8 Susceptibility to Event Risk: Moderate 11 Rating Range 14 Comparatives 15

APPENDICES 16 Chart Pack 16 Rating History 18 Annual Statistics 19

MOODY’S RELATED RESEARCH 21 RELATED WEBSITES 21

Analyst Contacts:

SINGAPORE +65.6398.8308

Anushka Shah +65.6398.3710 Analyst [email protected]

Christian De Guzman +65.6398.8327 Vice President – Senior Analyst [email protected]

Tom Byrne +65.6398.8310 Senior Vice President [email protected]

» contacts continued on the last page This Credit Analysis provides an in-depth discussion of credit rating(s) for Bangladesh, Government of and should be read in conjunction with Moody’s most recent Credit Opinion and rating information available on Moody's website.

Bangladesh, Government of

Overview and Outlook

Bangladesh’s Ba3 rating reflects our methodological assessment of the country’s track record of macroeconomic stability, its modest debt burden, and limited external vulnerabilities with an ample foreign reserve buffer. A fractious political environment, narrow tax revenue base, and a very low level of per capita income constrain the rating.

Economic growth expanded by 6.1% in the fiscal year ended 30 June 2014 (FY2014), and is expected to rise at a similar pace this year. At these levels, GDP growth is significantly above the 3.5% median for peers in the Ba-rating category. And – despite natural disasters, political tensions, and a global slowdown – growth volatility is lower than for all other countries rated by Moody’s. However, potential growth is constrained by infrastructure deficiencies.

Political tensions between the ruling party and the main opposition escalated early this year, on the anniversary of national elections held in January 2014. These remain a looming risk to economic performance.

Although fiscal deficits are manageable, public finances are constrained by weak revenue collections. The authorities have recently embarked on wide-ranging revenue reforms based on automated systems, which if successful, would result in a considerable widening of the tax base.

Following two consecutive years of surpluses, the current account slipped into negative territory this fiscal year due to a widening trade deficit. However, financing needs are modest and easily met through low-cost, concessional external borrowing, while foreign reserves are buoyant and near a record high.

Upward triggers to the rating would stem from fiscal and labor market reforms that support investment and economic growth over the long term. Improvements in infrastructure and in the investment environment would also be credit positive.

Downward pressure would emerge if political setbacks strain the country's economic or fiscal profile, the crystallization of contingent liabilities in the banking system weighs on fiscal strength, or there is a fundamental deterioration in the country’s external position.

This Credit Analysis elaborates on Bangladesh’s credit profile in terms of Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk, which are the four main analytic factors in Moody’s Sovereign Bond Rating Methodology.

http://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=180885

https://www.moodys.com/credit-ratings/Bangladesh-Government-of-credit-rating-806356877

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_157547

SOVEREIGN & SUPRANATIONAL

2 APRIL 28, 2015

CREDIT ANALYSIS: BANGLADESH, GOVERNMENT OF

Rating Rationale

Our determination of a sovereign’s government bond rating is based on the consideration of four rating factors: Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk. When a direct and imminent threat becomes a constraint, that can only lower the preliminary rating range. For more information please see our Sovereign Bond Rating Methodology.

Economic Strength: Moderate [-]

The economy continues to expand at a steady pace

Factor 1

Scale VH+ VH VH- H+ H H- M+ M M- L+ L L- VL+ VL VL-

+ -

Economic strength evaluates the economic structure, primarily reflected in economic growth, the scale of the economy and wealth, as well as in structural factors that point to a country’s long-term economic robustness and shock-absorption capacity. Economic strength is adjusted in case excessive credit growth is present and the risks of a boom-bust cycle are building. This ‘Credit Boom’ adjustment factor can only lower the overall score of economic strength.

Our assessment of Bangladesh’s economic strength as ‘Moderate (-)’ balances its high and stable growth performance against very low per capita incomes (Exhibits 1 and 2). Although infrastructure deficiencies have constrained growth, we expect the growth trend to remain strong compared with peers over the medium term, supported by domestic consumption and export growth. Per capita incomes have trebled over the last decade but at $1100 per annum, are among the lowest in our rated universe, and constrain economic strength.

EXHIBIT 1

Nominal GDP and Per Capita Income ($ billion, $ ; 2014)

Sources: Bangladesh Bureau of Statistics, Moody’s Investors Service

EXHIBIT 2

Real GDP – Bangladesh vs. Peers (% Year on Year)

Sources: Bangladesh Bureau of Statistics, Moody’s Investors Service

Growth has been robust, but is likely performing below potential Bangladesh’s economy has posted consistent and robust growth performance since liberalization in the early 1990s, with real GDP growth climbing to an average of 6.4% year-on-year in the last decade, from less than 5% in the 1990s. Although investments (28.7% of GDP) have grown rapidly during this period, consumption retains a predominant share of close to 80% of GDP, supported by remittances from overseas workers and garment exports.

0

5,000

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Port

ugal

(Ba1

)

Viet

nam

(B1

)

Bang

lade

sh (B

a3)

Hun

gary

(Ba1

)

Sri L

anka

(B1)

Keny

a (B

1)

Jord

an (B

1)

DR

Cong

o (B

3)

Para

guay

(Ba1

)

Gab

on (B

a3)

PNG

(B1)

Geo

rgia

(Ba3

)

Mon

golia

(B2)

Mon

tene

gro

(Ba3

)

Nominal GDP (Left axis) Per Capita Income (Right axis)

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

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Bangladesh Ba Median B Median

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.


http://www.moodys.com/


3 APRIL 28, 2015


At these levels, real GDP growth is significantly above the median of 3.5% for peers in the Ba-rating category. Despite natural disasters, political transitions, and a global slowdown, growth performance has remained stable, with volatility as measured by standard deviation the lowest among all countries rated by Moody’s (Exhibit 3).

The central bank’s monetary review for the second half of FY 2015 estimates that real GDP will expand between 6.4%-6.8% during the year, from 6.1% last year. While high-frequency indicators, such as trends in credit to the trade and commerce sector, garment exports, and agricultural performance suggest that economic activity posted a pick-up in early FY 2015, some of this improvement dissipated with a build-up in political tensions early this year. As a result, we expect real GDP to rise at a stable pace of 6.1% this fiscal year. But even at these levels, growth is still stronger than the median for similarly rated peers.

Despite a relatively high savings ratio (23.4% of GDP), a dynamic manufacturing sector, and strong potential in the service industry, growth is likely trending below its potential rate. This is primarily due to investments plateauing as a percent of GDP since 2012, and trending below the government’s own projections. The Planning Commission estimates that in order for real GDP growth to climb to 8%, the investment ratio would need to increase to 32.5% of GDP this year (Exhibit 4).

EXHIBIT 3

Real GDP Growth and Volatility (% YoY, Standard Deviation)

Source: Moody’s Investors Service

EXHIBIT 4

Investment as a Percent to GDP (%)

Sources: Ministry of Finance, Moody’s Investors Service

Two key factors constrain investment. One factor is infrastructure deficiencies, particularly in the energy sector. Although Bangladesh produces natural gas, it faces a severe energy shortage. With a rapid increase in electricity generation placing increasing strains on the power grid, authorities have resorted to the installation of furnace oil or diesel-fired quick rental power plants to bridge shortages. However, this has proven to be an expensive and unreliable option. As part of its ‘Vision 2021’, authorities are striving to enable ‘power for all’ by 2021, and to gradually phase out the expansion of quick rental power plants. Another factor constraining investment is the weak regulatory and governance framework (see Factor 2 section). Heightened political tensions may also be another constraint. Bangladesh’s deep partisan divide is manifested in the frequent occurrence of strikes or hartals, which disrupt economic activity.

Such weaknesses are reflected in Bangladesh’s low scoring in both the World Economic Forum’s Global Competitiveness Index (where it ranks 109th of 144 countries surveyed) and the World Bank’s Doing Business Indicator (173rd of 189 countries) (Exhibit 6).

Mega infrastructure projects would boost growth over the long-term horizon Efforts to bridge the infrastructure gap have focused primarily on the energy and road transport sectors, development of public-private partnership initiatives, and reform of public utilities. However, these efforts have only been partially successful. The government’s Sixth Plan (which spans FY 2011-FY 2015) estimated that investment requirements for infrastructure would rise to 6% of GDP in FY 2015, from 2% in FY 2010.

0

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6

7

0 2 4 6 8 10

Gro

wth

Vol

atili

ty (

Stan

dard

Dev

iatio

n,

2004

-13)

Real GDP (2009-18F)

Bangladesh (Ba3)

Montenegro (Ba3)

Honduras (B3) Ecuador (B3)

Georgia (Ba3)

Paraguay(Ba1)

DR Congo (B3)

Mong olia (B2)

India (Baa3)

Sri Lanka (B1)

Vietnam (B1)

Venezuela (Caa1)

15

17

19

21

23

25

27

29

31

33

35

2004

2005

2006

2007

2008

2009

2010

2011

2012

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2014

2015

F

Actual Sixth Plan Projections Ba Median


4 APRIL 28, 2015


Actual investments have fallen significantly short of this target; the Planning Commission estimates they will stand at 2.8% of GDP at the end of FY 2015. Authorities have identified a number of large projects for the next eight years, including the construction of a deep-sea port in the Cox’s Bazaar region at an estimated cost of $13.9 billion and the Padma Multipurpose Bridge ($3 billion). The implementation of these projects will catalyze trade and investment (Exhibit 5).

EXHIBIT 5

Major Planned Infrastructure Projects

Est Completion date

Est. Cost ($ bn)

Padma Bridge 2015 3.0

Dhaka-Chittagong Highway 2015 3.0

Deep Sea Port, Cox’s Bazar 2019 13.9

Rampal Thermal Power Project 2020 1.5

Dhaka City Elevated Expressway NA 8.9

Metro Rapid Transit line 2024 NA

Dhaka Underground Railway NA 3.1

Dhaka Sky Rail NA 2.8

Sources: Ministry of Finance, Bangladesh Bank

EXHIBIT 6

Quality of Infrastructure (Rank out of 144 countries)

Source: Global Competitiveness Report 2014-15

Growth of remittances and garment exports have slowed, but remain in positive territory Bangladesh’s key growth drivers – remittances and garment exports -- faced significant headwinds through the last year, but are likely to remain in positive territory this fiscal year. As the eighth largest recipient country of remittances in the world, Bangladesh relies on such inflows to drive consumer spending. At 8.1% of GDP, remittances have more than offset the trade deficit and have been a major contributor to the country’s current account surpluses in recent years. Between July-March FY 2015 remittance inflows increased by 7.2% year-on-year, from a 5.6% contraction during the same period last year (Exhibit 7).

One reason for the moderation in inflows last year was problems associated with the legal status of migrants in some Arabian Gulf countries, which together account for 60% of overseas migrants. These restrictions have since been relaxed. Over the medium term, however, the impact of lower oil-prices could result in some regional governments reassessing their budgets or seeking to impose taxes on expatriates. Such measures, if implemented, would result in more subdued remittance growth. We expect growth to remain relatively stable, averaging around 6% this fiscal year and the next.

Growth in garment exports, which comprise 80% of Bangladesh’s total exports (Exhibit 8) and are a major growth driver, has also slowed since 2012-2013, when two separate incidents of a factory fire and the collapse of a garment factory at Rana Plaza killed over 1200 workers. The industry is facing growing international pressure to abide by safety standards and improve worker conditions. Between July-February FY 2015, exports of woven garments and knitwear decelerated to 2.6% on average from 16.7% during the same period last year. This moderation was a result of consolidation within the industry, as smaller players were weeded out and larger factories underwent modernization. Labor unrest in the first half of the fiscal year may have also disrupted activity.

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20

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Ango

la (B

a2)

Vene

zuel

a (C

aa1)

Para

guay

(Ba1

)

Bang

lade

sh (B

a3)

Egyp

t (B3

)

Mon

golia

(B2)

Paki

stan

(Caa

1)

Gha

na (B

3)

Hon

dura

s (B3

)

Indi

a (B

aa3)

Alba

nia

(B1)

Thai

land

(Baa

1)

Keny

a (B

1)

Arm

enia

(Ba3

)

Gre

ece(

Caa1

)

Geo

rgia

(Ba3

)

worsening quality of infrastructure


5 APRIL 28, 2015


EXHIBIT 7

Remittances and Garment Exports (% YoY, 3 month moving average)

Note: YoY growth for Garment exports is based on local currency data. Source: Haver Analytics

EXHIBIT 8

Composition of Exports (% to total , 2014)

Source: Bangladesh Bank

The Accord on Fire and Building Safety in Bangladesh1 has identified approximately 52,600 safety issues that need to be resolved in inspections covering about 1100 factories, of which 79% were in the process of taking corrective action as of November 2014. Anecdotal evidence suggests that all export orders continue to be fulfilled. Although growth in garment exports will likely remain subdued in the near-term, Bangladesh is still considered a favorable supplier given its low minimum wages and economies of scale; and trends should resume once adjustment processes take hold.

Institutional Strength: Very Low [+]

Governance indicators are weak, but improving

Factor 2


+ -

Institutional strength evaluates whether the country’s institutional features are conducive to supporting a country’s ability and willingness to repay its debt. A related aspect of institutional strength is the capacity of the government to conduct sound economic policies that foster economic growth and prosperity. Institutional strength is adjusted for the track record of default. This adjustment can only lower the overall score of institutional strength.

Our assessment of Bangladesh’s institutional strength reflects its scores in the World Bank’s Worldwide Governance Indicators (WGI), as well as the credibility and effectiveness of its policies. Other countries with very low (+) institutional strength include Gabon (Ba3 stable), Mozambique (B1 stable) and Paraguay (Ba1 stable).

Bangladesh’s institutional framework is weak, but improving Bangladesh’s weak WGI scores relative to peers constrain its institutional strength assessment. Bangladesh’s ranks in the 9th percentile for Government Effectiveness, and the 13th percentile for Rule of Law and 14th percentile for Control of Corruption. As Exhibit 9 shows, it underperforms the mean for countries assessed as having very low institutional strength, as well as the median for countries rated in the Ba range. Performance on some parameters has improved, particularly for scores on Rule of Law, and Control of

1 Full report available here

-20

-10

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3O

ct-1

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15

Garment Exports Remittances Frozen Food2%

Agri Prods2%

Leather2%

Raw Jute and Jute Products3%

Knitwear and Woven Garments81%

Other textiles3%

Other manf goods7%

http://bangladeshaccord.org/wp-content/uploads/ACCORD_Quarterly_Report_February_2015.pdf


6 APRIL 28, 2015


Corruption. However, reflecting Bangladesh’s confrontational political environment, percentile ranks for Political Stability have steadily deteriorated (Exhibit 10).

EXHIBIT 9

World Governance Indicators, 2013 (Percentile Scores)

Source: World Bank, Moody’s Investors Service

EXHIBIT 10

Trends in World Governance Percentile Ranks for Bangladesh (Percentile Scores)

Source: World Bank, Moody’s Investors Service

Inflation tolerance is high, although monetary policy is generally prudent Inflation performance and volatility are also inputs into our analysis of a sovereign’s institutional strength, since these variables help determine the conduct and effectiveness of monetary policy.

The latest data indicates that CPI inflation edged lower to 6.3% year-on-year in March 2015, from 7.5% a year ago (Exhibit 11). Despite the moderation, in its half-yearly monetary policy released in January, the central bank – the Bangladesh Bank (BB) left its inflation target for FY2015 unchanged at 6.5%, noting the possibility of upside risks stemming from a pickup in aggregate demand and upcoming salary hikes in the public sector. Higher inflation targets also reflect the central bank’s pro-growth stance with a relatively high level of inflation tolerance, as well as its decision not to adjust oil prices at the retail level, thus reducing the subsidy bill.

Food price inflation contributes to about two-thirds of Bangladesh’s general inflation, and is also closely linked with India’s, from whom it imports 20% of total food imports. Frequent strikes and transport bottlenecks have further contributed to high food prices. As a result, although price stability is the key mandate of the BB, its ability to structurally bring down inflation is limited2. This is somewhat reflected in its past difficulty in adhering to inflation targets, according to a study by the International Labor Office3.

2 The BB conducts monetary policy through credit and deposit growth, using broad money as the intermediate target, and reserve money as the operational target. The

key policy rate, the Bank Rate has remained unchanged since FY2004, although the Repo Rate is the primary tool to control the market liquidity position 3 Muqtada, Muhhamed, 2015. Challenges of price stability, growth and employment in Bangladesh: Role of the Bangladesh Bank, International Labour Office, Employment

Working Paper No. 169

0

25

50

Political Stability

Government Effectiveness

Rule of Law

Control of Corruption

Voice & Accountability

Regulatory Quality

Bangladesh Median - Ba Mean - VL F2

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30

35

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Government Effectiveness Rule of LawControl of Corruption Voice & AccountabilityRegulatory Quality Political Stability


7 APRIL 28, 2015


EXHIBIT 11

Inflation – Headline and Food Prices (CPI, % YoY)


The government’s relationship with the IMF is credit supportive Bangladesh’s successful performance under its three-year, $887 million Extended Credit Facility (ECF) with the International Monetary Fund that it signed in 2012 lends macroeconomic stability and anchors reform progress. Under the program, authorities have passed several important pieces of legislation, including the Banking Companies Act, amendments to the Value Added Tax Law, and a stock market Demutualization Act. So far, six reviews have been concluded, with total financial assistance disbursed amounting to $634 million (at current SDR exchange rates). Although the program will draw to a close later this year, we expect the government will continue to collaborate with the IMF on policy initiatives.

Reforms will support financial sector stability The central bank also plays an important role in improving governance in the financial sector. Over the past two years, the deteriorating financial health of state-owned commercial banks (SOCBs) has resulted in gross non-performing loans rising to 11.6% at the end of September 2014 ( the most recent data available) from 8.9% at the end of December 2013.

The recent implementation of the Bank Companies Act has empowered BB to monitor banks’ stock market exposures and lending practices of state-owned commercial banks. The BB has also signed Memoranda of Understanding with individual SOCBs to strengthen their internal guidelines, imposed credit growth ceilings, and embarked on a process of automation in financial reporting (see p. 11 for more details). The BB’s increased supervision and the extent of its ability to bring down non-performing loans will be an important gauge of the effectiveness of these measures.

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Headline CPI Food Component


8 APRIL 28, 2015


Fiscal Strength: Low [-]

Debt and deficit levels are currently manageable; but revenue reforms would improve debt affordability

Factor 3


+ -

Fiscal strength captures the overall health of government finances, incorporating the assessment of relative debt burdens and debt affordability as well as the structure of government debt. Some governments have a greater ability to carry a higher debt burden at affordable rates than others. Fiscal strength is adjusted for the debt trend, the share of foreign currency debt in government debt, other public sector debt and for cases in which public sector financial assets or sovereign wealth funds are present. Depending on the adjustment factor the overall score of fiscal strength can be lowered or increased.

Our assessment of ‘Low(-)’ fiscal strength incorporates Bangladesh’s low debt burden but weak revenue base, which has constrained debt affordability. The debt structure is favorable, comprising primarily of longer tenor, concessional funding. However, a high proportion of foreign-currency denominated debt in total government debt leaves finances susceptible to exchange rate volatility.

Fiscal deficits have historically been contained, averaging 3.3% of GDP between FY 2005-2014, largely in line with the 1.9% median for Ba-rated peers (Exhibit 12). Despite very low revenues, development spending has consistently under-performed budgeted targets, thereby limiting slippages in headline deficit targets. In FY 2015, the government is targeting the deficit at 4.4% of GDP (excluding grants); from 3.5% in FY 2014 (the original target for FY 2014 was 4.4%). Including grants, the deficit is projected to be lower, at 4% of GDP vs. 3.1% in FY 2014.

EXHIBIT 12

Trends in the Fiscal Deficit (% GDP)

Calculated using revenues inclusive of grants. Sources: Ministry of Finance, Moody’s Investors Service

EXHIBIT 13

Revenues as a Percent of GDP (%)

Source: Moody’s Investors Service

The government is embarking on widespread revenue reforms Although growth in revenues has been increasing on a year-on-year basis, at 10.4% of GDP, total collections as a share of GDP are among the lowest of all countries rated by Moody’s (Exhibit 13). Structurally low revenues could be attributable to low per capita incomes, which are typically associated with large informal sectors and have in turn limited direct tax collections. However, other countries with similar or lower per capita income levels, particularly in the African sub-continent, such as Ethiopia (B1 stable), Zambia (B1

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0


0.0

10.0

20.0

30.0

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Shar

jah

(A3)

Nig

eria

(Ba

3)G

uate

mal

a (B

a1)

DR

Cong

o (B

3)Ba

ngla

desh

(Ba3

)Sr

i Lan

ka (B

1)Ta

iwan

(Aa

3)Si

ngap

ore

(Aaa

)Pa

ragu

ay (B

a1)

Viet

nam

(B1

)Tu

nisia

(Ba3

)PN

G (B

1)G

eorg

ia (B

a3)

Fiji

Islan

ds (

B1)

Mon

golia

(B2)

Croa

tia (B

a1)

Mon

tene

gro

(Ba3

)O

man

(A1)

Fran

ce (A

a1)


9 APRIL 28, 2015


stable) and Kenya (B1 stable) have higher revenue/GDP ratios. A weak administration and poor compliance have also hampered more efficient tax collection.

Revenues, excluding grants, are projected to rise to 12% of GDP in FY 2015, and collections between July-January FY 2015 stood at 44% of budgeted estimates (compared to 45% in the same period last year). The National Board of Revenue (NBR), which is responsible for collecting 95% of total tax revenues, is undertaking a number of key reforms that will aid this shift to a higher trajectory. The cornerstone of these reforms is digitization, aided by a taxpayer identification system (e-TIN). So far, 1.6 million taxpayers are registered under the system, and this number is expected to double by the end of 2015.

1. Implementation of the new VAT: Based on complete automation, the new VAT aims to remove the distortions of the existing law by changing the registration thresholds, imposing tax on the actual transaction price rather than on tariff values or truncated bases, and stepping up audits to improve compliance. Implementation has been delayed by a year, but is expected to come on stream by July 2016.

2. Customs Law: With the support of the Asian Development Bank (ADB, Aaa stable) and the International Finance Corporation (IFC, Aaa stable), the NBR is also seeking to amend the Customs Act of 1969, to make Bangladesh’s customs administration fully compliant with best practices outlined by the World Trade Organization’s Trade Facilitation Agreement. The new law contains provisions for more efficient customs procedures through automation. It is currently being vetted by the law ministry, and will then be formally submitted to the parliament for final approval.

3. Draft Income Tax Law: Closely based on the Indian Direct Tax Code, the NBR is also in the process of drafting a new income tax law, which aims to broaden the tax base by eliminating exemptions.

Development spending remains below target Expenditure growth is driven by non-development spending (64% of total expenditure), which in turn primarily comprises interest payments (23%), pay and allowances (22%), and subsidies (11%). Authorities are striving to bring down energy subsidies, particularly through the phase-out of rental power plants. Oil prices have not been adjusted at the retail level, despite the decline in global prices. This will likely allow the state-owned Bangladesh Petroleum Corporation (unrated) to minimize losses, or even accrue small profits, following losses over the last 14 consecutive years.

Development spending under the Annual Development Program accounts for a third of total spending and is focused chiefly on the power, transport and rural development sectors. Although utilization under the program has been weak, with spending averaging 87.6% of budgeted targets between FY 2003-FY 2009, it has gradually improved and stood at 95% in FY 2014. Between July-March FY 2015, spending was 44% of budgeted allocations, vs. 43% during the same period last year. One reason behind lower spending is poor procurement practices. Another is a more convoluted decision-making loop for donor-financed projects, which slows down the implementation process.

Government borrowing from the banking system has fallen markedly Deficits have typically been financed by the banking system, but this is gradually shifting towards foreign financing. In FY 2015, foreign financing is budgeted to comprise 29% of the total budget deficit, up from the 23% budgeted in FY 2014. Borrowing from the banking system is projected at 51% of the budget deficit from 56% budgeted in FY 2014, still accounting for a bulk of total deficit financing. Like other countries in the South Asian region, such as India and Sri Lanka, Bangladesh also imposes a Statutory Liquidity Ratio, which stipulates the minimum amount of liquid assets banks must maintain with the central bank as a percent of their total demand and time liabilities.. However, at 13% currently, this ratio is infrequently changed and considerably lower than for other countries in the South Asian region, such as India (Baa3 positive) and Sri Lanka (B1 stable).


10 APRIL 28, 2015


However, a reduction in fuel subsidies coupled with a sharp increase in sales of National Savings Certificates has helped keep bank borrowing low. Latest data from the central bank indicates that between July-April 15th, FY 2015, net government borrowing from the banking system (the central bank and scheduled banks) fell by Tk 110 billion. A sustained moderation in such borrowing would be credit positive, since it would mark a step towards resolving issues surrounding the ‘devolvement’ of unsubscribed government paper to banks, which impacts their liquidity and profitability, increased exposure of the sovereign to the banking system, and the crowding-out of private sector credit growth.

The debt burden is low, and debt affordability is high Bangladesh compares favorably with peers with regard to its debt burden, which at 28.6% of GDP in FY2014, has shrunk by close to 20 percentage points over the last decade. With fiscal deficits contained, we expect that increases in the debt ratio will remain limited. The government has also approved a Medium-Term Debt Strategy, which seeks to minimize the cost and risk of the government’s debt portfolio and develop the domestic debt market.

Domestic public sector debt, which comprises over half of total public debt, primarily comprises marketable debt securities such as treasury bills and bonds (with a 63% share). Savings certificates and other debt instruments by the National Savings Directorate account for about a third of total domestic debt (Exhibit 14).

Nearly 90% of the total external public debt (45% of total public debt) is composed of borrowing from multilateral lenders, such as the IDA (part of the World Bank) and the ADB. Bilateral loans, which account for the rest, are mainly from Japan (A1 stable) which has a 62% share, while China (Aa3 stable) and South Korea (Aa3 positive) are the second and third largest lenders with 11% and 9% shares, respectively.

EXHIBIT 14

Public Sector Debt (Tk billion, % GDP)


EXHIBIT 15

Interest Payments to Revenues (%)


Debt refinancing risks are low, with the average term to maturity of domestic debt at 4.5 years and of external debt at 13 years. Interest costs are also low since most external borrowing is contracted on concessional terms and the weighted average interest rate is just 1%. For domestic debt, the interest rate is 9.7%. Although the ratio of interest payments to GDP is only around 2.0%, debt affordability is considered low because interest payments as a share of revenue, at 17.7% are much higher than for rating primarily due to Bangladesh’s low revenue base (Exhibit 15).

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0

1000

2000

3000

4000

5000

6000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

F

2016

F

Foreign Currency Denominated (left axis)Local Currency Denominated ( left axis)Debt/GDP (right axis)

0.0

5.0

10.0

15.0

20.0

25.0



11 APRIL 28, 2015


Susceptibility to Event Risk: Moderate

Political risks drive the overall assessment

Factor 4

Scale VL- VL VL+ L- L L+ M- M M+ H- H H+ VH- VH VH+

+ -

Susceptibility to Event Risk evaluates a country’s vulnerability to the risk that sudden events may severely strain public finances, thus increasing the country’s probability of default. Such risks include political, government liquidity, banking sector and external vulnerability risks. Susceptibility of Event Risk is a constraint which can only lower the preliminary rating range as given by combining the first three factors.

Our assessment of Bangladesh’s moderate susceptibility to event risks is driven by a fractious political environment. Although the state-owned banking system’s health is weak, its portion of the overall system is shrinking, thus mitigating systemic financial risk. Bangladesh’s external vulnerabilities are very low given the favorable external debt profile and ample foreign reserves.

Moderate political risk reflects persistent tensions between political parties The political environment is fractious and characterized by frequent confrontations between the ruling party and the main opposition, which are manifested in street protests and strikes, or ‘hartals’.

Relations between the ruling Awami League and the opposition Bangladesh Nationalist Party (BNP) are highly polarized, rooted in a deep personal rivalry between their respective leaders. Despite both parties alternating rule over the last decade, their broadly similar ideologies with regards to economic management has ensured some degree of policy continuity.

Since early this year, tensions between the two parties have intensified, with the leader of the BNP calling for frequent strikes and a nation-wide transport blockade during the first anniversary of parliamentary elections held in January 2014.

Political tensions have historically flared up in the run-up to elections, but receded thereafter and have thus had a limited effect on economic activity. However, the last election, held in 2014, was the first since the Awami League abolished the system of appointing a caretaker government in 2011. The BNP refused to participate on procedural grounds, which resulted in an uncontested victory for the Awami League. Political protests since have been marked by violence, and have persisted for a prolonged period. They may thus have more adverse effects on economic performance this time. Nonetheless, in city council elections in Dhaka and Chittagong scheduled to take place at the end of April 2015, the BNP has agreed to participate, suggesting that the political environment could improve.

Moderate (-) banking sector risk reflects weak state-owned banks We assess risks stemming from Bangladesh’s banking system as ‘Moderate (-)’. Although weak asset quality and poor profitability in the SOCBs, which account for 30% of total banking system assets, expose the government to contingent liabilities; strong funding and the growing share of privately-run banks limits the risk of contagion to the broader financial sector.


12 APRIL 28, 2015


EXHIBIT 17

Gross Non-Performing Loans (% total loans)

*As of Q4. Source: Bangladesh Bank

EXHIBIT 18

Return on Assets (%)


In 2010-2011, a number of scams in SOCBs resulted in a loss of confidence and deteriorating financial performance. However, a relaxation of loan rescheduling rules at the time resulted in the ratio of non-performing loans (NPLs) remaining artificially low, estimated at 8.9% in 2013 by the IMF, from 10% in 2012. Incorporating adjustments made by the central bank to maintain data comparability, the system-wide NPL ratio deteriorated to 11.6% at the end of September 2014. This increase in NPLs was driven by the poor asset quality of SOCBs, NPLs for which stood at 23.9% at the end of that quarter.

Ongoing reforms to strengthen SOCBs include steps to improve governance and internal control, the imposition of credit growth limits, an automated financial reporting system, and gradual recapitalization. In 2013, the government injected Tk41 billion ($500 million or 0.3% of GDP) into the four SOCBs. However, we estimate further recapitalization needs of Tk135billion ($1.8 billion or 1.0% of GDP) in order for banks to reach a 10% capital adequacy requirement even while maintaining minimum coverage ratios.

Stringent adherence to reform should help improve the financial position of the state-owned banking system, and we believe contagion risks are limited. The system is well-funded, with the loan-deposit ratio hovering at 75%.The share of private sector banks, which comprise over 60% of total banking system assets, continues to grow. Private sector banks are in a better financial position vis-à-vis state-run banks, with a gross NPL ratio of 6.3% as of September 2014 (Exhibits 17 and 18).

Very low external vulnerabilities reflect improvements in the balance of payments Despite an 7.6% rise to $9.8 billion in overseas workers’ remittances, Bangladesh's current account posted a deficit of $1.1 billion between July and February FY 2015 as compared to a surplus of $1.8 billion during the same period in the previous year (Exhibit 19). Exports increased by 2.4% year-on-year during the period, versus the 18% rise last year, due to a sharp slowdown in manufactured products. Export performance is likely to remain weak due to cutbacks on garment orders following political instability and increasing scrutiny on labor conditions. For the full year, we expect the current account to remain in a deficit position, following two consecutive years of surpluses.

0

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014*

All Banks SOCBs

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2009 2010 2011 2012 2013 2014

All Banks SOCBs


13 APRIL 28, 2015


EXHIBIT 19

Current Account Balance – Bangladesh vs. Peers (% GDP)

Sources: Bangladesh Bank, Moody’s Investors Service

EXHIBIT 20

Trends in Foreign Reserves and the EVI ($ billion, %)

Sources: Bangladesh Bank, Haver Analytics, Moody’s Investors Service

The capital account benefited from marginal improvements in foreign direct investment inflows in the July-February period, as well as an increase in trade credit.

As a result of these factors, foreign exchange reserves edged higher to $23.4 billion in mid-April 2015 from $20 billion last year (Exhibit 20). At these levels, reserves are sufficient to cover maturing debt obligations, as reflected in the low external vulnerability indicator (EVI) of 28.5% in FY 2015.

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0


0

10

20

30

40

50

60

10000

12000

14000

16000

18000

20000

22000

24000

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

Foreign Reserves ($ bn, Left axis)EVI (%, Right axis)


14 APRIL 28, 2015


Rating Range

Combining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporate expectations around future metrics and risk developments that may differ from the ones implied by the rating range. Thus, the rating process is deliberative and not mechanical, meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicative rating range. For more information please see our Sovereign Bond Rating Methodology.

Sovereign Rating Metrics: Bangladesh

VH+ VH VH- H+ H H- M+ M M- L+ L L- VL+ VL VL-

+ -


+ -


+ - VH+ VH VH- H+ H H- M+ M M- L+ L L- VL+ VL VL-

+ -


+ -

VL- VL VL+ L- L L+ M- M M+ H- H H+ VH- VH VH+

+ -

Ba3 - B2

Ba3

Economic Strength

How strong is the economic structure?

How robust are the institutions and how predictable are the policies?Sub-Factors: Institutional Framework and Effectiveness,

Policy Credibility and Effectiveness

How does the debt burden compare with the government's resource mobilization capacity?

Rating Range:

Assigned Rating:

Institutional Strength

Fiscal Strength

Susceptibility to Event Risk

What is the risk of a direct and sudden threat to debt repayment?

Economic Resiliency

Government Financial Strength

Economic Strength

How strong is the economic structure?

Sub-Factors: Growth Dynamics, Scale of the Economy, Wealth

How robust are the institutions and how predictable are the policies?

How does the debt burden compare with the government's resource mobilization capacity?

Sub-Factors: Debt Burden, Debt Affordability

Rating Range:

Institutional Strength

Fiscal Strength

Susceptibility to Event Risk

What is the risk of a direct and sudden threat to debt repayment?

Economic Resiliency

Government Financial Strength

Sub-Factors: Political Risk, Government Liquidity Risk, Banking Sector Risk, External Vulnerability Risk



15 APRIL 28, 2015


Comparatives

This section compares credit relevant information regarding Bangladesh with other sovereigns rated by Moody’s Investors Service. It focuses on a comparison with sovereigns within the same rating range and shows the relevant credit metrics and factor scores.

EXHIBIT 21

Bangladesh Key Peers

Year Bangladesh Uganda Dominican

Republic Ethiopia Sri Lanka Nigeria Ba3 Median South Asia

Median

Rating/Outlook Ba3/STA B1/STA B1/STA B1/STA B1/STA Ba3/STA Ba3 Ba3

Rating Range Ba3 - B2 Ba3 - B2 Ba3 - B2 Ba3 - B2 Ba3 - B2 Ba1 - Ba3 Ba1 - Ba3 Ba3 - B2

Factor 1 M L+ M M- M+ M+ L+ M+

Nominal GDP (US$ Bn) 2013 150.0 25.5 61.2 46.7 67.2 515.8 17.6 191.2

GDP per Capita (PPP, US$) 2013 3,167 1,681 12,173 1,427 9,583 5,746 7,156 5,012

Avg. Real GDP (% change) 2009-2018 6.5 6.2 4.5 9.2 6.8 6.9 4.0 6.7

Volatility in Real GDP growth (ppts) 2004-2013 0.5 2.3 3.6 1.1 1.4 2.8 2.8 1.8

Global Competitiveness Index, percentile [1] 2014 12.3 4.4 15.9 7.0 36.2 3.5 19.9 24.3

Factor 2 VL+ VL+ L- VL+ M- VL- L+ L

Government Effectiveness, percentile [1] 2013 8.6 15.7 18.8 18.1 31.4 3.9 34.6 20.8

Rule of Law, percentile [1] 2013 12.5 34.6 26.7 22.0 38.5 3.1 27.5 25.5

Control of Corruption, percentile [1] 2013 13.3 5.5 14.1 25.9 43.3 2.3 27.5 18.1

Avg. Inflation (% change) 2009-2018 7.4 8.3 4.6 11.9 6.0 9.5 4.6 7.7

Volatility in Inflation (ppts) 2004-2013 1.5 5.0 14.6 12.6 5.5 3.5 2.2 3.4

Factor 3 L- M- VL+ M+ VL- VH M+ VL

Gen. Gov. Debt/GDP 2013 30.0 29.9 38.9 21.9 78.3 12.9 35.1 64.8

Gen. Gov. Debt/Revenues 2013 266.4 233.3 266.9 135.8 541.6 112.3 126.6 391.9

Gen. Gov. Interest Payments/Revenue 2013 17.7 10.5 15.9 2.1 39.3 8.5 5.8 27.5

Gen. Gov. Interest Payments/GDP 2013 2.0 1.3 2.3 0.3 5.7 1.0 1.3 4.6

Gen. Gov. Financial Balance/GDP 2013 -3.3 -3.2 -2.8 -2.0 -6.0 -1.9 -1.9 -6.6

Factor 4 M M+ M- M+ M- M M M

Current Account Balance/GDP 2013 1.6 -5.9 -4.1 -6.5 -3.9 3.9 -3.7 -1.3

Gen. Gov. External Debt/Gen. Gov. Debt 2013 50.8 64.3 64.3 62.6 43.6 2.6 55.9 31.4

External Vulnerability Indicator 2015F 28.5 69.5 98.0 64.1 85.3 14.8 28.6 77.5

Notes:

[1] Moody’s calculations. Percentiles based on our rated universe.

Source: Moody’s, Bangladesh Bank, Ministry of Finance, Haver Analytics


16 APRIL 28, 2015


Appendices

Chart Pack

Bangladesh

EXHIBIT 22

Economic Growth

Source: Moody’s, National authorities

EXHIBIT 23

Investment and Saving


EXHIBIT 24

National Income


EXHIBIT 25

Population


EXHIBIT 26

Global Competitiveness Index Rank 130 out of 144 countries

Source: World Economic Forum

EXHIBIT 27

Inflation and Inflation Volatility


0.0

0.5

1.0

1.5

2.0

2.5

0

1

2

3

4

5

6

7

8

9

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Real GDP Volatility, t-9 to t (ppts) (RHS)Real GDP (% change) (LHS)

0

5

10

15

20

25

30

35

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Gross Investment/GDPGross Domestic Saving/GDP

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

GDP per capita (US$) GDP per capita (PPP basis, US$)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

130.0

135.0

140.0

145.0

150.0

155.0

160.0

165.0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Population (Mil.) (LHS)Population growth (% change) (RHS)

0 50 100 150

Nigeria (Ba3/STA)

Uganda (B1/STA)

Ethiopia (B1/STA)

Bangladesh (Ba3/STA)

Dominican Republic (B1/STA)

Sri Lanka (B1/STA)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Inflation Rate Volatility, t-9 to t (ppts) (RHS)Inflation Rate (CPI, % change Dec/Dec) (LHS)


17 APRIL 28, 2015


EXHIBIT 28

Institutional Framework and Effectiveness

Notes: [1] Composite index with values from about -2.50 to 2.50: higher

values correspond to better governance. Source: World Bank Governance Indicators

EXHIBIT 29

Debt Burden


EXHIBIT 30

Debt Affordability


EXHIBIT 31

Financial Balance


EXHIBIT 32

Government Liquidity Risk


EXHIBIT 33

External Vulnerability Risk


-1.6

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Government Effectiveness[1] Rule of Law[1]Control of Corruption[1]

0

50

100

150

200

250

300

350

400

450

500

0

10

20

30

40

50

60

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Gen. Gov. Debt/GDP (%) (LHS)Gen. Gov. Debt/Gen. Gov. Revenue (%) (RHS)

0.0

5.0

10.0

15.0

20.0

25.0

0.0

0.5

1.0

1.5

2.0

2.5

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Gen. Gov. Interest Payment/GDP (%) (LHS)

Gen. Gov. Interest Payment/Gen. Gov. Revenue (%) (RHS)

-5.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Gen. Gov. Financial Balance/GDP (%)Gen. Gov. Primary Balance/GDP (%)

0

10

20

30

40

50

60

0

10

20

30

40

50

60

70

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

Gen. Gov. Debt/GDP (%) (RHS)

Gen. Gov. External Debt/Total Gen. Gov. Debt (%) (LHS)

0

10

20

30

40

50

60

70

80

0

20

40

60

80

100

120

140

160

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

FExternal Debt/CA Receipts (%) (LHS)External Vulnerability Indicator (%) (RHS)


18 APRIL 28, 2015


Rating History

Bangladesh

Government Bonds Foreign Currency Ceilings

Foreign Currency Local Currency Outlook Bonds & Notes Bank Deposit Date

Long-term Short-term Long-term Short-term

Rating Affirmed Ba3 Ba3 Stable Ba2 -- B1 -- April-14

Rating Assigned Ba3 Ba3 Stable Ba2 -- B1 -- April-10


19 APRIL 28, 2015


Annual Statistics

Bangladesh

2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016F

Economic Structure and Performance

Nominal GDP (US$ Bil.) 68.4 79.6 100.8 115.4 128.8 133.4 150.0 173.8 196.1 222.3

Population (Mil.) 146.5 148.0 149.5 151.1 152.9 154.7 156.6 158.2 159.8 161.4

GDP per capita (US$) 467 538 674 763 843 862 958 1,099 1,227 1,377

GDP per capita (PPP basis, US$) 2,168 2,318 2,443 2,593 2,787 2,979 3,167 3,386 -- --

Nominal GDP (% change, local currency) 13.7 15.5 12.6 15.1 14.9 15.1 13.6 12.7 12.6 12.5

Real GDP (% change) 6.4 6.2 5.7 7.7 6.5 6.5 6.0 6.1 6.1 6.5

Inflation (CPI, % change Dec/Dec) 9.2 10.0 2.3 8.7 10.2 8.6 8.0 7.0 6.0 6.2

Gross Investment/GDP 24.5 24.2 26.7 26.2 27.4 28.3 28.4 28.7 28.6 29.5

Gross Domestic Saving/GDP 20.4 20.3 20.4 20.9 20.7 21.2 22.0 23.4 25.3 26.5

Nominal Exports of G & S (% change, US$ basis) 15.1 19.6 7.3 6.4 38.8 4.9 9.0 17.2 10.2 12.8

Nominal Imports of G & S (% change, US$ basis) 16.8 25.2 3.7 5.8 40.9 5.4 7.6 9.3 4.2 10.8

Openness of the Economy[1] 46.5 49.1 40.8 37.8 47.4 48.1 46.3 45.0 42.6 42.0

Government Effectiveness[2] -0.68 -0.71 -0.79 -0.75 -0.76 -0.83 -0.82 -- -- --

Government Finance

Gen. Gov. Revenue/GDP; including grants 9.7 10.5 9.6 9.9 10.4 11.2 11.3 10.9 12.4 12.6

Gen. Gov. Expenditures/GDP 12.5 15.2 12.7 12.7 14.0 14.4 14.5 13.9 16.5 16.1

Gen. Gov. Financial Balance/GDP; including grants -2.9 -4.7 -3.2 -2.8 -3.6 -3.2 -3.3 -3.1 -4.0 -3.5

Gen. Gov. Primary Balance/GDP -1.1 -2.7 -1.2 -1.0 -1.9 -1.3 -1.3 -1.1 -2.0 -1.5

Gen. Gov. Debt (US$ Bil.) 29.8 33.3 36.2 37.3 41.7 42.4 45.0 49.7 56.9 64.9

Gen. Gov. Debt/GDP 38.6 37.1 35.9 32.3 32.4 31.8 30.0 28.6 29.0 29.2

Gen. Gov. Debt/Gen. Gov. Revenue 398.4 351.7 375.9 325.8 312.5 283.7 266.4 263.5 233.2 231.8

Gen. Gov. Int. Pymt/Gen. Gov. Revenue 17.7 18.4 20.1 18.8 16.4 17.2 17.7 18.1 16.4 16.2

Gen. Gov. FC & FC-indexed Debt/GG Debt 63.0 59.6 56.8 54.5 53.1 52.2 49.7 47.6 48.3 48.6

External Payments and Debt

Nominal Exchange Rate (local currency per US$, Dec) 68.8 68.5 69.1 69.5 74.2 81.8 77.8 77.6 77.5 76.5

Real Eff. Exchange Rate (% change) -- -- -- -- -- -- -- -- -- --

Current Account Balance (US$ Bil.) 0.9 0.7 2.4 3.7 -1.7 -0.4 2.4 1.3 -1.7 -0.8

Current Account Balance/GDP 1.4 0.9 2.4 3.2 -1.3 -0.3 1.6 0.8 -0.9 -0.4

External Debt (US$ Bil.) 19.5 22.3 26.0 26.1 30.0 30.0 31.1 35.3 39.1 44.1

Public External Debt/Total External Debt 94.7 94.4 93.7 93.3 92.0 91.6 88.3 87.3 87.7 88.7

Short-term External Debt/Total External Debt 7.0 4.6 3.6 4.3 5.1 4.8 8.1 7.5 6.3 5.4

External Debt/GDP 28.5 28.0 25.8 22.6 23.3 22.5 20.7 20.3 20.0 19.8

External Debt/CA Receipts[3] 96.0 89.7 93.9 85.9 79.7 74.4 69.9 73.6 77.9 79.3

Interest Paid on External Debt (US$ Bil.) 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3

Amortization Paid on External Debt (US$ Bil.) 0.5 0.6 0.7 0.7 0.7 0.8 0.9 1.1 0.9 0.9

Net Foreign Direct Investment/GDP 1.2 0.9 1.0 0.8 0.6 0.9 1.2 0.9 0.8 0.7

Net International Investment Position/GDP 8.7 -47.9 -45.3 -39.9 -41.2 -37.2 -32.1 -24.0 -- --

Official Forex Reserves (US$ Bil.) 5.0 6.0 7.4 10.0 9.2 9.0 13.9 19.8 23.0 26.6

Net Foreign Assets of Domestic Banks (US$ Bil.) 0.0 0.0 -0.1 0.0 0.4 0.4 0.4 0.7 -- --


20 APRIL 28, 2015


Bangladesh

2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016F

Monetary, External Vulnerability and Liquidity Indicators

M2 (% change Dec/Dec) 17.1 17.6 19.2 22.4 21.3 17.4 16.7 16.1 -- --

Monetary Policy Rate (% per annum, Dec 31) 7.60 7.71 3.04 2.52 6.75 7.75 7.25 7.25 -- --

Domestic Credit (% change Dec/Dec) 14.8 20.9 16.0 17.9 27.4 19.6 10.3 11.6 -- --

Domestic Credit/GDP 33.4 35.9 36.2 37.1 41.1 43.2 42.3 41.9 -- --

M2/Official Forex Reserves (X) 5.1 4.9 4.3 5.6 6.2 4.6 3.9 3.9 -- --

Total External Debt/Official Forex Reserves 390.2 368.3 353.9 262.0 326.6 333.6 202.9 163.6 158.0 155.6

Debt Service Ratio[4] 7.6 7.9 6.3 5.6 4.9 6.9 8.5 6.3 7.6 6.8

External Vulnerability Indicator[5] 63.2 61.9 42.1 33.1 27.3 44.3 55.1 34.4 28.5 24.0

Liquidity Ratio[6] 25.7 27.6 39.4 39.2 66.6 79.4 62.8 47.2 -- --

Total Liabilities due BIS Banks/Total Assets Held in BIS Banks 37.3 35.5 39.3 33.5 59.6 62.5 55.3 48.4 -- --

"Dollarization" Ratio[7] 16.3 14.2 14.2 11.5 13.3 14.6 11.4 10.0 -- --

"Dollarization" Vulnerability Indicator[8] 9.3 7.9 7.8 5.6 8.3 10.0 5.8 4.3 -- --

Notes:

[[1] Sum of Exports and Imports of Goods and Services/GDP

[2] Composite index with values from about -2.50 to 2.50: higher values suggest greater maturity and responsiveness of government institutions

[3] Current Account Receipts

[4] (Interest + Current-Year Repayment of Principal)/Current Account Receipts

[5] (Short-Term External Debt + Currently Maturing Long-Term External Debt + Total Nonresident Deposits Over One Year)/Official Foreign Exchange Reserves

[6] Liabilities to BIS Banks Falling Due Within One Year/Total Assets Held in BIS Banks

[7] Total Foreign Currency Deposits in the Domestic Banking System/Total Deposits in the Domestic Banking System

[8] Total Foreign Currency Deposits in the Domestic Banking System/(Official Foreign Exchange Reserves + Foreign Assets of Domestic Banks)

Source: Moody’s, Ministry of Finance, Bangladesh Bank, IMF


21 APRIL 28, 2015


Moody’s Related Research

Credit Opinion: » Bangladesh, Government of, January 2015 (806356877)

Issuer Comment: » Bangladesh's Prolonged Political Unrest Is Credit Negative, February 2015 (179159)

Statistical Handbook: » Bangladesh, Government of, November 2014 (806356877)

Rating Methodologies: » Sovereign Bond Ratings, September 2013 (157547)

» Sovereign Default and Recovery Rates

Moody’s Website Links: » Sovereign Risk Group Webpage

» Sovereign Ratings List

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

Related Websites

For additional information, please see:

» The Bank of Bangladesh’s website: http://www.bangladesh-bank.org/

» The Ministry of Finance of Bangladesh’s website: http://www.mof.gov.bd/

MOODY’S has provided links or references to third party World Wide Websites or URLs ("Links or References") solely for your convenience in locating related information and services. The websites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control. Accordingly, MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided by any third party.

https://www.moodys.com/research/Bangladesh-Government-of-Credit-Opinion--COP_806356877


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https://www.moodys.com/research/Sovereign-Default-and-Recovery-Rates-1983-2013--PBC_166650

http://www.moodys.com/researchandratings/market-segment/sovereign-supranational/-/005005/4294966293/4294966623/-1/0/-/0/-/-/en/global/rr

http://v2.moodys.com/moodys/cust/content/loadcontent.aspx?source=staticcontent/businesslines/sovereign-subsovereign/ratingslistgbr.htm&param=all

http://www.bangladesh-bank.org/

http://www.mof.gov.bd/

http://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=180885


22 APRIL 28, 2015


Report Number: 180885

Author Anushka Shah

Associate Analyst Amelia Tan

Senior Production Associate Sudhagar V

Editor Sharon Adams Inge Roggeveen

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