Fitch: Bangladesh' current account, fiscal deficits will ease soon

[Bilal9]

Bangladesh’s external-debt-repayment profile remains manageable​

The size of the economy is $411 billion at present and may cross $500 billion in FY23 — it was only worth $6.3 billion in 1972 Syed Zakir Hossain
Tribune Desk
Published: May 6, 2023 5:27 AM | Last updated: May 6, 2023 5:28 AM

Leading credit rating agency Fitch believes that pressures on Bangladesh's economy from current account and fiscal deficits are likely to ease following strong export figures, lower imports and moderate commodity prices.

A recent Bangladesh Bank report stated that the country's current account deficit was $4.4 billion from July-February of FY23, which was $12.9 billion during the same period in the past FY22.
The fiscal deficit up to February from July this FY23 was recorded at Tk2118,00 crore.

The government has estimated over Tk200,000 crore fiscal deficit for the current fiscal amid gap between budget size and revenue receipt.

For external adjustments under way, current-account pressures have partly eased—due to resilient exports, moderation in commodity prices, and lower imports on account of various import-control measures, mentioned by Fitch Ratings.

“We expect the current account deficit to remain well below the average for 2021 and 2022 at 3.2% of GDP. We expect the government debt/GDP ratio to stabilize,” the rating agency said in its report.

The authorities have also imposed restrictions on non-essential imports, and power curbs.

Bangladesh's external-debt-repayment profile remains manageable, the global rating agency noted.

It further stated that the planned move to a single, more market-determined exchange rate would likely be central towards stabilizing forex reserves and reducing external imbalances.

However, upside pressure on the current account deficit is likely to remain as import restrictions are lifted gradually and global uncertainties could weigh on export performance.

Risks of a further deterioration in credit metrics remain significant, but the implementation of Bangladesh's IMF program and reforms should help alleviate pressures under Fitch Ratings' baseline.

The rating agency has said Bangladesh's (BB-/Stable) external finances, particularly forex reserves, have been under pressure since early 2022, owing to higher global commodity prices and US Fed fist-tightening.

Current-account and fiscal deficits have widened and inflation has risen, as elsewhere.

Forex reserves plummeted from $45.9 billion in February 2022, when the Ukraine war started.

Reserves are roughly around pre-covid levels, at $31 billion as of May 2, 2023 but are lower as a percentage of current-account payments, the US-based agency added in its report.