<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">The global financial rating agency Moody's in its latest review has downgraded the government of Bangladesh's long term issuer and senior unsecured ratings to B1 from Ba3. It reaffirmed the short term issuer ratings at 'Not Prime'. However, the outlook remains 'stable', says Moody's.</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"><br />''</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">A long term issuer rating indicates the possibility of default by the country in payment of borrowed money over a period of one year or more. A downgrade means increased probability of default in unsecured financial obligations and contracts.</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"><br />''</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">In its assessment, Moody's took into account Bangladesh's heightened external vulnerability and liquidity risks which are persistent together with institutional weakness uncovered during the ongoing crisis. Despite some easing, ongoing dollar scarcity and deterioration in foreign exchange reserves indicate continued pressures on Bangladesh's external position, exacerbating imports constraints and as a result energy shortages, said Moody's in its reports. The credit rating agency also points out multiple exchange rate regimes and interest rate caps which are creating distortions in the financial market.</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"> </span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">Finally, a very low level of fiscal revenues relative to the size of the economy constrain Bangladeshs' policy choices. It points to weakening debt affordability as higher interest payments result from the taka devaluation and short maturities for domestic debt.</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"><br />''</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">Providing the rationale for downgrading to B1, Moody's said unfavourable terms of trade followed by a contraction in trade credit and Bangladesh Bank's initial attempt to defend taka, have eroded foreign exchange reserves by over USD 17 billion since their peak in August 2021. This has resulted in gross foreign exchange reserves (excluding gold and SDRs) declining to USD 27 billion or around 3.7 months of goods and services imports as of April 2023 from USD 45 billion (around 7 months) in August 2021.</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"><br />''</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">Moody's expects external financing will halt the deterioration of foreign exchange reserves, which will stabilise during the next fiscal year 2024 (ending June 2024). However, reserves will not recover to pre-pandemic levels for the next 2-3 years. Moody's expects gross foreign exchange reserves to remain below USD 30 billion for the next two to three years, with net reserves likely lower. Moody's estimates that Net foreign exchange reserves of Bangladesh are currently at approximately USD 20 billion (or 2.7 months of import cover). </span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"><br />''</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">However, Bangladesh's debt burden remains moderate compared to peers, and external debt payments will remain manageable due to the concessional nature of its external debt with long maturities. </span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;"><br />''</span></p>''<p style="margin: 0px; text-align: justify;"><span style="background-color: transparent; color: #000000;">The stable outlook is based on Bangladesh's continued access to concessionary financing and support from international financial institutions. Moody's expects external financing to help alleviate pressures on the external and fiscal metrics. The stable outlook is also supported by Bangladesh's economic resilience. Moody's expects growth to recover to 6 percent in fiscal 2025, supported by its globally competitive ready-made garment industry. </span></p>