S&P’s report issued on Wednesday highlights that the recent political upheaval has deepened existing economic vulnerabilities. The agency warns that if the situation remains unstable, it could further undermine economic growth, fiscal health, and external metrics, including foreign exchange reserves.
The political turbulence in Bangladesh has triggered new economic concerns, as highlighted by a recent report from S&P Global Ratings. The American credit agency has underscored how the ongoing crisis has exacerbated risks to the nation’s economic stability, particularly impacting growth, fiscal performance, and foreign exchange metrics.
In its latest assessment, S&P Global Ratings, based in Melbourne, expressed that Bangladesh’s credit outlook could face further strain if the political turmoil continues. This follows the agency’s July downgrade of Bangladesh’s credit rating from BB- to B+, largely due to a significant drop in foreign exchange reserves. The situation has intensified since the sudden resignation of former Prime Minister Sheikh Hasina on August 5, 2024, following widespread student-led protests.
S&P’s report issued on Wednesday highlights that the recent political upheaval has deepened existing economic vulnerabilities. The agency warns that if the situation remains unstable, it could further undermine economic growth, fiscal health, and external metrics, including foreign exchange reserves. Despite these concerns, S&P remains cautiously optimistic that if the political environment stabilizes swiftly and a new government is formed, the damage to credit metrics could be mitigated.
The agency noted, “While credit buffers have diminished, we would not expect immediate strong pressures on the credit ratings.” However, it cautioned that prolonged instability could lead to reduced economic growth and lower government revenue, which would negatively affect Bangladesh’s creditworthiness. A key concern is the potential decline in exports, which could impair foreign exchange generation and further deplete the central bank’s reserves. The stability of remittance flows will also be critical in avoiding a severe foreign exchange shortage, the report added.
Economic recovery
In addition to these financial concerns, disruptions in communication systems that impact financial transactions pose a further risk. The combination of these factors could significantly strain Bangladesh’s external balance sheet and economic stability.
Amid these challenges, the Crisis Group, an international conflict prevention organization, has weighed in on the evolving situation. According to Thomas Kean, an expert on Bangladesh, the country is entering a period of heightened political uncertainty, marked by increased risks of both violence and economic instability. However, Kean also sees a silver lining in the departure of Sheikh Hasina.
In a statement released Thursday, Kean described the crisis as a potential turning point for Bangladesh. “The departure of former Prime Minister Sheikh Hasina presents a unique opportunity for renewal,” he said in a report titled “Bangladesh: The Long Road Ahead.” He noted that initial indications from the president and the army chief suggest a readiness to support new reform efforts, which could help stabilise the nation and pave the way for economic recovery.
Kean emphasized that international actors should seize this moment to assist Bangladesh in leveraging what he called a “once-in-a-generation opportunity.” He urged the interim government to collaborate with a diverse array of stakeholders, including established political parties, civil society, technocrats, and notably, the student leaders who have gained significant public support.
“The interim government should work with these groups to pursue comprehensive reforms aimed at creating a more stable political environment,” Kean suggested. He stressed the importance of avoiding a return to autocratic rule and fostering a more inclusive and balanced political system.
