The credit rating of Bangladesh is now closely linked to the country’s ability to maintain political stability and continue with structural reforms, according to a report by US ratings agency Moody’s.

The agency issued this assessment on August 8, following the formation of an interim government led by Nobel laureate Professor Muhammad Yunus.

Moody’s cautioned that Bangladesh’s credit ratings could deteriorate if prolonged political or social unrest hampers the implementation of necessary structural reforms and stifles economic growth. The agency highlighted that any deviation from the interim government’s commitments to these reforms could also negatively impact the country’s creditworthiness.

“It is unclear whether the political and social unrest will subside following Hasina’s departure and questions remain over the formation of the interim government headed by Yunus, an economist who founded microfinance institution Grameen Bank,” Moody’s noted.

The report anticipated short-term disruptions in remittance and financial flows as risk-averse individuals, investors, and companies hold off on repatriating or investing their capital amid the current political uncertainty. Moody’s warned that such disruptions could weaken the government’s external financial position.

Moody’s observations come shortly after S&P Global downgraded Bangladesh’s long-term sovereign rating from BB- to B+, citing concerns over political instability following violent protests against the quota-based hiring system for government jobs. The unrest, which has resulted in the deaths of 551 people as of August 7, has raised alarms about the country’s future political trajectory and its implications for economic stability.

Looking ahead, Moody’s projected that Bangladesh’s economy could grow by 5.5% to 6% in the fiscal year 2025. However, the agency pointed out that inflationary pressures, persisting since mid-2022, have dampened domestic consumption and led to a decline in real wages.

Prolonged social unrest could continue suppressing domestic consumption, accounting for about two-thirds of the country’s GDP over the past five years. On the other hand, a modest recovery in merchandise exports is expected to offset some of these risks in the latter half of 2024.nomic trajectory.