According to Fitch Ratings’ most recent report, Bangladesh’s current account and fiscal deficits can be reduced by implementing the IMF’s recommended reforms and implementing a single currency rate based on the market.
The current account may continue to be under pressure with the progressive relaxation of import limitations and global uncertainty impacting on export performance, the global rating agency says. This is despite the fact that decreased imports, moderation in global commodity prices, and resilient exports have partially alleviated external financing.
However, it anticipates that Bangladesh’s current account deficit will continue to be significantly lower than the 3.2% of GDP average for 2021 and 2022.
“Risks of a further deterioration in credit metrics remain significant, but implementation of Bangladesh’s IMF programme and reforms should help alleviate pressures under Fitch Ratings’ baseline,” said the report.
“However, we expect the government debt/GDP ratio to stabilize,” it added.
The planned switch to a single, more market-based currency rate is intended to stabilize foreign exchange reserves and lessen external imbalances, according to Fitch Ratings.
Bangladesh is on pace to carry out the set of reforms it agreed upon with the IMF in order to get the $4.7 billion loan package from the lending organization, which will provide essential budget support at a time when the nation’s foreign exchange reserves are under significant strain.
The first tranche of the loan package was disbursed in February after Bangladesh had agreed to reform its banking and revenue systems to discipline its financial sector, reduce bad loans and raise the tax-GDP ratio.
The lender also set a threshold for forex reserve holding and specified the module for reserve calculation apart from setting a number of time-bound measures including some for phasing out energy subsidies to ease pressure on fiscal deficit.