Violence may hurt investors' confidence:Daily Star

The political violence that erupted this month may dent investor confidence in Bangladesh, said Fitch, one of the three most important credit rating agencies in the world. “Renewed political tensions and violence in Bangladesh in the first week of January may negatively affect foreign investor confidence, raising risks to growth over the long term,” said Fitch Ratings yesterday. If violence were t
o persist and directly disrupt economic activity, especially by inflicting long-term harm to the key readymade garment (RMG) sector, this would be credit negative, the Singapore-based US rating agency said. Fitch is one of the three rating agencies which periodically do sovereign ratings of Bangladesh. The other two are Moody's and Standard & Poor's. Fitch had highlighted substantial political risk -- linked to continued polarisation between the governing and opposition parties -- as a key source of uncertainty for Bangladesh's economic outlook when it assigned the country a “BB-'' long-term foreign currency issuer default rating in August 2014. Political tensions erupted with the BNP enforcing a countrywide daylong hartal, protesting the government's “foiling” of its Gazipur rally on December 27. On January 6, the BNP chief called a countrywide blockade for an indefinite period to protest the government's not allowing her party and allies to hold rallies in the capital and elsewhere. The nonstop blockade not only continues on the weekly holidays but coincides with the second largest congregation of the Muslims near the capital city. Advertisement The recent clashes follow a period of political violence leading up to the January 2014 election in which more than 300 people were reportedly killed. The repeat of violence thus far in 2015 shows that tensions remain high, and may further damage foreign investor perception regarding the country's stability, Fitch said. It said economic activity could directly be affected in the short term if the violence and blockades continue. Protracted protests could also negatively affect domestic demand, consumer confidence, credit growth, and by extension, fiscal revenues, while also fuelling inflation. “The deeper structural risk to Bangladesh from the ongoing polarisation and repeated outbreaks of violence are the potential impact this could have on long-term foreign investment decision-making”, the rating agency said, adding that it would be difficult to gauge in the short term the extent to which a continuation of violence would affect foreign investor confidence in Bangladesh as a production centre. The rating agency also said RMG is a principal element in Bangladesh's development strategy and make up 81 percent of exports, equivalent to 15 percent of the GDP. In August last year, Fitch for the first time did rating for Bangladesh and assigned the country long-term credit rating of BB- and short-term rating of B and a country ceiling of BB-.