International credit rating firm Moody’s has said that the shock from the readymade garment supply chain disruption due to the global coronavirus outbreak would be temporary for Bangladesh and the country would be able to overcome the setbacks with the increase in demand in the global market later this year.
‘Risks related to the global coronavirus outbreak are notable. RMG supply chains have been disrupted and demand from Bangladesh’s key markets in Europe and the US looks likely to be depressed,’ Moody’s Investors Service said in a statement on Thursday.
However, Moody’s expected the shock to be temporary, with supply chains and demand starting to recover later this year, the statement said.
It also said that Bangladesh’s proximity to Asia’s largest markets, with rapidly growing middleclass populations, would continue to support the industry’s performance.
‘Robust growth potential anchors macroeconomic stability. In turn, policies are conducive to preserving stability,’ Moody’s said.
Moody’s expected that the Bangladesh economy would continue to grow between 7 to 8 per cent over the next few years, underpinned by its readymade garment industry, supporting and supported by macroeconomic and external stability.
Moody’s identified low labour costs, vertical integration, technological investment and environmentally sustainable processes as the key elements for the competitiveness of Bangladesh’s RMG sector, saying that the sector had more than doubled its market share across the globe over the last decade, reaching 6 per cent of global apparel exports in 2018.
More than 80 per cent of Bangladesh’s total export earnings come from readymade garment products and the earnings are mostly dependent on the European Union and North America.
Most of the big buyers and retailers halted or cancelled export orders they placed in Bangladesh as a good number of apparel stores closed down in the European countries and the United States due to the coronavirus outbreak.
Despite the slowdown in exports and remittances, Moody’s saw low risks of external vulnerability, saying external financing from multilateral and bilateral lenders for infrastructure projects supported Bangladesh’s external dynamics.
It said that weak revenue generation capacity, however, continued to constrain improvements in debt affordability and limited Bangladesh’s fiscal flexibility, even as reliance on concessional borrowing lowered debt refinancing risks.
It said that the rating affirmation also considered challenges in addressing infrastructure needs and low levels of human capital, both of which hindered greater foreign investment and limited prospects for economic diversification over the medium to longer term.
‘The stable outlook reflects balanced risks at the Ba3 rating level, with both upside and downside risks, mainly related to the government’s ongoing implementation of key economic and fiscal reforms,’ Moody’s said.
Moody’s also said that there would be downward pressure on the rating if there was a marked deterioration in the government’s fiscal position, an erosion in the government’s revenue base or a sharp increase in financing costs.