Bangladesh is currently facing heightened risks in the energy sector with limited room for policy adjustments, as per a recent report from S&P Global Ratings. The report underscores that countries like Bangladesh, Pakistan, and Sri Lanka, while showing signs of economic recovery, are at a greater risk due to their heavy reliance on imported fuel and weaker external positions.
The report states that these nations are particularly susceptible to increasing oil prices and possible disruptions in supply. Bangladesh could encounter challenges in growth, inflation, and external factors if the surge in energy prices persists longer than expected. The duration of the US-Israel conflict with Iran and its impact on oil prices, as well as the availability of fuel supplies, will significantly influence the country’s creditworthiness.
The reliance on gas for almost half of Bangladesh’s electricity generation and a substantial portion of gas imports highlights its vulnerability. With the economy heavily dependent on imported crude and refined oil products, any significant disruption in oil supply could pose substantial challenges. Measures to reduce consumption may become necessary if oil reserves deplete, especially if imports remain constrained.
To mitigate the impact of higher fuel prices, the government has implemented various measures such as capping retail fuel prices, implementing temporary rationing, adjusting operations at fertilizer plants to prioritize gas supply to power plants, and managing energy consumption through early school closures. Despite these efforts, the country is already grappling with high inflation and a slowdown in growth.
S&P Global notes that while Bangladesh has made progress in improving its external position, sustained high energy prices and potential disruptions in trade and remittances could hinder its recovery. The agency warns that prolonged conflict in the Middle East could further strain the economy, leading to a significant erosion of growth rates or a deterioration in the external position.
Compared to other countries like Pakistan and Sri Lanka, Bangladesh has limited fiscal means to control electricity and fuel prices due to government revenues being around 9 percent of GDP. Laos, on the other hand, is less exposed due to its hydropower-based electricity generation and balanced fiscal position. Despite the risks, the impact on credit ratings may be contained, given the already low rating levels that account for a significant portion of these risks.
Bangladesh currently holds a long-term rating of B+ with a stable short-term outlook, reflecting its modest per capita income and constrained fiscal flexibility. S&P Global indicates that the country’s ratings are likely to withstand short-term economic disruptions based on the current scenario.
