CPD RMG Study Stitching a better future for Bangladesh
Published on bdnews24.com on June 12, 2017
Bangladesh’s Ba3 stable sovereign credit profile is supported by the robust growth of an economy that is bolstered by garment exports, Moody’s Investors Service has said in a new report.
However, weakening inflows of remittances from overseas-based workers could hurt consumption, according to the report.
The garment industry makes up about 70 percent of Bangladesh’s total merchandise exports, as measured in local currency terms, and also accounts for significant foreign investment inflows.
While the agricultural sector is still the biggest employer in Bangladesh, the garment industry employs over three million workers and offers continued opportunity for labour productivity gains, Moody’s said.
“Bangladesh will continue to invest in its garment manufacturing sector to capitalise on its strong comparative advantage of abundant low-cost labour,” said William Foster, a vice president and senior credit officer at Moody’s.
“It will remain a leading global supplier of basic garments and the industry will continue to drive the nation’s growth, exports and job creation.”
The focus on low-value garment exports helps insulate Bangladesh from the impact of higher trade tariffs that could result from greater protectionism globally.
Nonetheless, while Bangladesh’s garment industry benefits from some of the lowest wage levels in the world, the country falls behind its peers such as Vietnam (B1 positive), Cambodia (B2 stable) and Sri Lanka (B1 negative) in overall economic competitiveness.
When factoring in the quality of its physical infrastructure, skill levels and transparency of the business environment, the country’s low competitiveness hampers the ability of its economy to absorb shocks, Moody’s said.
In addition to the garment sector, remittances from overseas workers contribute to Bangladesh’s economic growth by supporting household income and consumption. Remittances accounted for about 6.7 percent of the country’s GDP in fiscal 2016.
However, inflows have dropped by 14.6 percent in the first eight months of this fiscal year, driven by muted economic activity in Middle Eastern nations.
“Moving forward, muted remittances growth could weigh on consumption.”
