Staff Reporter :
Fitch Ratings has reaffirmed Bangladesh’s long-term foreign-currency Issuer Default Rating (IDR) at ‘B+’ with a stable outlook.
The rating published on Thursday reflects a balance between moderate government debt levels and access to official external financing, offset by structural weaknesses including a low revenue-to-GDP ratio, vulnerabilities in the financial sector, and relatively low foreign exchange reserves.
The country’s external refinancing risks remain contained due to a manageable debt repayment profile, ongoing macroeconomic reforms, and efforts to strengthen the banking sector.
Bangladesh has been under a 42-month International Monetary Fund (IMF) programme since 2023, aimed at reinforcing economic stability.
Nevertheless, elevated political uncertainty, persistently high inflation, and global trade policy volatility continue to pose risks.
Foreign exchange pressures have eased recently, aided by the adoption of a crawling peg exchange rate regime, steady performance in the ready-made garments (RMG) sector, declining commodity prices, and limited exchange rate volatility.
Remittances have surged by 28 per cent since July 2024, while RMG exports have grown by around 10 per cent year-on-year. The current account deficit is forecast to narrow to 0.6 per cent of GDP in the fiscal year ending June 2025 (FY25), before widening modestly to 1.7 per cent in FY26 as import levels normalise.
Bangladesh’s foreign exchange reserves have stabilised between $20 billion and $21 billion since August 2024. These reserves are expected to rise slightly, averaging the equivalent of 3.3 months of current external payments in 2025-2026 – still below the ‘B’ category median of 4.3 months.
While external financing needs remain high – projected at 41per cent of reserves in 2025-access to bilateral and multilateral funding offers some relief.
The country could face a 37 per cent reciprocal tariff from the United States if a new trade agreement is not concluded following the expiration of a 90-day pause enacted by the Trump administration. However, the direct impact may be limited as US-bound exports represent less than 2 per cent of GDP.
The European Union, which remains Bangladesh’s largest market for RMG exports (accounting for nearly 50 per cent of the sector), continues to offer duty-free access. Nonetheless, a broader slowdown in global trade could significantly impact the economy, especially given limited policy space for fiscal stimulus.
Economic growth is forecast to slow further, with GDP projected to expand by 3.5 per cent in FY25 and 4.0 per cent in FY26, down from 4.2 per cent in FY24 and 5.8 per cent in FY23. The central bank has raised the policy rate by 150 basis points to 10 per cent since August 2024 in an effort to curb inflation, which remains elevated at 9.1 per cent.
Inflation is projected to average around 8 per cent in 2026 – double the ‘B’ category median.
Since August 2024, a transitional government has taken office following the departure of the Awami League administration.
The new leadership has initiated broad reforms aimed at enhancing transparency, improving fiscal management, and strengthening governance and the banking sector.
National elections are expected in the first half of 2026, though uncertainty around policy continuity could affect reform momentum and the IMF programme’s progress.
Fitch projects Bangladesh’s gross government debt to stabilise at around 41per cent of GDP over the medium term – well below the ‘B’ median of 52 per cent.
The fiscal deficit is expected to remain under 4per cent of GDP, supported by lower public spending despite revenue collection challenges.
However, potential risks include contingent liabilities linked to the banking sector, state-owned enterprise debt, and rising borrowing costs.
The banking sector remains a key vulnerability, with weak asset quality, low capital buffers, and poor governance, particularly among public banks.
As of December 2024, the non-performing loan (NPL) ratio stood at 20.2 per cent, with state-owned banks reporting a much higher NPL ratio of 42.8 per cent.
These weaknesses could represent a contingent liability for the sovereign balance sheet.
Fitch has also highlighted Bangladesh’s Environmental, Social and Governance (ESG) Relevance Scores of ‘5’ for Political Stability and Rights, as well as for Rule of Law, Institutional and Regulatory Quality, and Control of Corruption.
These ratings reflect the influence of the World Bank’s Governance Indicators, where Bangladesh ranks in the 23rd percentile. This low ranking indicates significant weaknesses in political participation, institutional effectiveness, legal enforcement, and anti-corruption measures.
