Staff Reporter :
S&P Global Ratings has affirmed Bangladesh’s long-term sovereign credit rating at ‘B+’ and its short-term rating at ‘B’, citing signs of stabilisation in the country’s external liquidity and improvements in
its official foreign exchange reserves despite ongoing political uncertainty.
In a report released Monday, the global ratings agency stated, “Bangladesh’s external liquidity is stabilising, as indicated by the recent steady improvement in its official foreign exchange reserves.”
It credited tighter monetary policy and a shift towards a more flexible exchange rate regime-measures implemented over the past 18 months-for strengthening the country’s financial position.
However, S&P warned that political instability remains a significant risk factor. “Bangladesh’s uncertain political landscape may constrain the effectiveness of institutions and reduce policy predictability in the near term until a more sustainable solution is reached,” the report said.
The ratings agency noted that although the economy faced considerable stress in the second half of 2024 due to both domestic political unrest and external shocks, signs now point to a gradual recovery. Inflation, which had spiked sharply, is now beginning to moderate-supporting a modest revival in domestic demand. Despite these positive developments, S&P highlighted key vulnerabilities in Bangladesh’s economic profile.
These include a relatively low per capita income-estimated at US$2,620 for the fiscal year ending June 2025-limited fiscal flexibility due to weak revenue generation, and a high interest burden on public debt. The report also underscored that evolving institutional and administrative structures continue to weigh on the country’s overall credit outlook.
Bangladesh’s long-term economic fundamentals, however, remain relatively robust. S&P noted that the country’s 10-year weighted-average real per capita GDP growth rate stands at approximately 4.3 per cent, significantly outpacing the median for other sovereigns at similar income levels.
The garment sector remains a cornerstone of the economy. According to the report, Bangladesh’s ready-made garments (RMG) industry accounts for over 85 per cent of merchandise exports, supported by competitive unit labour costs and favourable demographics.
However, a looming challenge is the proposed 35 per cent U.S. tariff on Bangladeshi imports, set to come into effect on 1 August 2025, unless a bilateral trade agreement is reached. In fiscal 2024, the U.S. accounted for 17.5 per cent of Bangladesh’s exports – 88 per cent of which were garments, excluding leather and other textile products. S&P cautioned that the tariff could significantly undermine the country’s export competitiveness and potentially disrupt the labour-intensive RMG sector.
“Bangladesh’s heavy reliance on the U.S. market for RMG exports exposes it to heightened trade risks,” the report stated. S&P added that it could consider a downgrade if Bangladesh’s external position deteriorates – for instance, if narrow net external debt consistently exceeds 100 per cent of current account receipts.
Looking ahead, the government’s efforts to diversify exports, enhance access to external markets, and prepare for its planned graduation from Least Developed Country (LDC) status in 2026 will be crucial in sustaining economic stability and strengthening resilience against external shocks.
