S&P retains Bangladesh's B+ rating, flags trade risk, political volatility

Business Standard

25-07-2025

S&P Global Ratings has affirmed Bangladesh's long-term sovereign credit rating at 'B+' and its short-term rating at 'B', citing stabilising external liquidity. However, it flagged heightened trade risk from relatively high United States tariffs.
The outlook remains stable.
The rating agency said in a statement that Bangladesh's external liquidity is stabilising, as indicated by the recent steady improvement in its official foreign exchange reserves. The macroeconomic policies enacted over the past 18 months — including a transition to a more flexible exchange rate regime, depreciation of the taka, and tighter monetary policy — are helping to rebuild foreign exchange liquidity. However, Bangladesh still faces heightened trade risk from relatively high US tariffs, it added.
Forex reserves show recovery in FY25
The agency said Bangladesh's external profile is stabilising after a period of elevated pressure. Foreign exchange reserves rose by about $5 billion in fiscal 2025 to $26.7 billion, marking a notable recovery from previous lows below $20 billion. This now covers about 4.1 months of current account payments, compared with just 3.3 months at the end of fiscal 2024.
Political transition in focus ahead of 2026 elections
The upcoming elections in the first half of 2026 are expected to be a critical pivot point for more lasting political stability, following the abrupt collapse of the government in July 2024.
'Bangladesh's volatile political situation may stymie the predictability of policy responses,' the agency said.
A caretaker government led by Chief Adviser Muhammad Yunus has taken over in lieu of an elected government, following the collapse of the Awami League administration. The Awami League has since been banned from all political activities. The caretaker government has tentatively scheduled elections for April 2026, according to S&P.
Stable outlook reflects balanced risks
The stable outlook reflects S&P's view that Bangladesh's real per capita growth rate will remain strong relative to peers. Downside and upside risks to its external balance sheet are broadly balanced, despite near-term headwinds from global trade conditions over the next 12–18 months.
Growth prospects tempered by fiscal constraints
The long-term 'B+' rating reflects the country's modest per capita income and limited fiscal flexibility, arising from low revenue-generation capacity and a high interest burden. Evolving administrative and institutional frameworks also constrain the rating.
'We weigh these factors against the Bangladesh economy's strong long-term growth rate and the government's moderate debt burden,' S&P said.
External support and remittances underpin resilience
Bangladesh's credit profile continues to derive support from steady external financial assistance, stemming from deep engagement with bilateral and multilateral development partners. Inflows from overseas Bangladeshi workers also remain consistent.
Solid export receipts from Bangladesh's globally competitive garment manufacturing sector further support the country's credit profile, the agency added.