Fitch Ratings on Monday downgraded Bangladesh's long-term foreign currency issuer default rating from "BB-" to "B+", citing persistent weakening of the country's external buffers.
However, the ratings agency kept the country's economic outlook stable.
Fitch also said the downgrade reflected the sustained weakening of the external buffers, which could prove challenging to sufficiently reverse despite recent policy reforms, leaving the country more vulnerable to external shocks.
"Policy actions since early 2022 have been insufficient to stem the fall in foreign exchange reserves and resolve domestic dollar tightness."
The recent shift to a crawling peg aims to increase exchange-rate flexibility. Whether this will fully address lingering forex market distortions and support significant reserve build-up remains unclear, it said in its report.
The stable outlook reflects the mitigation of external refinancing risks by a favourable external creditor composition -- the International Monetary Fund (IMF) program reforms aim to improve macroeconomic stability and address banking sector weaknesses, moderate government debt and favourable medium-term growth prospects.
Another ratings agency, Moody's, projected that Bangladesh's forex reserves position will stabilize in the upcoming months despite failing to fulfill the IMF's target and drastic fall in international currency holdings over the past two years.
It will be supported by the recent improvement of the current account balance to modest surpluses partly reflecting ongoing import restrictions, narrowing financial account deficits as business uncertainties gradually ease following the conclusion of the general elections in January, it also said.
Moody's expects external financing to help alleviate pressures on the external and fiscal metrics, enabling a stabilization of external buffers although at a weaker level than before the pandemic.
It said the stable outlook is also underpinned by Bangladesh's economic resilience, supported by its globally competitive readymade garment industry, the second-largest in the world.