Citing persistent weaknesses in the country’s banking sector, limited revenue capacity, global energy market uncertainties, and rising trade risks, international credit rating agency S&P Global Ratings has downgraded Bangladesh’s long-term sovereign credit rating outlook from 'Stable' to 'Negative'.
In an evaluation report published on July 27, the agency stated that banking sector vulnerabilities, financial sector imbalances, limited government fiscal capacity, and global economic uncertainties could prolong Bangladesh’s economic recovery.
These factors have heightened economic risks in the coming period.
The report noted that Bangladesh’s per capita income remains relatively low. Furthermore, weak revenue collection capabilities and high government interest expenses limit fiscal flexibility.
Administrative and institutional challenges are also negatively impacting the country's creditworthiness.
According to S&P, the stability of the country's external sector will heavily depend on remittance flows, a recovery in ready-made garment (RMG) exports, and continued assistance from international development partners.
Earlier in May this year, another global rating agency, Fitch Ratings, had similarly downgraded Bangladesh’s rating outlook from 'Stable' to 'Negative', citing global economic risks stemming from conflicts in the Middle East as the primary reason.
S&P highlighted that the war in the Middle East, imbalances in the banking sector, and energy market volatility could further weaken Bangladesh's economic growth and external position over the next 12 to 18 months.
Consequently, exports and overall economic recovery could proceed at a slower pace than anticipated.
The agency warned that if Bangladesh’s long-term growth slows to levels comparable to peers at similar income levels over the next two to three years, or if its external position deteriorates significantly, the sovereign credit rating could be downgraded further.
In particular, a widening current account deficit, failure to meaningfully build up foreign exchange reserves, or growing external debt servicing pressure could exert further negative pressure on the rating.
Growth forecast at 4.5%
S&P forecasts that Bangladesh’s economic growth will average approximately 4.5% over the next three years.
The agency believes growth may fall below expectations due to banking sector frailties, energy market uncertainty, and concerns surrounding the outlook for the RMG sector.
The report mentioned that the economy has not yet fully recovered following the political crisis of 2024.
At the same time, major restructuring is underway in the banking sector to address non-performing loans (NPLs), creating short-term pressure on the financial system.
S&P’s assessment noted that energy supply uncertainties and high inflation continue to squeeze consumer purchasing power.
Elevated fuel and electricity prices could drag on private consumption and the recovery of domestic demand.
However, the agency pointed out that Bangladesh's RMG industry remains competitive in global markets owing to low production costs and an abundant workforce—even though export growth did not gain expected momentum in FY26 due to mixed global demand trends.
The report further observed that new US tariff policies have introduced fresh uncertainty for Bangladeshi exports.
On July 24, the United States imposed new tariffs on goods from several countries, including Bangladesh. As a result, a 10% tariff has taken effect on the majority of Bangladeshi goods.
S&P considers infrastructural bottlenecks, administrative complexities, and the slow pace of institutional reforms to remain among Bangladesh’s biggest challenges. Overcoming these structural weaknesses will take time.
The agency concluded that future improvements in the external sector will largely depend on global energy market conditions, support from international lending agencies, and the effective implementation of banking and fiscal reforms.
Additionally, while foreign exchange reserves are gradually recovering, sustained high energy prices could impede this progress.