Rating agency Fitch Ratings on Monday changed its outlook on Bangladesh's long-term forex issuer default rating (IDR) from stable to negative, keeping the IDR at "BB-."
According to the report released on Monday, the negative outlook reflected a decline in external cushions, increased vulnerability to economic shocks.
It also reflected the view that the country's incremental policy response, including exchange-rate system changes, and continued support from external creditors, had been insufficient to stem the fall in forex reserves and resolve domestic US dollar liquidity crunch.
However, ratings kept at 'BB-' reflected Bangladesh's manageability regarding its external-debt repayment profile, still-favourable growth prospects and government debt that is below that of its neighbouring countries.
This is balanced by low government revenue and per capita income as well as a weak banking sector and deficient governance indicators, said the report.
Regarding the country's manageable external debt service, it said Bangladesh should be able to meet its external debt obligations over 2024-2025, even with lower external buffers.
"We expect funding from these sources to continue. An IMF programme, agreed in January 2023, should support the external position, although this depends on meeting programme targets, " said Fitch in its report.
Stating low revenue in the country, Fitch Ratings said the gross general government revenue, or GDP, is far below the 'BB' median.
The IMF requires Bangladesh to improve its revenue/GDP ratio, and projects a ratio of 8.8% in FY23 and 10.3% in FY26. However, this is challenged by large tax exemptions, evasion and weak tax administration. The IMF's June-end revenue target was not met.
