S&P Global Revises Bangladesh's Sovereign Credit Outlook to 'Negative'

International credit rating agency S&P Global Ratings has revised Bangladesh's long-term sovereign credit outlook from "Stable" to "Negative", while affirming the country's long-term foreign currency credit rating at 'B+' and its short-term rating at 'B'.

In a report released on Monday, S&P cited several factors behind the downgrade in the outlook, including persistent weaknesses in Bangladesh's banking sector, uncertainty stemming from conflicts in the Middle East, volatility in global energy markets, and growing external vulnerabilities. The agency warned that these factors could further slow Bangladesh's economic recovery over the next 12 to 18 months.

S&P forecasts Bangladesh's economy to grow at an average rate of around 4.5 percent over the next three years. It said growth is likely to remain constrained by structural weaknesses in the banking sector, uncertainty in energy markets, and challenges facing the country's ready-made garment (RMG) export industry.

According to the report, high inflation continues to weigh on domestic consumption, while tariff-related uncertainty has clouded export prospects, limiting the potential for stronger economic expansion.

Despite these challenges, S&P said robust remittance inflows, a gradual recovery in garment exports, and continued financial support from multilateral development partners should help maintain Bangladesh's external stability. The agency also noted that progress in revenue collection and banking sector reforms under a new International Monetary Fund (IMF) program could further strengthen the country's foreign exchange reserves.

According to the report, Bangladesh's foreign exchange reserves increased by approximately $6.2 billion during fiscal year 2025-26, reaching $32.9 billion. During the same period, remittance inflows rose by nearly 19 percent.

However, S&P warned that the country's current account deficit could widen over the coming years due to weaker garment exports and persistently high energy import costs.

The agency also highlighted Bangladesh's low tax revenue, noting that government revenue remains between 8 and 9 percent of GDP, limiting fiscal capacity. Although reforms at the National Board of Revenue (NBR), including expanded e-tax services and improvements in tax administration, are underway, S&P said it will take time before those measures produce meaningful results.

The report said Bangladesh is unlikely to experience a significant acceleration in economic growth over the next two to three years. It warned that the sovereign rating could be downgraded if the country's long-term growth continues to lag behind that of peers with similar income levels.

S&P also identified risks related to Bangladesh's external position. It said the sovereign rating could come under pressure if the country's narrow net external debt exceeds 100 percent of current account receipts on a sustained basis.

The agency added that weaker-than-expected foreign exchange earnings, a larger-than-anticipated current account deficit, or a failure to significantly strengthen foreign exchange reserves could further increase downward pressure on the country's credit profile.

Political developments also featured in the assessment. S&P said Bangladesh's economy has yet to fully recover from the political disruptions of 2024, while longstanding vulnerabilities in the banking sector continue to weigh on overall economic performance.

The report noted that rising energy prices have kept inflation elevated, reducing household purchasing power and slowing private consumption, which has in turn delayed a stronger recovery in domestic demand.

S&P also pointed to uncertainty surrounding new U.S. trade measures announced on July 24, under which a 10 percent tariff will be imposed on most Bangladeshi exports to the United States.

Given that the ready-made garment sector accounts for more than 85 percent of Bangladesh's merchandise exports, the agency said continued uncertainty over U.S. tariff policy could negatively affect the country's export performance.