S&P keeps Bangladesh at B+ amid steady economic outlook

S&P Global has kept its long-term credit ratings on Bangladesh’s economy unchanged at B+ as the country works to rebuild external liquidity amid ongoing political uncertainty.

The US-based global credit rating agency said Bangladesh’s external liquidity is stabilising, as indicated by the recent steady improvement in its official foreign exchange reserves.

“Macroeconomic policies enacted over the past 18 months — such as transitioning to a more flexible exchange rate regime, allowing the taka to depreciate, and tightening monetary policy — are helping to rebuild foreign exchange liquidity,” said S&P in a report published on Thursday.

The agency said gradual easing of inflation should support a modest recovery in domestic demand conditions.

However, Bangladesh faces heightened trade risk from relatively high US tariffs, said the agency, which downgraded the country’s ratings from BB- to B+ amid deadly protests over the quota-based hiring system for government jobs a year ago.

“… a US tariff rate of 35 percent that will potentially apply to Bangladeshi imports into the US beginning 1 August 2025 could affect labour market conditions if the two countries fail to reach a more effective agreement.”

S&P said the country’s garment industry remains highly competitive, with low unit labour costs and an ample supply of labour.

But the proposed US tariff would undermine Bangladesh’s competitiveness in that market and potentially disrupt its RMG industry.

S&P said Bangladesh’s real growth rate per capita is very strong compared with those of peers and that downside and upside risks to its external balance sheet have now become broadly balanced.

“This is despite headwinds in the next 12–18 months stemming from external trade conditions.”

S&P also said it could lower its ratings on Bangladesh if the country’s external position worsens.

The agency said Bangladesh is receiving increasing external financial support, stemming from deep engagement with bilateral and multilateral development partners, consistent remittances from overseas Bangladeshi workers, and solid export receipts from its globally competitive garment manufacturing sector.

Bangladesh’s real economic growth rate decelerated meaningfully over the past two years. It may pick up pace should political and external stability solidify over the next 12 months, said S&P, forecasting about 6.1 percent growth in the next three years if these conditions materialise.

It said elections tentatively scheduled for April 2026 could be a milestone in that process.

“Bangladesh’s volatile political situation may stymie the predictability of policy responses.”

“Mooted elections in the first half of 2026 are likely to be a critical pivot point for more lasting political stability following the abrupt collapse of the government in July 2024,” it said in the latest report.

Should the establishment of an elected government lead to a more stable political environment, it could help to alleviate persistently low foreign direct investment inflows and set the foundation for long-term structural reforms, it added.

“Nevertheless, investors will likely continue to face challenges, including evolving institutional settings, infrastructure deficiencies, and bureaucratic inefficiencies.”

S&P said its assessment on Bangladesh’s banking risk is negative.

It classified Bangladesh’s banking sector in group ‘9’ (with ‘1’ being the highest assessment and ’10’ the lowest). “That said, the sovereign faces limited contingent liabilities from the banking sector. “

It said although private sector banks are in better shape, there are notable risks in the state-owned commercial banks.

The agency said state banks account for less than 30 percent of total banking sector assets but their nonperforming loans ratio is much higher than that of peer commercial banks, standing at about 40 percent according to the IMF.