Moody's revises Bangladesh's outlook to ‘stable’ on easing political and external pressures

On Tuesday, credit ratings agency Moody’s changed Bangladesh’s credit outlook from “negative” to “stable,” reflecting a decrease in political and external pressures. Despite facing challenges such as higher import costs, gas supply volatility, and issues within the ready-made garment sector, the agency noted that the economy demonstrated underlying strength.

Moody’s attributed this shift to the post-election transition and a firm government mandate, which reduced political risks to implementing reforms. The nation’s foreign exchange reserves have been rebuilt, exchange rates have become more flexible, and remittances have reached record levels, bolstering Bangladesh’s external position.

Prime Minister Tarique Rahman’s administration, which assumed office in February, is actively pursuing reforms while seeking additional loans from international lenders, including the International Monetary Fund. Despite persistent inflation, slowing growth, and pressure on foreign exchange reserves, the government is actively striving to address these economic hurdles.

The World Bank recently approved $1.1 billion in emergency financing to assist Bangladesh in securing food supplies, supporting vulnerable households and businesses, and coping with the rising prices of fertilizer, fuel, and food resulting from the conflict in the Middle East. Additionally, Bangladesh is currently negotiating a replacement for its existing $5.5 billion IMF bailout, having chosen to terminate the previous program.

Moody’s maintained Bangladesh’s long-term issuer rating at “B2,” highlighting a balance between the country’s long-term growth potential and ongoing fiscal and banking sector vulnerabilities. This outlook revision stands in contrast to S&P’s decision in July to downgrade Bangladesh’s outlook to “negative,” citing banking issues and energy risks.