Moody’s Ratings has upgraded Bangladesh’s sovereign outlook to stable from negative, reflecting an improved external position and reduced political and economic pressures. The rating agency maintained the country’s long-term issuer and senior unsecured ratings at B2 and its short-term issuer ratings at Not Prime. The upgrade is attributed to stronger foreign exchange reserves, a flexible exchange rate regime, and record remittance inflows. However, significant risks remain in the banking sector and fiscal position.
Foreign exchange reserves have increased to approximately $32.9 billion by mid-2026, providing more than four months of import cover, up from $21.4 billion at the end of 2024. This improvement is driven by record remittances, a more flexible exchange rate regime, and the removal of distortions in the foreign exchange market. Continued engagement with the International Monetary Fund (IMF) and other international financial institutions supports external financing and economic reforms.
Despite the upgrade, Moody’s retained Bangladesh’s B2 sovereign rating, highlighting a narrow revenue base, weak debt affordability, and substantial vulnerabilities in the banking sector. The agency estimates system-wide non-performing loans at around 32.8 percent, with banks requiring recapitalisation equivalent to about 10 percent of GDP. This could strain the government due to limited fiscal space and increasing reliance on domestic bank financing. Additionally, Bangladesh’s exceptionally narrow government revenue base limits fiscal flexibility, with interest payments consuming nearly 30 percent of government revenue.
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Significant risks remain in the banking sector and fiscal position. The banking sector faces system-wide non-performing loans and may require substantial recapitalisation. The government’s narrow revenue base and high interest payments also pose challenges.
Moody’s expects Bangladesh’s economic growth to recover gradually, with real GDP growth rising to 4.1 percent in FY2026 from 3.5 percent in FY2025. Growth is projected to reach 4.3 percent in FY2027 and around 4.9 percent from FY2028 as investment and industrial activity normalise. However, inflation is expected to remain around 9 percent before gradually declining.
Continued engagement with the IMF and other international financial institutions remains crucial for external financing and economic reforms. Discussions are ongoing over a successor IMF programme, which will support Bangladesh’s economic stability and reform efforts.
