Moody’s Ratings today improved Bangladesh’s sovereign outlook to stable from negative, saying the country’s external position has strengthened while political and economic pressures have eased, although significant risks remain in the banking sector and fiscal position.
The rating agency affirmed Bangladesh’s long-term issuer and senior unsecured ratings at B2 and its short-term issuer ratings at Not Prime in its latest assessment released today.
Moody’s said the risks that had prompted the negative outlook had become more balanced at the B2 rating level.
It said the post-election transition and the government’s strong mandate had reduced the risk of political uncertainty disrupting reforms.
Bangladesh’s external position has improved, supported by stronger foreign exchange reserves, a more flexible exchange rate regime and record remittance inflows. The rise in remittances through formal banking channels has also helped offset higher energy import costs, it said.
Foreign exchange reserves increased to around $32.9 billion by mid-2026, equivalent to more than four months of import cover, from about $21.4 billion at the end of 2024.
Moody’s attributed the improvement to record remittances, the more flexible exchange rate regime and the removal of earlier distortions in the foreign exchange market.
The agency also noted that continued engagement with the International Monetary Fund (IMF) and other international financial institutions remains an important anchor for external financing and economic reforms, although discussions are continuing over a successor IMF programme.
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.
Inflation, however, is expected to remain around 9 percent before gradually declining.
Despite upgrading the outlook, Moody’s retained Bangladesh’s B2 sovereign rating, pointing to a narrow revenue base, weak debt affordability and substantial vulnerabilities in the banking sector.
The rating agency said reforms had revealed system-wide non-performing loans of around 32.8 percent, while banks could require recapitalisation equivalent to around 10 percent of GDP to restore regulatory capital adequacy.
Such recapitalisation could put considerable pressure on the government because of limited fiscal space and increasing reliance on domestic bank financing, it said.
At the same time, banking-sector liquidity has remained stable, with system-wide deposits growing by around 12 percent year-on-year through March 2026. This indicates that solvency, rather than liquidity, remains the sector’s primary weakness, according to Moody’s.
The agency also highlighted Bangladesh’s exceptionally narrow government revenue base, which limits fiscal flexibility.
Interest payments consume close to 30 percent of government revenue, while government debt remains relatively moderate at around 40 percent of GDP.
Moody’s expects public debt to increase gradually over the medium term due to persistent primary deficits and possible costs arising from government support for the banking sector.
Continued access to concessional financing should, however, help contain borrowing costs and refinancing risks, it said.
Energy supply constraints remain another risk to Bangladesh’s economic growth. Moody’s said a recent disruption at an LNG import terminal exposed vulnerabilities in the country’s energy supply system, causing shortages that affected power generation, industry and fertiliser production.
The agency also warned that Bangladesh’s graduation from least-developed-country (LDC) status in the coming years could put pressure on export competitiveness and access to concessional financing.
The ready-made garment (RMG) sector is expected to remain a key pillar of the country’s exports, supported by Bangladesh’s competitive position. However, sustained structural reforms will be necessary to realise the country’s longer-term growth potential.
Moody’s said faster-than-expected progress in resolving banking-sector weaknesses, stronger revenue mobilisation and improvements in institutions and policy effectiveness could create upward pressure on Bangladesh’s rating.
On the other hand, a material crystallisation of banking-sector liabilities on the government’s balance sheet, a weaker growth or fiscal outlook, reduced access to external financing or renewed political instability could exert downward pressure on the rating.