Moody’s revises Bangladesh’s credit rating outlook to stable as political uncertainty eases

International credit rating agency Moody’s Ratings has revised the outlook on Bangladesh’s sovereign credit rating from ‘negative’ to ‘stable’. The agency cited reduced political uncertainty and external account pressure, an increase in foreign currency reserves and record inflows of remittances as among the main reasons for this.

In its latest assessment published today, Moody’s said the risk of the reform process being hindered due to political uncertainty has decreased because of the post-election political transition and majority public support for the new government. Consistent commitments with the International Monetary Fund (IMF) and cooperation from other organisations are also playing an important role in financing.

Earlier in March 2025, Moody’s had downgraded Bangladesh’s credit rating from ‘B1’ to ‘B2’. At the same time, the outlook on the rating was changed from ‘stable’ to ‘negative’. At that time the agency had said the future of Bangladesh’s banking sector had become uncertain due to deterioration in asset quality, high inflation and weak economic growth.

Moody’s has kept Bangladesh’s long-term issuer and senior unsecured rating unchanged at ‘B2’ and the short-term issuer rating at ‘Not Prime’.

Sector-related persons say that with the outlook on the credit rating becoming stable, foreign banks may increase credit limits for Bangladeshi banks. This will create opportunities for easier import financing as well as increased dollar supply.

Moody’s said that due to record remittances through formal banking channels, a flexible exchange rate system and reforms such as making the exchange rate market-based, Bangladesh’s foreign currency reserves have increased to about $32.9 billion by mid-2026. This reserve can meet more than four months of import costs. In 2024, the foreign currency reserve was $21.4 billion.

Moody’s has forecast a gradual recovery in economic growth. According to the agency’s calculation, Bangladesh’s GDP growth was 3.5 percent in the 2024-25 fiscal year. It rose to 4.1 percent in the 2025-26 fiscal year. Growth may rise to 4.3 percent in the 2026-27 fiscal year.

Moody’s has forecast that growth may reach 4.9 percent in the 2027-28 fiscal year if industrial sector activity returns and investment becomes normal. However, the agency apprehends that inflation may remain around 9 percent.

Despite the improvement in the economic forecast, Moody’s has kept Bangladesh’s rating unchanged at ‘B2’ due to weaknesses in the banking sector.

According to the agency’s calculation, the amount of non-performing loans in the banking sector has stood at about 32.8 percent. About 10 percent of GDP may be required for recapitalisation to cover the capital shortfall of banks and bring them back to international standards. Providing this amount may create major pressure on the government due to limited revenue income.

However, citing data on 12 percent annual deposit growth until March 2026, Moody’s said the main problem of the banking sector is not liquidity, but the capital crisis created due to non-performing loans.

Moody’s said Bangladesh is one of the countries with the lowest revenue collection in the world as a ratio of GDP. This has limited the government’s financial flexibility. About 30 percent of the government’s total revenue is spent on paying interest on loans. However, government debt relative to GDP is still at a manageable level.

On risks, Moody’s said power and industrial production were disrupted recently due to disruptions at the LNG terminal. This has made the weaknesses of the power sector clear.

In addition, the agency believes that pressure may be created on export capacity and financing on soft terms after graduation from the least developed country (LDC) list.