Moody’s Ratings has revised Bangladesh’s sovereign outlook to stable from negative, citing easing political and external pressures, improved foreign exchange reserves and a stronger external position.
The global rating agency, however, kept Bangladesh’s long-term issuer and senior unsecured ratings unchanged at B2.
In its latest assessment published on Tuesday, Moody’s said risks at the B2 level had become more balanced after political uncertainty eased following the post-election transition, while a strong governing mandate reduced the risk of reform delays.
However, it warned that major structural weaknesses remain, including a narrow government revenue base, weak debt affordability and significant vulnerabilities in the banking sector’s asset quality and capitalisation.
Moody’s said foreign exchange reserves recovered 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.
The improvement was supported by record remittance inflows through formal banking channels, a more flexible exchange rate regime and the removal of earlier market distortions, it said.
The agency added that Bangladesh was better positioned to absorb external shocks than during the 2022-24 stress period, when reserves declined sharply amid a disorderly adjustment.
Moody’s expects economic growth to recover gradually, projecting gross domestic product (GDP) growth at 4.3 per cent in fiscal year 2027 before rising to around 4.9 per cent from fiscal year 2028 as investment and industrial activity normalise.
It said growth rose to 4.1 per cent in fiscal year 2026 from 3.5 per cent in fiscal year 2025, supported by reduced political uncertainty after the February 2026 election.
The ready-made garment sector will continue to support exports, although energy supply constraints and Bangladesh’s graduation from least-developed country status will remain key challenges.
“Realising Bangladesh’s growth potential will depend on sustained progress on structural reforms, which has so far been uneven,” Moody’s said.
The agency also highlighted continued weaknesses in the banking sector, saying reforms had revealed system-wide non-performing loans estimated at around 32.8 per cent.
It estimated that banks would require recapitalisation equivalent to around 10 per cent of GDP to restore regulatory capital adequacy levels, posing a significant burden given Bangladesh’s limited fiscal space.
At the same time, Moody’s said liquidity in the banking system remained stable, with deposits growing around 12 per cent year-on-year up to March 2026. It said the sector’s main challenges were related to solvency rather than liquidity.
On banking reforms, Moody’s said the government had advanced measures including asset quality reviews, deposit protection legislation, a medium-term bank resolution strategy developed with the International Monetary Fund (IMF) and the repeal of a provision that would have allowed former owners of failed banks to regain ownership.
The agency said continued engagement with the IMF and other international financial institutions remained an important anchor for external financing and reforms, although discussions over the pace of reforms and terms of a successor IMF programme were ongoing.
Moody’s also pointed to fiscal constraints, saying interest payments absorb close to 30 per cent of government revenue despite a moderate debt burden of around 40 per cent of GDP.
It said Bangladesh’s large and diversified economy, favourable demographics and competitive RMG sector supported its long-term growth potential, but stronger progress on reforms would be needed to improve the rating.
The agency said a recent disruption at one of Bangladesh’s floating liquefied natural gas (LNG) import terminals exposed weaknesses in the energy supply system, affecting power, industrial and fertiliser production.
Moody’s maintained Bangladesh’s local currency ceiling at Ba3 and foreign currency ceiling at B2.
The agency said an upgrade could be supported by faster progress in banking sector reforms, stronger revenue mobilisation, improved fiscal capacity and sustained implementation of structural reforms.
A downgrade could occur if banking sector liabilities create a larger-than-expected burden on the government, economic growth weakens materially or Bangladesh deviates significantly from the IMF- and international financial institution-supported reform agenda.
