S&P Global Ratings has revised Bangladesh’s sovereign credit rating outlook to negative from stable, citing rising risks from banking sector weakness, fiscal constraints, energy market volatility and a slower-than-expected recovery.
The global rating agency on 27 July 2026 affirmed Bangladesh’s long- and short-term sovereign ratings at ‘B+/B’, but warned that prolonged economic weakness could further pressure the country’s credit profile over the next 12–18 months.
“The negative rating outlook reflects our view that trend economic growth and Bangladesh’s external balance sheet position could weaken further as a result of adverse conditions,” S&P said in its latest research update.
The agency identified the Middle East conflict, financial sector imbalances and energy market vulnerabilities as key risks that could delay a rebound in exports and economic activity.
S&P expects Bangladesh’s economy to grow by around 4.5 per cent annually over the next three years, as banking sector weakness, energy uncertainty and external demand pressures weigh on recovery.
It said the banking sector’s ongoing consolidation to address poor asset quality would take time, with weak banks continuing to limit economic recovery. The non-performing loan ratio of state-owned commercial banks stands at about 40 per cent, while private banks are in relatively better shape.
Growth, exports under pressure
S&P said Bangladesh’s growth has slowed significantly over the past three years following the political crisis in 2024, with recovery facing multiple challenges.
It estimated real GDP growth at 4.2 per cent in fiscal year 2026 and forecast it to reach 4.8 per cent by fiscal 2029.
The agency noted that Bangladesh’s 10-year weighted average real per capita GDP growth has declined to around 3.3 per cent from 5.8 per cent in 2022, warning that a further decline could weaken the country’s growth advantage over peers.
The readymade garment sector, which accounts for more than 85 per cent of merchandise exports, is also facing pressure from weak external demand. Garment exports fell 2.6 per cent year-on-year in the first 11 months of fiscal 2026.
S&P said US tariff policy remains uncertain and Bangladesh will face a 10 per cent tariff on most goods exports to the US under measures introduced on 24 July 2026.
Reserves improve, external risks persist
S&P said Bangladesh’s external position has improved, with foreign exchange reserves rising by about $6.2 billion in fiscal 2026 to $32.9 billion.
The reserves now cover around 4.5 months of current account payments, up from about 3.3 months at the end of fiscal 2024.
The agency credited stronger remittance inflows and Bangladesh Bank’s policy measures for improving external stability. Remittances rose about 19 per cent in the first 11 months of fiscal 2026, while goods exports declined around 2 per cent during the period.
However, S&P expects the current account deficit to widen to 1.7-2.2 per cent of GDP over the next three years as imports recover and higher energy prices increase pressure on external balances.
It projected gross external financing needs to average around 102 per cent of current account receipts plus usable reserves over the next three years.
“A new IMF programme would act as an important anchor for continued reform implementation and to coalesce ongoing multilateral lender support for Bangladesh,” S&P said.
Fiscal weakness remains a challenge
S&P said Bangladesh’s low revenue capacity and rising interest burden remain major weaknesses in its credit profile.
Revenue collection is estimated at 8-9 per cent of GDP, among the lowest among similarly rated sovereigns. The agency expects the fiscal deficit to rise gradually to about 4.7 per cent of GDP over the next three years, while net government debt could increase to around 43 per cent of GDP by fiscal 2029.
Public interest payments are expected to remain at about 30 per cent of government revenue.
The agency said foreign currency debt accounts for more than 40 per cent of public debt, leaving Bangladesh exposed to exchange rate movements. It also warned that greater reliance on bank financing for government borrowing could crowd out private sector credit growth amid banking sector weakness.
Reform opportunity
S&P said the BNP-led government’s strong mandate after the February 2026 election could support more stable policymaking.
Government commitments to raise the tax-to-GDP ratio to 10 per cent, attract foreign direct investment, control inflation and increase infrastructure spending could improve the outlook if implemented effectively.
However, institutional weaknesses, infrastructure gaps and bureaucratic inefficiencies remain key constraints, it said.
S&P said the outlook could return to stable if economic growth strengthens over the next three to four years and external and fiscal conditions improve significantly.
A downgrade risk could emerge if growth remains weak, foreign exchange reserves fail to improve or external debt pressures rise materially, the agency added.
