Due to inadequate revenue production and a large interest load, Bangladesh’s fiscal flexibility is constrained, as evidenced by the downgrading to B+.
Changing institutional and administrative environments are further rating restraints, per S&P.
S&P weighed these worries against steadily rapid economic expansion, a manageable level of public debt, and an external position bolstered by significant remittances from Bangladeshi workers abroad, engagement with bilateral and multilateral development partners, and a globally competitive apparel manufacturing industry.
S&P highlighted weakening external liquidity, as evidenced by the sustained depletion of Bangladesh’s official foreign exchange reserves.
Rebuilding external buffers might be aided, albeit slowly, by macroeconomic policies implemented in May 2024, according to a study on its website. These policies included tightening monetary policy, enabling the taka to devalue, and switching to a crawling-peg exchange rate regime.
The agency saw ongoing pressures on Bangladesh’s external metrics, including a smaller current account deficit and a prolonged fall in foreign exchange reserves despite the Bangladesh Bank’s efforts to reduce imports.
‘Gross external financing needs now exceed the sum of current account receipts and usable reserves,’ the report added.
The report also mentioned that Bangladesh was grappling with widespread student-led protests, reportedly resulting in over 200 deaths, according to local news sources.
Bangladesh was downgraded by Fitch from BB- to B+ in May as a result of a persistent deterioration of external buffers. Bangladesh has recently asked several nations for credit support to deal with its dwindling foreign exchange reserves and dollar shortfall.
These elements are counterbalanced, though, by steadily robust economic growth, a manageable level of public debt, and an external position supported by substantial engagement with bilateral and multilateral development partners, sizable remittances from Bangladeshi workers abroad, and a globally competitive garment manufacturing sector.
