Fitch downgrades Bangladesh to 'B+', outlook stable

Fitch Ratings in a report on Monday downgraded Bangladesh's long-term foreign-currency issuer default rating to 'B+' from 'BB-'.

The downgrade to 'B+' reflects sustained weakening of Bangladesh's external buffers, which could prove challenging to sufficiently reverse despite recent policy reforms, leaving the country more vulnerable to external shocks.

Policy actions since early 2022 have been insufficient to stem the fall in foreign exchange reserves and resolve domestic dollar tightness.

The recent shift to a crawling peg aims to increase exchange-rate flexibility. Whether this will fully address lingering FX market distortions and support significant reserves build-up remains unclear.

The Stable Outlook reflects mitigation of external refinancing risks by a favourable external creditor composition, IMF-programme reforms to improve macroeconomic stability and address banking sector weaknesses, moderate government debt and favourable medium-term growth prospects.