Moody’s restores Bangladesh’s credit rating outlook to stable

International credit rating agency Moody’s Ratings has revised its outlook on Bangladesh’s sovereign credit rating from ‘negative’ back to ‘stable’, citing easing political and external-sector pressures, rising foreign exchange reserves and record remittance inflows.

In its latest assessment released today, Moody’s said the political transition following the election and majority public support for the new government have reduced the risk that political uncertainty could disrupt the reform process. Continued commitments to the International Monetary Fund (IMF) and support from other institutions are also playing an important role in financing.

The agency had downgraded Bangladesh’s credit rating from ‘B1’ to ‘B2’ in March 2025, changing the outlook from ‘stable’ to ‘negative’. At the time, Moody’s said the outlook for Bangladesh’s banking sector had become uncertain due to deteriorating asset quality, high inflation and weak economic growth.

The agency kept Bangladesh’s long-term issuer and senior unsecured ratings at ‘B2’ and its short-term issuer rating at ‘Not Prime’.

People in the banking sector said the revision would increase the credit limits that foreign banks extend to Bangladeshi banks, which could help boost imports.

Muhit Rahman, a former managing director of Standard Chartered Bangladesh and former head of a financial institution who has long worked on the impact of Moody’s ratings, currently serves as managing director of One Bank. He told Prothom Alo that major lenders around the world attach considerable importance to Moody’s ratings.

“Banks in Bangladesh need credit lines from foreign banks to finance imports. When Moody’s lowers the rating, those credit limits are reduced. Foreign banks will now start increasing dollar credit lines again. This will allow us to open letters of credit (LCs) more easily. An increase in the supply of dollars could also have an impact on costs,” he said.

Muhit Rahman added that Bangladesh Bank has begun implementing a Tk 600 billion incentive package, which he described as very positive at this time.

“Imports of capital machinery as well as raw materials will now increase. This will also boost credit flows to the private sector. If closed factories reopen, the economy will regain momentum. That will create jobs and increase GDP growth,” he said.

Moody’s said foreign exchange reserves had risen to about US$32.9 billion by mid-2026, driven by record remittance inflows through formal banking channels, a flexible exchange-rate regime and reforms aimed at making the exchange rate more market-based. The reserves are sufficient to cover more than four months of import payments. Foreign exchange reserves stood at US$21.4 billion in 2024.

Forecasting a gradual recovery in economic growth, the agency said GDP growth was 3.5 per cent in fiscal year 2024–25 and rose to 4.1 per cent in FY2025–26. It forecasts growth of 4.3 per cent in FY2026–27. Growth could reach 4.9 per cent in FY2027–28 if industrial activity recovers and investment returns to normal.

Moody’s, however, expects inflation to remain around 9 per cent.

Despite the improved economic outlook, Moody’s kept Bangladesh’s rating at ‘B2’ because of weaknesses in the banking sector. Non-performing loans (NPLs) have reached about 32.8 per cent of total disbursed loans.

Moody’s said recapitalisation equivalent to around 10 per cent of GDP may be required to cover banks’ capital shortfalls and bring them back in line with international standards. Limited government revenue could place significant pressure on the government.

However, annual deposit growth of 12 per cent through March 2026 indicates that the banking sector’s main problem is not liquidity, but a capital shortage caused by non-performing loans, Moody’s said.

Moody’s said Bangladesh is among the countries with the lowest revenue collection relative to GDP in the world, limiting the government’s fiscal flexibility. About 30 per cent of total government revenue is spent on interest payments on debt, although public debt remains at a manageable level relative to GDP.

Among the risks, Moody’s said recent disruptions at LNG terminals that affected power generation and industrial production had highlighted vulnerabilities in the power sector.

The country could also face pressure on its export competitiveness and access to concessional financing after graduating from the list of least developed countries (LDCs).