Bangladesh’s long-term issuer and senior unsecured ratings have been downgraded by Moody’s Investors Service (Moody’s) from Ba3 to B1, with a stable rating outlook.

According to Moody’s assessment, Bangladesh faces persistent external vulnerability and liquidity risks, exacerbated by institutional weaknesses revealed during the ongoing crisis.

Ongoing dollar scarcity and a decline in foreign exchange reserves indicate continued pressures on the country’s external position, leading to import constraints and energy shortages.

The government’s import control measures and unconventional policies, including multiple exchange rates and interest rate caps, have created distortions that have not been fully reversed.

The low level of fiscal revenues relative to the size of the economy limits the government’s policy choices and suggests weakening debt affordability.

Moody’s expects external financing to help alleviate pressures on the external and fiscal metrics. Still, external buffers will remain weaker than pre-pandemic levels, and higher debt levels will weaken fiscal strength.
Bangladesh’s local-currency and foreign-currency ceilings have also been lowered by Moody’s, reflecting weak predictability and reliability of government institutions, high external imbalances, and uncertainties in capital flow management.

The country’s external position is expected to remain structurally weaker than before the pandemic, with gross foreign exchange reserves declining significantly.

Moody’s predicts that reserves will not recover to pre-pandemic levels for the next 2-3 years.

The country’s economic resilience, particularly its globally competitive ready-made garment industry, is expected to help it recover with a projected growth rate of 6% in fiscal 2025.

However, Bangladesh’s low per capita income, infrastructure, human capital constraints, economic competitiveness, and exposure to climate change risks pose additional challenges to its economic growth.