S&P Downgrades Bangladesh Credit Rating Outlook to Negative

Global rating agency S&P Global Ratings has revised Bangladesh’s long-term sovereign credit rating outlook from ‘Stable’ to ‘Negative’, citing vulnerabilities in the banking sector, limited fiscal flexibility, energy market volatility and rising trade risks.

In an assessment report released on Monday, S&P said financial sector weaknesses, constrained government revenue generation and broader global uncertainties could slow Bangladesh’s economic recovery and increase macroeconomic risks in the coming years.

The agency noted that Bangladesh continues to face structural challenges, including low per capita income, weak revenue collection capacity, rising debt servicing costs and institutional constraints.

According to S&P, the country’s external stability will largely depend on remittance inflows, recovery in ready-made garment (RMG) exports and continued support from international development partners.

Growth forecast capped at 4.5%

S&P projected Bangladesh’s economic growth to average around 4.5% over the next three years, below historical levels.

The agency attributed the slower growth outlook to ongoing efforts to address high non-performing loans (NPLs) in the banking sector, the lingering effects of the 2024 political crisis, uncertainty over energy supplies and weaker global demand for RMG exports.

"High inflation and energy supply constraints continue to weigh on consumer purchasing power, slowing the recovery in domestic demand," the report said.

S&P added that although Bangladesh retains a competitive advantage in RMG exports due to its large labour force, export growth remained weak in FY2025–26.

External and trade risks

The rating agency identified changes in global trade policies as another major challenge, saying a recently introduced US tariff policy, including a 10% tariff on goods from several countries including Bangladesh, has created fresh uncertainty for the export-driven economy.

S&P warned that geopolitical conflicts in the Middle East, fluctuations in global energy prices and continued pressure on domestic banks could weaken Bangladesh’s growth prospects and external liquidity position over the next 12 to 18 months.

The agency cautioned that Bangladesh’s sovereign rating could face another downgrade in the next two to three years if economic growth slows significantly compared with peer countries or if external pressures, including a widening current account deficit or declining foreign exchange reserves, intensify.

Earlier in May, Fitch Ratings also revised Bangladesh’s sovereign outlook from ‘Stable’ to ‘Negative’, citing higher global economic risks and regional uncertainties.