Economic outlook of BD stable: S&P

S&P Global Ratings affirmed Bangladesh's credit rating at B+/B on recent improvements in the country's official foreign-exchange reserves.

It also said Bangladesh's outlook is stable, which reflects the real growth rate per capita will remain very strong compared to that of the country's peers.

"We affirmed our long-term sovereign credit ratings on Bangladesh at B+ and our short-term ratings at B. The outlook is stable," said the global credit rating agency on Friday.

It also said the macroeconomic policies enacted over the past 18 months, such as transitioning to a more flexible exchange rate regime, allowing the local currency to depreciate, and tightening the monetary policy, are helping build foreign exchange liquidity.

But it warned that the country faces heightened trade risk from relatively high US tariffs.

The agency further said mooted elections in the first half of 2026 are likely to be a critical pivot point for more lasting political stability following the abrupt collapse of the Sheikh Hasina government in August 2024.

It said the downside and upside risks to the external balance sheet have become broadly balanced, adding, "This is despite headwinds in the next 12-18 months stemming from external trade conditions."

Bangladesh's credit profile also derives support from increasing external financial support, stemming from deep engagement with bilateral and multilateral development partners, consistent remittances from overseas Bangladeshi workers, and solid export receipts from the globally competitive garment manufacturing sector. The country's real economic growth rate decelerated meaningfully over the past two years.

It may pick up the pace if political and external stability solidifies over the next 12 months, according to the agency.

It said annual growth should accelerate to about 6.1 per cent in the next three years if these conditions materialise as the economy bounces back from the 2024 political crisis.

Bangladesh's uncertain political landscape may constrain the effectiveness of its institutions and policy certainty in the near term until a more lasting solution emerges, it also said.

The US tariff rate of 35 per cent, which will potentially apply to Bangladeshi imports from August 1, could affect labour market conditions if the two countries fail to reach a more effective agreement, according to S&P Global Ratings.

Modest per capita income, which it estimates at about $2,620 in the fiscal year ending in June 2025, remains one of the main constraints for Bangladesh's rating.

"We calculate Bangladesh's 10-year weighted average real per capita GDP growth rate at about 4.3 per cent. This is much stronger than the median for sovereigns at a similar level of income," it said.

The government is strengthening access to key external markets ahead of the expected graduation from the least developed country (LDC) status to a developing one in 2026, it said.

It also said Bangladesh's interest burden is elevated, especially relative to the government's very low revenue collection.

Besides, the country relies entirely on official bilateral and multilateral partners for its foreign currency borrowing, which partially mitigates risks to its debt profile.

Foreign exchange reserves rose by about $5 billion in FY25 to $26.7 billion, marking a notable recovery from the previous lows of below $20 billion.

This covers about 4.1 months of current account payments compared to only about 3.3 months at the end of FY24, said the agency.

Monetary and external policy reforms undertaken by the Bangladesh Bank are helping restore the country's external stability, it said.

The central bank has maintained its key policy rate at a multi-year high of 10 per cent amid persistently high inflation, which recently began to recede, it also said.

Bangladesh continues to implement reforms in line with a 42-month Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF) programmes of the International Monetary Fund (IMF).

Key reforms include reducing reliance on costly national savings certificates (NSCs) for domestic financing, improving the timeliness of the GDP data, and adjusting petroleum pricing to keep subsidies for petroleum products close to zero.

In June this year, the IMF's executive board completed its combined third and fourth reviews of the EFF programme, paving the way for the disbursement of $884 million.

At the same time, the IMF concluded the combined third and fourth reviews of the RSF programme, unlocking an additional $453 million.

"We forecast that Bangladesh's fiscal deficit will hold roughly stable over the next three years at about 4.6 per cent of the GDP," S&P Global Ratings said.

Bangladesh's net general government debt remains moderate, it said.

"We estimate it will average about 35 per cent of the GDP through the fiscal year 2028. However, the country's public interest burden is high, at about 26 per cent of revenues."

Bangladesh's narrow revenue base constrains the government's flexibility to provide fiscal support in times of stress, noted the agency.

Revenue generation remains critically low as a share of the economy and when benchmarked against other sovereigns, it said.

It may be difficult to achieve materially higher revenue generation until a more sustainable political solution emerges so that the government has a strong enough mandate to enact structural fiscal reforms, added S&P Global Ratings.

jasimharoon@yahoo.com