Political uncertainty eases, Moody's makes country's credit rating outlook 'stable'

In its latest assessment published on Tuesday (September 15), Moody's said that the risk of the reform process being disrupted has decreased due to the post-election political transition and majority public support for the new government. Continued commitments with the International Monetary Fund (IMF) and cooperation from other agencies are also playing an important role in financing.

Earlier, in March 2025, Moody's downgraded Bangladesh's credit rating from ‘B1’ to ‘B2’. At the same time, the outlook was changed from ‘stable’ to ‘negative’. This time, the long-term issuer and senior unsecured rating ‘B2’ and the short-term issuer rating ‘Not Prime’ have been kept unchanged.

With the credit rating outlook becoming stable, sector stakeholders believe foreign banks may increase lending limits for Bangladeshi banks. This could make import financing easier as well as create opportunities for increased import activities. Former Managing Director of Standard Chartered Bangladesh Muhit Rahman said large lenders consider Moody's rating seriously. If the rating improves and foreign banks start increasing dollar lending limits, opening letters of credit may become easier.

According to Moody's data, as a result of record remittances through legal banking channels, a flexible exchange rate, and reforms such as making the exchange rate market-based, Bangladesh's foreign exchange reserves increased to about $32.9 billion by mid-2026. This reserve can cover more than four months of import expenses. In 2024, reserves were $21.4 billion.

The agency also forecast a gradual recovery in economic growth. According to Moody's, GDP growth was 3.5 percent in FY2024-25, could be 4.1 percent in FY2025-26, and 4.3 percent in FY2026-27. If activity and investment in the industrial sector normalize, growth could reach 4.9 percent in FY2027-28. However, inflation is feared to remain around 9 percent.

Major risk: the banking sector

Although the economic outlook has improved, Moody's has kept Bangladesh's rating at ‘B2’ due to weaknesses in the banking sector. According to the agency, the amount of non-performing loans in the banking sector is about 32.8 percent.

Moody's said banks may need recapitalization equivalent to about 10 percent of GDP to fill capital shortfalls and bring them back to international standards. Due to limited revenue, this could create significant pressure on the government. However, citing data showing 12 percent annual deposit growth through March 2026, the agency said the main problem in the banking sector is not liquidity; rather, it is the capital shortage created by non-performing loans.

Revenue shortfall is also a major challenge

According to Moody's, relative to GDP, Bangladesh is among the countries with the lowest revenue collection in the world. As a result, the government's fiscal flexibility is limited. About 30 percent of the government's total revenue is spent on repaying debt interest. However, government debt relative to GDP is still at a tolerable level.

Regarding risks, Moody's further said that weaknesses in the country's power sector have become evident as electricity and industrial production were disrupted due to LNG terminal disruptions. In addition, if Bangladesh exits the least developed country (LDC) list, it could create pressure on export capacity and financing on concessional terms.