Rating Agencies Downgrade Bangladesh

Dull economic condition & poor reform initiative Turn Fitch Ratings outlook negative.

Fitch Ratings keeps Bangladesh's rating same,B+,but downgrades outlook from stable to negative (see "Fitch revises down Bangladesh outlook to negative ",The Business Standard, May 14,2026,https://www.tbsnews.net/bangladesh/fitch-revises-bangladesh-outlook-negative-affirms-b-rating-1438136). It underscores challenges macroeconomic stability faces in the wake of rising external pressures like escalation of tensions in the Middle East,rise in fuel prices etc.

Such downgrading will make foreign credit more costly. Despite continuous swelling of forex reserve, Fitch notes that forex reserve condition may sharply deteriorate if the war in the Middle East turns worst.

This downgrading comes at a moment when BBS divulged that general inflation rose to 9.04% in April from 8.71% in March(see "Bangladesh Inflation Snapshot:2026",The Business Standard, May 11,2026,https://www.tbsnews.net/infograph/numbers/bangladesh-inflation-snapshot-april-2026-1436091). It is the non-food inflation that contributed greatly to the rise of inflation in April.

Recent fuel price hike is likely to raise non-food inflation further. Since there is an upward pressure on inflation, any slash in policy rate is highly unlikely in near future.

Inflation rate remains higher than central bank's desired 6% or 7% rate,Fitch report highlights.

Bangladesh's growing Non-Performing Loans (NPL),which is now 30% of total loan, is causing mayhem in the banking system,Fitch observes.

The IMF set a target to reduce NPL to 8%(see "IMF's Second Review on Credit Program",published here on June 27,2024,https://hoquestake.blogspot.com/2024/06/imfs-second-review-on-credit-program.html?m=0).There is no sign of NPL reduction; instead it grows day by day. The 8% target seems an uphill task right now.

We missed both the inflation and NPL reduction targets set by the IMF. In addition, abrupt dismissal of the past governor and allowing wrongdoers to regain control of the bank in the bank resolution act sent a wrong signal abroad about our commitment to genuine reforms.

Splitting NBR into policy and implementation departments is another IMF benchmark that remains unfulfilled. When there is suggestion for subsidy cut,govt plans to borrow heavily from domestic and foreign sources to finance the budget. Despite fuel price hike ,govt plans to borrow $2 billion for fuel import.

Govt also misses revenue target. To raise revenue, govt doubles source tax for key kitchen items including rice,edible oil,onion and pulses. It will fetch Tk 5 billion ,govt hopes. Not only that govt is mulling to tax motorbikes and e-rickshaws. Taxing the motorbikes will net another Tk 10 billion. Taxing the e-rickshaw is a good move to regulate their number.

There is no visible policy on how to tackle the NPL. No policy on how to fill the void created by NPL. And ordinary citizens are paying the price in the kitchen market and in the public transport.

Inflation, NPL,banking reform and revenue reform so far remain disappointing. And it is reflected in ratings made by agencies. Earlier, Moody's set the credit rating for Bangladesh at B2 with negative outlook. Standard & Poor's credit rating for Bangladesh set at B+ with stable outlook (see "Bangladesh-credit rating", Trading Economics,https://tradingeconomics.com/bangladesh/rating). I won't be surprised if Standard & Poor's outlook becomes negative following Fitch's outlook. In short, dilapidated economic conditions make foreign credit costlier.