Agency cites banking sector vulnerabilities, limited fiscal capacity, and mounting external risks as key threats to Bangladesh’s economic recovery.
Business Desk | July 28, 2026
S&P Global Ratings has revised Bangladesh’s long-term sovereign credit outlook from “Stable” to “Negative,” citing persistent weaknesses in the banking sector, limited government fiscal capacity, global energy market uncertainty, and rising trade-related risks.
In a report released on July 27, the international credit rating agency said structural vulnerabilities in Bangladesh’s financial sector, coupled with fiscal constraints and an uncertain global economic environment, could prolong the country’s economic recovery and increase downside risks in the coming years.
According to S&P, Bangladesh continues to face challenges stemming from relatively low per capita income, weak domestic revenue collection, and a high interest burden on government debt, all of which limit fiscal flexibility. The agency also pointed to administrative and institutional weaknesses that continue to weigh on the country’s credit profile.
The report said the stability of Bangladesh’s external sector will largely depend on sustained remittance inflows, a recovery in ready-made garment exports, and continued financial support from international development partners.
S&P’s latest assessment follows a similar move by Fitch Ratings, which downgraded Bangladesh’s outlook from “Stable” to “Negative” in May 2026, citing heightened global economic risks linked to the conflict in the Middle East.
Risks Could Intensify Over the Next 12–18 Months
S&P warned that geopolitical tensions in the Middle East, vulnerabilities in the banking sector, and volatility in global energy markets could further weaken Bangladesh’s economic growth and external position over the next 12 to 18 months. The agency said these factors could slow export growth and delay the country’s broader economic recovery.
It also cautioned that Bangladesh’s sovereign credit rating could face a downgrade if long-term economic growth slows to levels comparable with lower-income peers or if the country’s external financial position deteriorates significantly over the next two to three years.
A widening current account deficit, inadequate growth in foreign exchange reserves, or rising external debt obligations could place additional downward pressure on the country’s credit rating, the report added.
Growth Forecast at 4.5%
S&P projects Bangladesh’s economy to grow by an average of 4.5% annually over the next three years. However, the agency said growth could remain below expectations due to persistent banking sector weaknesses, uncertainty in global energy markets, and concerns over the outlook for the country’s garment industry.
The report noted that Bangladesh’s economy has yet to fully recover from the political unrest of 2024. At the same time, the banking sector is undergoing major restructuring to address rising non-performing loans, creating additional short-term pressure on the financial system.
Inflation, Energy Costs, and Trade Risks Remain Key Concerns
S&P said high inflation and uncertainty in energy supplies continue to weigh on household purchasing power. Elevated fuel and electricity prices are expected to dampen private consumption and slow the recovery in domestic demand.
Despite these challenges, the agency noted that Bangladesh’s ready-made garment sector remains internationally competitive due to its low production costs and abundant labor force. However, mixed global demand meant exports during the 2025–26 fiscal year fell short of expectations.
The report also highlighted new risks stemming from recent U.S. tariff measures. On July 24, 2026, the United States imposed new tariffs on imports from Bangladesh and several other countries, with a 10% tariff now applying to most Bangladeshi products entering the U.S. market.
S&P concluded that infrastructure bottlenecks, administrative inefficiencies, and the slow pace of institutional reforms remain among Bangladesh’s biggest long-term challenges. The agency said future improvements in the country’s external position will depend on developments in global energy markets, continued support from international lenders, and the successful implementation of reforms in the banking and revenue sectors.
