Dhaka: Global credit rating agency Moody's Ratings has upgraded Bangladesh's outlook to 'stable' from 'negative', citing a reduction in acute political and external pressures, which has resulted in a more balanced risk environment. Alongside this outlook shift, Moody's has affirmed Bangladesh's long-term issuer and senior unsecured ratings at B2, and its short-term issuer ratings at 'not prime'.
According to United News of Bangladesh, the shift to a stable outlook is attributed to reduced political uncertainty following the post-election transition and the establishment of a strong governing mandate. Additionally, an improved external position has contributed to the positive outlook. Bangladesh's foreign exchange reserves are projected to rebuild to approximately $32.9 billion by mid-2026, a significant increase from about $21.4 billion at the end of 2024, which will cover more than four months of imports. This growth has been supported by record remittances through formal channels, a more flexible exchange rate regime, and central bank foreign exchange purchases.
Moody's projects a gradual recovery in real GDP growth, forecasting it to reach 4.3 percent in fiscal year 2026-27. Growth is expected to increase to around 4.9 percent from FY28 as investment and industrial activity normalize, marking an improvement from 4.1 percent in FY26 and 3.5 percent in FY25. Inflation is anticipated to remain around 9 percent before easing slowly.
The affirmation of the B2 rating reflects Bangladesh's long-term growth potential, supported by favorable demographics, a large and diversified economy, and a competitive ready-made garment (RMG) sector. However, the country faces structural vulnerabilities, such as a narrow government revenue base and weak debt affordability, with interest payments consuming nearly 30 percent of government revenue. Additionally, significant weaknesses in banking sector asset quality persist.
Moody's highlighted recent reforms addressing banking sector challenges, including asset quality reviews, deposit protection legislation, and a medium-term resolution strategy developed with the International Monetary Fund (IMF). These efforts have revealed system-wide non-performing loans (NPLs) estimated at around 32.8 percent. Recapitalization needs to restore regulatory capital adequacy are estimated at roughly 10 percent of GDP, to be phased over several years. Despite these challenges, system-wide deposits grew by around 12 percent year-on-year to March 2026, indicating that the banking sector's weaknesses remain primarily a solvency issue rather than a liquidity problem.
Moody's has maintained Bangladesh's local-currency (LC) and foreign-currency (FC) ceilings at Ba3 and B2, respectively. Ongoing collaboration with the IMF and other international financial institutions is viewed as a crucial anchor for external financing and structural reform momentum.