Moody’s lifts Bangladesh outlook to stable, but banking risks loom

Bangladesh has secured a much-needed vote of confidence from global ratings agency Moody’s, which has upgraded the country’s sovereign outlook to stable from negative, while retaining its long-term rating at B2.

The outlook change signals that the acute political and external pressures that had threatened Bangladesh’s credit profile have eased, although Moody’s warned that deep structural weaknesses�"particularly in the banking system and public finances�"continue to weigh heavily on the economy.

“The change in outlook to stable from negative reflects our assessment that the acute political and external pressures that drove the negative outlook have eased, leaving risks more balanced at the B2 rating level, even as material structural vulnerabilities persist,” Moody’s said.

The agency said the post-election transition and strong governing mandate have reduced the risk of political uncertainty derailing economic reforms. Bangladesh’s external position has also strengthened, supported by rebuilding foreign exchange reserves, a more flexible exchange-rate regime and record remittance inflows.

Foreign exchange reserves rose to around $32.9 billion by mid-2026, providing more than four months of import cover, from about $21.4 billion at the end of 2024.

Moody’s attributed the improvement to record remittances, greater exchange-rate flexibility and the removal of distortions that had previously plagued the foreign exchange market. Higher remittance inflows through formal banking channels have also helped cushion the impact of rising energy import costs.

Continued engagement with the International Monetary Fund (IMF) and other international financial institutions remains an important anchor for external financing and economic reform, Moody’s said, although discussions over a successor IMF programme remain ongoing. The agency expects Bangladesh’s economy to recover gradually, with real GDP growth rising to 4.1 per cent in FY2026, from 3.5 per cent in FY2025. Growth is projected at 4.3 per cent in FY2027 and around 4.9 per cent from FY2028 as investment and industrial activity recover.

Inflation, however, is expected to remain stubbornly high at around 9 per cent before gradually easing.

Moody’s upgrade comes against a backdrop of contrasting signals from other major ratings agencies. S&P Global revised Bangladesh’s long-term outlook to negative from stable in June, citing persistent weakness in the banking sector and risks from volatile global energy markets and trade conditions.

In May, Fitch Ratings also shifted its outlook to negative from stable, pointing to macroeconomic vulnerabilities linked to Bangladesh’s exposure to the conflict in the Middle East.