THE Fitch Ratings, one of the three big credit rating agencies, revising Bangladesh’s sovereign outlook from ‘stable’ to ‘negative’ should serve as a warning for policy-makers. Although the rating agency has kept the country’s long-term foreign currency issuer default rating at ‘B+’, the report signals growing doubts about Bangladesh’s economic resilience and governance capacity. Such ratings matter because they influence how global lenders, investors and trading partners assess financial risks. A negative outlook can raise borrowing costs, complicate access to foreign credit and discourage the badly needed foreign investment at a time when the economy is already under pressure from high inflation, reserve shortage and weak private-sector activity. What is particularly alarming is the assessment of the banking sector, where non-performing loans have climbed to more than 30 per cent, which is a level unsustainable by any standards. Non-performing loans are, moreover, driven largely by state-owned banks and prolonged regulatory forbearance. The decline in private sector credit growth, now stuck at around 6 per cent, also reflects a wider erosion of confidence in the economy. Also concerning is the warning about Bangladesh’s external vulnerabilities, especially its dependence on Middle Eastern remittances flows and imported fuel, which in case of any disruption can quickly deepen the balance-of-payments pressure and intensify inflationary stress.
The report also highlights structural weaknesses that successive governments have failed to address. Bangladesh’s revenue collection, at only about 7.9 per cent of the gross domestic product, remains among the lowest in the world, limiting the state’s ability to invest in infrastructure, social protection and productive sectors without reliance on borrowing. The report also mentions that weak governance, poor regulatory effectiveness and persistent corruption continue to undermine institutional credibility. The stagnation of constitutional and governance reforms, as the report says, has damaged confidence in policy-making. As international rating agencies assess, besides macroeconomic figures, the quality of institutions, transparency and political commitment, the report finds Bangladesh poor in global governance indicators. The report warns that mounting external challenges faced by the apparel sector amidst uncertain global demand growing domestic production costs may put Bangladesh’s largest export industry in a tight spot. Recent fuel prices adjustments may worsen the already concerning inflation situation. The danger lies, therefore, not only in the possibility of another downgrade but also in the cumulative loss of confidence that can gradually weaken the foundations of the economy. The ultimate warning that the report sounds is that Bangladesh can no longer ignore deep institutional fragility that threatens economic stability.
Decisive and credible reforms, not temporary administrative measures, are the way forward. The authorities must discipline the banking sector, broaden the revenue base through an efficient tax administration and diversify exports and remittances sources. The authorities must also ensure governance reforms and sound financial management.
