A slew of drags like persistent banking-sector weakness, fiscal constraints and mounting external risks made S&P Global Ratings revise Bangladesh's sovereign credit outlook to negative from a stable state.
The American agency's such ratings are prompted by the likelihood that these negatives could delay the country's economic recovery.
However, it affirmed the country's long- and short-term sovereign credit ratings at 'B+/B'.
In its report obtained Monday, the US ratings agency has said Bangladesh was entering a difficult period of economic rebalancing as financial-sector vulnerabilities coincided with uncertainty in global energy markets and international trade.
The agency said sustained strength in remittance inflows, a recovery in readymade-garment exports and continued support from multilateral lenders would be crucial to preserving external stability.
It says: "The negative outlook reflects the risk that Bangladesh's trend economic growth and external position could weaken further over the next 12 to 18 months citing the conflict in the Middle East, banking sector imbalances and energy market volatility."
The agency has alerted it could downgrade Bangladesh's sovereign rating if long-term economic growth weakened further or if the country's external position deteriorated significantly, including through a sustained increase in net external debt relative to current account receipts.
Conversely, the outlook could return to stable if economic growth strengthened materially over the next three to four years and the government achieved lasting improvements in fiscal and external indicators, including higher foreign-exchange reserves, stronger current-account receipts and slower debt accumulation.
The S&P has said Bangladesh's sovereign profile continued to be constrained by low per- capita income, limited fiscal flexibility, weak revenue mobilisation and institutional shortcomings.
However, these weaknesses were partly offset by the country's historically strong growth performance, a moderate public-debt burden and continued financial support from bilateral and multilateral development partners.
The agency expects Bangladesh's economy to grow by an average of about 4.5 per cent over the next three years that reflect continued weakness in the banking sector, uncertainty in global energy markets and subdued demand for garment exports.
Although the BNP-led government secured a strong mandate in the February 2026 election, providing an opportunity for more stable policymaking, S&P thinks meaningful structural reforms would take time because of institutional weaknesses, infrastructure bottlenecks and bureaucratic inefficiencies.
The report says Bangladesh's banking sector remained the principal domestic risk to the economy.
"Weak asset quality, particularly at state-owned and Islamic banks, continued to constrain credit growth and could weigh on the broader economic recovery."
The S&P report says Bangladesh's external position had improved over the past year as foreign-exchange reserves recovered to about US$32.9 billion, helped by stronger remittance inflows and tighter macroeconomic policies.
Nevertheless, it cautions that higher global energy prices and a widening current- account deficit could reverse part of those gains.
The agency expects the current-account deficit to widen modestly over the next three years as imports recover alongside domestic demand, while negotiations with the International Monetary Fund on a new lending programme could provide an important anchor for fiscal and banking-sector reforms.
It forecasts the fiscal deficit to edge up to around 4.7 per cent of GDP over the medium term, while public debt would continue to rise gradually because of weaker nominal GDP growth, higher borrowing needs and the depreciation of the Taka.
The agency also warns that Bangladesh's narrow tax base and high interest burden continued to limit the government's fiscal flexibility.
It has said reforms aimed at improving tax administration and broadening the revenue base could lift the tax-to-GDP ratio modestly above 9.0 per cent, but substantial progress would require sustained implementation.
Inflation is likely to remain elevated, particularly if global energy prices stayed high, while higher government borrowing from domestic banks risked "crowding out" private-sector credit and slowing investment.
The government is working on strengthening access to key markets ahead of Bangladesh's expected graduation from its status as one of the least-developed countries (as classified by the U.N.) later this year.
Efforts such as improving the domestic business environment and boosting competitiveness will, however, take time to implement, it mentioned.
The U.S. tariff policy to be applied to Bangladesh remains in flux. On July 24, 2026, the U.S. introduced new tariffs on a variety of economies, including Bangladesh, which will be subject to a 10 per cent tariff rate on most goods exports to the U.S.
Bangladesh's export profile is highly concentrated in the readymade-garments sector, which represents more than 85 per cent of merchandise exports.
From January to March 2026, 18 per cent of Bangladesh's exports were to the U.S., and about 86 per cent of these were readymade garments, excluding leather products and other textiles.
In the meantime, another global ratings agency, Fitch, also downgraded the country's ratings to negative recently.
jasimharoon@yahoo.com
