Fitch Ratings warns of decline in Bangladesh’s debt repayment capacity

International credit rating agency Fitch Ratings has warned that Bangladesh’s long-term debt repayment capacity may decline, revising the outlook on the country’s long-term issuer default rating (IDR) to negative from stable. 

The agency maintained Bangladesh’s current rating at ‘B+’, indicating that the country remains capable of meeting its debt obligations, albeit with vulnerability to external shocks, concerns over foreign exchange reserves, inflation, the banking sector, and policy weaknesses. 

Fitch released the assessment from Hong Kong on Wednesday.

The long-term issuer default rating assesses a country’s ability to repay debt over the long term. A negative outlook signals the risk of a potential downgrade if economic and external pressures intensify, which could raise Bangladesh’s borrowing costs abroad and erode international investor confidence.

Fitch identified heightened risks to Bangladesh’s external financing and macroeconomic stability stemming from the Middle East conflict, compounded by the slow pace of reforms addressing weaknesses in the policy framework, public finances, financial sector, and chronic institutional governance issues. These factors are gradually eroding the country’s resilience to shocks.

While public debt levels remain relatively moderate and the country has access to low-interest external financing, external liquidity is still weak. Governance standards lag behind peer countries, the banking sector faces major challenges, and structural indicators are comparatively poor. Additional pressures could arise from the Middle East conflict, uncertainty in domestic reform implementation, persistent high inflation, and large revenue shortfalls.

Middle East conflict poses significant risks

The ongoing conflict in the Middle East presents substantial downside risks for Bangladesh, particularly regarding energy supplies, costs, and remittance inflows. In 2025, roughly half of Bangladesh’s total remittances originated from the region, while approximately 15 per cent of its crude oil and petroleum product imports – valued at about $10 billion – also came from there.

Strong remittance flows in fiscal year 2026 have provided some short-term support to the external accounts, but uncertainty over the duration of the conflict remains a major risk.

Pressure on reserves and reform uncertainty

Foreign exchange reserves stood at $29.5 billion in March 2026, equivalent to about four months of external payments – below the median for ‘B’ category countries. The crawling peg exchange rate regime and consistent financing from development partners have helped ease some pressure. However, a widening current account deficit, rising demand for foreign currency, or uncertainty over the continuation of the International Monetary Fund programme could place renewed strain on both the currency and reserves.

Fitch noted increased uncertainty regarding the new administration’s commitment to reforms. Key financial measures aimed at improving governance in the banking sector and enhancing the independence of major institutions are under reconsideration, while referendum-backed constitutional changes – including limits on the prime minister’s term and greater judicial independence – have stalled.

Bangladesh’s position in the World Bank’s Composite Governance Index remains below the average for ‘B’ category countries.