International credit rating agency Moody’s Investors Service has downgraded Bangladesh’s long-term ratings from Ba3 to B1, citing heightened external vulnerability, liquidity risks, and institutional weaknesses uncovered during the ongoing crisis. This rating action concludes the review initiated in December 2022. The downgrade signifies that local businesses will face increased costs when settling global trades.
Bangladesh continues to experience dollar scarcity and a decline in foreign exchange reserves, leading to import constraints and energy shortages. The government has yet to fully reverse import control measures and unconventional policies, such as multiple exchange rates and interest rate caps, which are causing distortions. Additionally, the country’s low fiscal revenues relative to its economy size limit policy options and raise concerns about debt affordability due to take devaluation and short maturities for domestic debt. While external financing is expected to alleviate some pressures, external buffers remain weaker than pre-pandemic levels and higher debt levels will weaken fiscal strength. Moody’s anticipates that fiscal reforms will take several years to materialize.
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