Fitch warns of potential downgrade for Bangladesh

Fitch Ratings has expressed concerns over the potential impact of recent political unrest in Bangladesh on the country’s credit profile. The rating agency downgraded Bangladesh’s rating to ‘B+’/Stable in May 2024 due to weakening external buffers.

The agency anticipates that the economic challenges resulting from the weakening situation, despite reforms supported by the International Monetary Fund (IMF), will be difficult to overcome.

The ongoing protests are expected to impact economic indicators in the current quarter, leading to a decline in growth, tax revenue collection, and an increase in consumer price inflation, which stood at 11.7 per cent year-on-year in July 2024.

The political turmoil, which erupted in July and August, could further strain the economy through disruptions in growth, tax revenue collection, and remittance inflows.

As of the end of June, reserves were at $21.8 billion, equivalent to approximately four months of import cover, higher than the $18.4 billion in May.

Near-term debt repayment pressures are expected to be manageable, with the public sector facing about $4.3 billion in external debt service due in 2025, including $1.5 billion in bilateral debt and $2.2 billion in multilateral debt.

Fitch anticipates continued financing from official creditors to support external debt servicing capacity. Monitoring future reserve data will be crucial to assess the effects of the current political transition on external liquidity challenges.

Attribution: Fitch Ratings report

Subediting: M. S. Salama