S&P Revises Bangladesh Sovereign Credit Outlook to Negative

by Siddique Islam July 28, 2026

By Siddique Islam July 28, 2026 0 comments 3 minutes read

Courtesy: X@SPGlobalRatings

S&P Global Ratings has revised Bangladesh’s sovereign credit outlook to ‘negative’ from ‘stable,’ citing persistent banking sector weakness, fiscal constraints and mounting external risks that could delay the country’s economic recovery.

Although the US ratings agency affirmed Bangladesh’s long- and short-term sovereign credit ratings at ‘B+/B.’

The negative outlook reflects S&P’s view that Bangladesh’s economic growth and external position could weaken further amid the Middle East conflict, financial sector imbalances and energy market vulnerabilities, delaying export and economic recovery over the next 12 to 18 months.

In May this year, Fitch Ratings revised its outlook on Bangladesh to ‘negative’ from ‘stable,’ citing rising external financing pressures and macroeconomic vulnerabilities linked to exposure to the Middle East conflict.

S&P also warned 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.

On the other hand, the agency said it could revise Bangladesh’s outlook back to ‘stable’ if the country records stronger economic growth over the next three to four years, alongside sustained improvements in its external and fiscal positions, including higher foreign exchange reserves, stronger current account receipts and a declining trend in government debt.

S&P predicts that Bangladesh’s economy will grow by an average of around 4.5 per cent over the next three years reflecting continued weakness in the banking sector, uncertainty in global energy markets and subdued demand for readymade garment exports.

“In combination with the broader banking sector’s modest credit growth and asset quality challenges, we see an increasing risk that private credit creation could be crowded out by the emphasis on government lending,” S&P said in its latest outlook report on July 27.

The banking sector faces significant capital needs owing to poor aggregate asset quality, though these conditions are generally concentrated at state-owned and Islamic banks, according to the agency.

“Poor capital adequacy and asset quality are likely to hamper the sector’s ability to provide greater support to Bangladesh’s economic recovery,” it noted.

Although private banks remain relatively resilient, the agency said significant risks persist in state-owned commercial banks, which hold less than 30 per cent of the banking sector’s assets but account for an aggregate non-performing loan ratio of around 40 per cent. It also noted that resolving their capital shortfall would likely require years of fiscal or monetary support.

However, the BNP-led government secured a strong mandate in the February 2026 election, providing an opportunity for more stable policymaking, S&P said meaningful structural reforms would take time because of institutional weaknesses, infrastructure bottlenecks and bureaucratic inefficiencies.