Fitch Ratings on Wednesday revised the outlook on Bangladesh's Long-Term Issuer Default Ratings to Negative from Stable, while affirming the issuer default ratings at B+. The move reflected the ratings agency's assessment that Bangladesh faces heightened external financing and macroeconomic vulnerabilities stemming from its substantial exposure to the conflict in the Middle East.
The country remains heavily reliant on remittances and energy imports that are linked to the Middle East. Nearly half of remittances - which amounted to 3.5% of GDP in 2025 - originate from that region. At the same time, crude oil and petroleum products accounted for nearly 15% of total imports, equivalent to USD10 billion in 2025. Fitch noted that these channels raise the economy's sensitivity to a prolonged regional conflict.
International reserves stood at USD29.5 billion in March, which Fitch described as roughly four months of current external payments and below the median for B-rated peers. The agency added that robust remittance flows in financial year 2026 offer short-term cushioning. However, it emphasized that uncertainty about how long the Middle East conflict will persist creates significant downside risks for external balances.
Fitch also highlighted a lack of meaningful progress on reforms intended to shore up the policy framework, public finances and the financial sector. The sovereign's capacity to absorb shocks has been weakened by this lack of progress, the agency said. General government revenue declined to 7.9% of GDP in FY25 from 8.3% in FY24, a deterioration Fitch attributes to large tax exemptions and weak compliance.
The ratings firm projects fiscal deficits widening to 3.6% of GDP by 2027. It flagged strains in the banking system, with the gross non-performing loan ratio rising to 30.6% at end-December 2025, concentrated largely in state-owned banks. Domestic credit to the private sector has slowed sharply, falling to 6% in January from nearly 10% two years earlier.
Price pressures eased modestly in March, with headline CPI falling to 8.71% from 9.13% in February, but this remains well above the central bank's FY26 target range of 6.5% to 7%. Fitch expects Bangladesh's economy to grow by 3.7% in FY26 and 3.5% in FY27. Meanwhile, ready-made garment exports have been declining as orders shift following reciprocal tariffs, amid weaker global demand and rising domestic costs.
On government debt, Fitch anticipates gross public debt will stabilise at about 38% of GDP over the medium term.