²Ñ´Ç´Ç»å²â’s in a report on Monday downgraded Bangladesh’s credit rating citing heightened political risks and lower growth.
It lowered ratings to B2 from B1 as it found that the country’s outlook had been changed to negative from stable.
‘The downgrade reflects heightened political risks and lower growth, which increases government liquidity risks, external vulnerabilities and banking sector risks, following the recent political and social unrest that led to  a change in government’, said the report.
Ongoing political uncertainty and weakening growth led Bangladesh to rely increasingly on short-term domestic debt to finance its deficit, raising liquidity risks, it said, adding that higher risks to asset quality amplify structurally weak capital and liquidity in the banking system, increasing contingent liability risks for the sovereign.
²Ñ´Ç´Ç»å²â’s report observed that despite improving remittance flows and loan disbursements from development partners, external vulnerability risk remains weaker due to a sustained decline in the reserve buffer over the past years.
Foreign-exchange reserves stood at $19.8 billion as of October 2024, covering more than three months of imports, down from $21.7 billion in June 2024.
Fitch Ratings, another reputed agency, also downgraded Bangladesh’s sovereign rating in May, even after the securing of a $4.7 billion bailout from the International Monetary Fund in the past year
With elevated social risks, the absence of a clear election roadmap, the deterioration of law and order, and the nascent reemergence of community-based tensions also raises political risk, said the ²Ñ´Ç´Ç»å²â’s report.
While the interim government remains committed to a broad reform agenda, its capacity to execute remains uncertain. Furthermore, the political capital to push through challenging reforms could diminish if the interim government cannot swiftly deliver outcomes, including taming inflation and addressing high unemployment, added the report.
²Ñ´Ç´Ç»å²â’s have also lowered the growth projections to 4.5 per cent from 6.3 per cent for FY2025.