Bangladesh's macroeconomic stability hinges on reform delivery: Fitch Ratings
It noted that political polarisation and the military's potential role in politics continue to pose lingering risks.
The general election held on 12 February has reduced near-term political and policy uncertainty in Bangladesh, a development that could bolster macroeconomic stability, according to Fitch Ratings.
However, in a report released on 22 February US time, the global ratings agency cautioned that the ultimate impact on the country's credit profile will depend on the new government's ability to execute critical reforms to address weak governance, banking-sector fragilities, and a fragile external liquidity position.
Fitch noted that the supermajority secured by the BNP-led alliance, coupled with a successful referendum, provides a clear mandate for constitutional and economic shifts.
The BNP won 209 seats, while the Jamaat-e-Islami and its allies secured 77 of the 299 contested seats.
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This two-thirds majority is expected to support the implementation of the government's policy agenda and reduce the risk of a political vacuum that could otherwise complicate economic decision-making, according to Fitch's report.
The ratings agency highlighted that the referendum approval could pave the way for institutional strengthening, including a shift to a bicameral legislative system, enhanced judicial independence, and the institution of term limits for the prime minister.
Despite these positive signals, Fitch warned that implementation remains complex and execution risks remain elevated.
It also noted that political polarisation and the military's potential role in politics continue to pose lingering risks.
Fitch observed that the BNP's manifesto signals a commitment to continuing the economic and fiscal reforms initiated during the caretaker government period.
The agenda also points to higher social spending, which could, in Fitch's observation, add pressure to public finances if revenue‑mobilisation measures underperform, and would test the authorities' ability to balance growth and electoral commitments with fiscal consolidation.
Additionally, this agenda aligns with the $5.5 billion International Monetary Fund (IMF) programme running through 2026-2027 since 2023.
A centrepiece of this fiscal plan is a medium-term goal to raise the tax-to-GDP ratio to 10% through tax administration reforms and a broader tax base.
"This matters for credit quality because Bangladesh's structurally low revenue intake remains a key weakness," states the report.
Fitch currently projects government revenue-to-GDP to reach 8.6% by the 2027 fiscal year, up from 7.8% in FY25.
The agency further noted a pro-private-sector tilt in the new government's stance, aiming to lift foreign direct investment to 2.5% of GDP from a Fitch-estimated 0.4% in FY25.
The BNP's pledges to tackle non-performing loans and improve banking governance were also cited as essential steps to addressing constraints on the sovereign credit profile.
On the external front, foreign-exchange reserves showed improvement, reaching $29.7 billion as of 10 February, compared to $22.3 billion in June 2024.
The Fitch report concluded that a manageable external debt repayment profile and the prevalence of government-backed debt help contain refinancing risks, but also underscore the importance of maintaining macro-stabilisation policies that keep external financing risks in check.
