International credit rating agency Fitch Ratings has downgraded Bangladesh's long-term foreign-currency issuer default rating to 'B+' from 'BB-'.
The outlook is stable owing to the lingering weakening of the country's external buffers, the report released on Monday, reports UNB.
Fitch said the downgrade reflects the sustained weakening of the external buffers, which could prove challenging to sufficiently reverse despite recent policy reforms, leaving the country more vulnerable to external shocks.
"Policy actions since early 2022 have been insufficient to stem the fall in foreign exchange reserves and resolve domestic dollar tightness,” it said.
The recent shift to a crawling peg aims to increase exchange-rate flexibility. Whether this will fully address lingering forex market distortions and support significant reserve build-up remains unclear.
The stable outlook reflects the mitigation of external refinancing risks by a favourable external creditor composition -- the International Monetary Fund (IMF) programme reforms aim to improve macroeconomic stability and address banking sector weaknesses, moderate government debt and favourable medium-term growth prospects.
Another ratings agency, Moody's recently projected that Bangladesh's forex reserves position will stabilise in the upcoming months despite failing to fulfil the IMF's target and drastic fall in international currency holdings over the past two years.
It will be supported by the recent improvement of the current account balance to modest surpluses partly reflecting ongoing import restrictions, narrowing financial account deficits as business uncertainties gradually ease following the conclusion of the general elections in January, it said.
