Fitch Ratings said on Thursday that the fall of the Awami League government in Bangladesh, following protests in July and August, raised uncertainty about the sovereign’s credit profile. “Downward pressure on Bangladesh’s rating could increase if the political transition faces challenges, including prolonged political violence, or leads to policy paralysis and exacerbates fiscal or external stresses,” said Fitch Ratings.

Fitch downgraded Bangladesh’s rating to ‘B+’/Stable, from ‘BB-’/Negative, in May 2024. This reflected sustained weakening of the country’s external buffers, leaving the country more vulnerable to external shocks.

“We believed that this weakening would be challenging to reverse, despite reforms under an IMF-backed programme, including a shift towards greater exchange-rate flexibility,” it said.

“We believed that this weakening would be challenging to reverse, despite reforms under an IMF-backed programme, including a shift towards greater exchange-rate flexibility,” it said.

The ratings agency also said, “We believe the protests are likely to affect economic metrics in the current quarter, hurting growth and tax revenue collection, as well as pushing up consumer price inflation, which reached 11.7 per cent year-on-year in July 2024.”

Earlier on Wednesday, S&P Global Ratings also said that the political situation in Bangladesh has exacerbated the banking industry’s frailties, including weak liquidity, thin capital buffers, and ailing asset quality.”We see the risk of policy inaction and a potential slowdown in financial reforms,” said S&P Global Ratings credit analyst Shinoy Varghese.

Navalsang Parmar (Dhaka)