External challenges linger for Bangladesh after Awami League re-election: Fitch

Fitch Ratings expects broad policy continuity in Bangladesh following the government's general election win, in a vote boycotted by the largest opposition Bangladesh Nationalist Party, although external challenges remain.

The Awami League continues to be in a strong position to implement its policy agenda, focused on lowering the poverty rate, developing infrastructure, improving healthcare, strengthening resilience to climate risks and achieving upper middle-income status by 2030, Fitch said in a report today.

"Bangladesh's external challenges remain pressing," the American credit rating agency said.

It revised the outlook on Bangladesh to negative from stable in September 2023, while affirming the long-term foreign-currency issuer default rating at 'BB-'.

This partly reflected a deterioration in external buffers, with official reserves falling to $21.7 billion as of January 4, less than half their historic peak in 2021.

"This has increased Bangladesh's vulnerability to shocks," Fitch said.

Greater exchange rate flexibility could help with rebuilding official reserve buffers. However, it could also add to inflation pressures in the near term.

"The election was accompanied by some violence and the US has said that it was not free and fair, but we do not expect this to hurt Bangladesh's efforts to source external financing," Fitch said.