Fitch Ratings has said Bangladesh’s 12 February general election has reduced near-term political and policy uncertainty, which could support improvements in macroeconomic stability, but cautioned that effective reform execution will be crucial for any positive rating impact.

In a report released on Monday, the global ratings agency said the Bangladesh Nationalist Party (BNP)-led alliance secured a parliamentary supermajority, alongside a majority “yes” vote in a referendum that could enable constitutional reforms.

However, Fitch noted that longstanding credit constraints including weak governance, banking-sector fragilities and a fragile external liquidity position mean the new government’s ability to implement its macroeconomic and fiscal reform agenda will determine the sovereign rating trajectory.

The agency said the election outcome provides greater political clarity following the August 2024 overthrow of the Awami League government and a prolonged caretaker period during which several significant reforms were advanced.

According to the report, the BNP’s two-thirds majority alone should support implementation of its policy agenda and reduce the risk of a prolonged political vacuum that could complicate economic decision-making.

Despite the electoral outcome, Fitch warned that political risks remain. Bangladesh’s (B+/Stable) history of political polarisation and periodic pre-election violence leaves room for renewed tensions if campaign pledges prove difficult to deliver. The military may also continue to play a role in politics.

The referendum approval could facilitate constitutional reforms, such as a shift from a unicameral to a bicameral legislature, stronger judicial independence and the introduction of term limits for the prime minister. However, Fitch said implementation could be complex and time-consuming, keeping execution risks elevated.

The report noted that policy signals in the BNP manifesto indicate continuity in economic and fiscal reforms initiated under the caretaker government. At the same time, higher social spending commitments could add pressure on public finances if revenue mobilisation measures underperform, testing the authorities’ ability to balance growth and electoral commitments with fiscal consolidation.

Fitch said the reform agenda appears consistent with the macro-stabilisation programme under the USD 5.5 billion International Monetary Fund (IMF) programme that began in January 2023 and runs through 2026-27. Still, uncertainties around the economic agenda remain, and sustained reform implementation beyond the IMF programme will be key to maintaining macroeconomic stability and growth.

The manifesto’s fiscal centrepiece is a medium-term target to raise the tax-to-GDP ratio to 10% through tax administration reforms, reducing exemptions and broadening the tax base, alongside a near-term revenue increase of 2% of GDP.

Fitch underscored that Bangladesh’s structurally low revenue intake remains a key weakness, projecting general government revenue-to-GDP to reach 8.6% by FY27, up from 7.8% in FY25.

The agency also highlighted a pro-private-sector development agenda, including simplified licensing, incentives for export-oriented sectors and a plan to raise foreign direct investment to 2.5% of GDP from an estimated 0.4% in FY25.

Efforts to strengthen banking governance and tackle non-performing loans, if successful, could address a major constraint on the sovereign credit profile, it said.

On the external front, Fitch described liquidity as a near-term indicator to watch, even as reserves improve. Foreign-exchange reserves stood at USD 29.7 billion as of 10 February, up from USD 22.3 billion at the end of FY24 and USD26.9 billion in FY25.

While a manageable external debt repayment profile and the prevalence of government-backed debt help contain refinancing risks, Fitch stressed the importance of maintaining macro-stabilisation policies to keep external financing risks in check.

In November last year, Fitch affirmed Bangladesh’s ‘B+/Stable’ rating, balancing a moderate level of government debt and access to official external financing against low government revenue, limited reserve buffers relative to external financing needs, significant financial sector weaknesses and lagging structural indicators compared with peers.

The agency cautioned that the ultimate impact on Bangladesh’s credit profile will hinge on the new government’s ability to deliver critical reforms addressing governance weaknesses, banking-sector fragilities and external liquidity vulnerabilities.