Country Risk Rating

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.


  • Competitive clothing sector, thanks to relatively cheap labor
  • Substantial remittances from expatriate workers, living mainly in the Gulf States
  • International aid helping to cover financing needs 
  • Moderate level of national debt
  • Favorable demographics: 45% of Bangladeshis are less than 15 years old


  • Economy vulnerable to changes in global competition in the textile sector; to developments in the GCC States
  • Very low per capita income
  • Recurring and growing political and social tensions
  • Business climate shortcomings, especially regarding infrastructure
  • Recurring natural disasters (cyclones, severe floods) resulting in significant damage; loss of harvests

Current Trends

Growth Momentum is Expected to Remain Firm Despite a Slight Slowdown in 2018

Activity remained steady in 2017, buoyed by higher public and private investment, while consumption was hit by a fall in remittances from expatriate workers. On the supply side, and despite reduced activity in the textile sector, industry was still the main driver of activity with growth below 9% - lower than the rate of 2016. Agriculture, which benefited from higher agricultural commodity prices and an increase in farmed land, grew by over 4%. Activity is expected to dip slightly in 2018, but should become more robust.

Household demand is expected to increase, despite higher inflation and lower agricultural incomes. These will be offset by more stable remittances from expatriate workers, who will benefit from recovery in the Gulf Cooperation Council (GCC) States, as well as from increased credit. The sums coming from the Gulf States represented about 57% of total transfers in 2017. Public investment will also boost growth, while private investment (especially foreign investment) will continue to be hit by an unconducive business climate and a tense political climate.

The National Development Plan (NDP) for the 2018 tax year should effectively lead to the implementation of almost 90 new projects in the transport, water supply, and education sectors, as well as several projects that are currently being finalized. The agricultural sector, which employs half the workforce, is likely to stall due to an expected fall in rice production during 2018. The pace of demand on the domestic market will continue to sustain both the local industrial and services networks. This will also lead to a significant rise in imports, reducing trade’s contribution to growth. Inflation is set to increase, thanks to rising prices for agricultural products, but will remain close to the 6% target fixed by the central bank, who will stick to an accommodative monetary policy that will help support the lively pace of activity and help control the taka’s exchange rate against the US dollar.

A Widening Public Deficit, but Sound External Accounts

The public deficit is expected to fall slightly, but will remain above the 3% observed in 2014. The 2018 budget foresees a significant rise in public spending, and especially investment spending, which is set to rise by 1.3 GDP points. Under the National Development Plan, expenditure will be allocated to strengthening trade policies, to recapitalizing the publicly-owned banks, and to ongoing investments in infrastructure – such as the Rooppur nuclear plant and the Padma railway project.

The slight downturn in activity is likely to limit the increase in government income expected by the authorities, who are expecting higher revenues from mandatory deductions. Income from both VAT, introduced in 2017, and import taxes will benefit from strong consumption. The public debt burden will remain moderate. The current account balance will continue to deteriorate but the deficit will remain low. Export growth is not expected to offset the rise in imports, resulting in a widening trade balance. This is because, despite expected oil price stability in 2018, the import bill is likely to rise significantly due to increased imports of capital goods and foodstuffs. Exports will remain vigorous, bolstered by dynamism in the ready-to-wear sector. However, the sector could be hit by stronger protectionist barriers on the US market, the leading ready-to-wear trade destination, and by consumer slowdown within the UK market. At the same time, competition from other low-cost production sites is rising.

The flow of remittances from expatriate workers should stabilize after contracting in 2017 (down from 8.5% to 6% of GDP) due to the downturn in construction activity in the GCC countries, the leading employer of the country’s diaspora. The foreign exchange reserves, although slightly lower, will remain at levels deemed satisfactory (almost seven months of imports), thus substantially improving the country’s ability to resist sudden capital flight. The banking system will remain weakened by high ratios of non-performing loans and the need to recapitalize the publicly-owned banks (30% of the banking sector).

The Political Situation has Stabilized, but the Country Remains Vulnerable Ahead of the Parliamentary Elections in 2019

Despite a stable political system, Bangladesh is still vulnerable to spikes in tension between the Awami League, the ruling conservative Muslim party, and the Bangladesh Nationalist Party (BNP). Following the victory of the Awami League in the 2014 parliamentary elections, the country experienced waves of violent protests and major blockades. The situation has since stabilized, but there are fears of renewed tensions in the run-up to the parliamentary elections scheduled for early 2019. Although it boycotted the 2014 parliamentary elections, the BNP is expected to mobilize massively in 2018 so as not to be marginalized politically. Finally, the country is set to suffer from a particularly difficult business climate.


Coface (01/2018)