Bangladesh’s general election on February 12 has eased near-term political and policy uncertainty, potentially supporting macroeconomic stability, according to Fitch Ratings. The Bangladesh Nationalist Party secured an overwhelming parliamentary supermajority in a referendum that should now pave the way for long-awaited constitutional reforms. However, longstanding structural constraints including weak governance, banking-sector fragilities and an unenviable delicate external liquidity position mean that the new government’s ability to deliver on its macroeconomic and fiscal reform agenda will determine any impact on the country’s existing credit rating.

The election itself provides greater political clarity following the August 2024 overthrow of the Awami League government which saw its leader Sheikh Hasina flee to India where she remains, and a prolonged caretaker period during which a number of significant reforms were advanced.

In the election, the BNP won 209 of 299 contested seats, with Jamaat-e-Islami and its allies securing a further 77. Smaller parties took the remainder. The two-thirds parliamentary majority thus gives the BNP the necessary scope to implement its policy programme and reduces the risk of a prolonged political vacuum that could complicate economic decision-making even with some in the country bemoaning the limited political participation at play on voting day.

Political risk also persists, however. Bangladesh’s (B+/Stable) history of sudden polarisation and periodic pre-election violence leaves room for renewed tensions if electoral promises prove difficult to deliver or the government underperforms Fitch says.

The referendum could, and should, facilitate constitutional changes to strengthen institutions, including a shift from a unicameral to a bicameral legislature, increased judicial independence and the introduction of new prime ministerial term limits. Implementation of these points though is likely to be protracted which in turn will keep execution risk elevated.

According to Fitch, policy signals in the BNP manifesto suggest the government now intends to continue the economic and fiscal reforms initiated under the caretaker administration. This programme envisages higher social spending, which could strain public finances if revenue measures underperform. Should this happen, it would test the authorities’ ability to balance growth and electoral commitments with fiscal consolidation.

To this end, the agenda aligns with the macro-stabilisation measures under the $5.5bn International Monetary Fund (IMF) programme launched back in January 2023, and running through 2026-2027. Nevertheless, uncertainties do remain around the implementation and sustainability of reforms beyond the IMF programme, which in tine will be key to sustaining macroeconomic stability and growth in Bangladesh.

Fiscal measures in the manifesto also focus on raising the tax-to-GDP ratio to 10% through administration reforms in addition to a near-term revenue increase of 2% of GDP. This is significant for credit quality given Bangladesh’s historically low revenue intake and limited options in increasing exports. As such, Fitch projects general government revenue as a share of GDP to reach 8.6% by FY27, up from 7.8% in FY25.

The manifesto further highlights a pro-private-sector development agenda, including simplified licensing measure, incentives for export-oriented sectors and a target to lift foreign direct investment (FDI) to 2.5% of GDP from its roughly 0.4% mark in FY25. Additional proposed reforms to strengthen banking governance and reduce non-performing loans could also, if successful, help to mitigate a key constraint on the sovereign credit profile.

In the near-term meanwhile, external liquidity remains a focus. Foreign-exchange reserves reached $29.7bn as of February 10, up substantially from $22.3bn in FY24 and almost $3bn higher than $26.9bn in FY25. A manageable external debt repayment profile and the predominance of government-backed debt help contain refinancing risks, highlighting the importance of maintaining macro-stabilisation policies to safeguard external financing stability.