The global credit rating agency Moody's Ratings has downgraded Bangladesh's long-term rating to B2 from B1.

The rating outlook has been changed to "negative" from "stable" earlier due to mayhem in the financial sector and political risk in Bangladesh.

A Moody's rating is an opinion of the creditworthiness of an issuer or the credit quality of a specific obligation. Moody's Investors Service provides credit ratings, risk analysis, and research for stocks, bonds, and government entities.

The latest rating reflects heightened political risks and lower growth, which increases government liquidity risks, external vulnerabilities, and banking sector risks, following the recent political and social unrest connected with the recent political changeover.

It said the ongoing political uncertainty and weakening growth leads Bangladesh to rely increasingly on short-term domestic debt to finance its deficit, raising liquidity risks.

"Additionally, higher risks to asset quality amplify structurally weak capital and liquidity in the banking system, increasing contingent liability risks for the sovereign."

The US-based global ratings agency said despite improving remittance flows and loan disbursements from development partners, external vulnerability risk remains weaker due to a sustained decline in the reserve buffer over the past years.