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Published : 11 Jun 2026, 01:29 AM
Puzzles, Promises and the Purse
Massive expansion: The FY2027 budget is set to swell by 19 percent to Tk 9.38 trillion, testing the country's financing capacity to its limits
Ambitious tax targets: The NBR faces an unprecedented Tk 6.04 trillion collection target, which analysts say stretches credibility.
Ballooning borrowing: A deficit exceeding Tk 2.36 trillion will heavily rely on domestic and external loans, risking a “debt-trap” cycle.
Surging debt service: Interest payments will approach Tk 1.4 trillion, consuming vast fiscal space needed for productive investment.
Welfare commitments: Social spending will hit Tk 1.45 trillion to meet election promises, though delivery inefficiencies remain.
The budget that Finance Minister Amir Khosru Mahmud Chowdhury is preparing to place before parliament arrives at a moment when Bangladesh’s economy feels both familiar and unsettled.
Inflation continues to erode household purchasing power. Revenue mobilisation remains sluggish. Public expenditure demands keep expanding. And yet, layered on top of these structural constraints is a new political imperative: to demonstrate early delivery on an ambitious set of election promises.
It is in this uneasy intersection of economics and politics that the government’s first full fiscal blueprint is being shaped. The numbers suggest scale and intent. But the underlying question is whether those numbers can be translated into implementation without destabilising macroeconomic balance further.
For Khosru, a former commerce minister now holding the finance portfolio, this is more than a routine budget exercise. It is the first comprehensive economic statement of a BNP-led government after years out of state power.
It is also, effectively, a test of whether political return can be matched by administrative and fiscal credibility.
Early indications suggest a budget size of around Tk 9.38 trillion for the 2026–27 fiscal year, compared with Tk 7.9 trillion in the current year -- an increase of roughly 19 percent.
In absolute terms, this represents an expansion of nearly Tk 1.48 trillion in a single fiscal cycle, a scale that immediately raises questions about financing capacity and absorptive limits.
The structure of the budget reflects a familiar pattern. Revenue is projected at Tk 6.95 trillion, while the deficit is expected to remain above Tk 2.4 trillion.
The gap will again be filled through a mix of domestic borrowing, external loans and savings instruments -- a financing architecture that has persisted across successive governments, regardless of political change.
Yet the ambition embedded in the revenue assumptions marks a departure in tone, if not in method.
The National Board of Revenue (NBR) has been tasked with collecting Tk 6.04 trillion -- a target that exceeds current capacity trends by a wide margin and implies an unprecedented acceleration in tax mobilisation.
Officials familiar with internal discussions describe the target as stretching credibility. Bangladesh’s historical revenue growth has typically hovered around 12–15 percent annually.
Achieving the implied expansion would require structural improvements in compliance, enforcement and economic formalisation that have not yet materialised.
Economist Zahid Hussain argues that the central issue is not ambition itself, but feasibility. A budget, he suggests, derives its value not from its size but from its implementability.
If assumptions are misaligned with reality, even well-intentioned allocations risk becoming symbolic rather than functional.
Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), frames the challenge in terms of debt sustainability.
Many middle-income countries, he notes, have found themselves trapped in cycles where rising borrowing compensates for weak revenue performance, eventually constraining growth rather than enabling it. Bangladesh, he warns, must avoid a similar trajectory.
Masrur Reaz of Policy Exchange Bangladesh adds another dimension, pointing to political economy constraints. In his view, macroeconomic stabilisation is not only a technical exercise but also a question of political will -- particularly the willingness to resist vested interests and enforce discipline in policy execution.
Finance Minister Khosru, however, has projected confidence. Speaking to journalists at the Secretariat, he insisted that the budget has been designed with all citizens in mind, stating that “no one will be left out”.
He also emphasised that despite limited resources, inflation management and welfare considerations remain central priorities.
Behind this reassurance lies a more complex macroeconomic backdrop. Inflation remains persistently high, eroding real incomes across income groups.
Investment activity has slowed significantly, reflecting both uncertainty and structural bottlenecks. Employment generation has weakened, while external pressures -- including energy costs and global market volatility -- continue to weigh on the economy.
At the same time, fiscal commitments are expanding.
The Annual Development Programme (ADP) is expected to rise to Tk 3 trillion, a 50 percent increase over the revised allocation of the current fiscal year. This expansion is intended to signal momentum in development spending, but it also raises concerns about execution capacity and project quality.
Revenue Pressure and Financing Constraints
At the heart of the fiscal challenge lies revenue mobilisation. Of the projected income, a significant portion depends on ambitious tax collection targets that many analysts consider difficult under current conditions.
The deficit, estimated at over Tk 2.36 trillion, is expected to be financed roughly 46 percent through external borrowing and the remainder through domestic sources. This heavy reliance on borrowing has long-term implications for debt servicing and private sector credit availability.
Debt servicing itself has become a dominant feature of the budget. Interest payments are projected to approach Tk 1.4 trillion, making them one of the largest single expenditure heads.
Economists caution that this reduces fiscal space for productive investment and increases vulnerability to external shocks.
Subsidy allocations further complicate the picture.
The power sector alone is expected to require around Tk 370 billion, while food and other subsidies push total support measures above Tk 720 billion. These commitments reflect both political priorities and structural inefficiencies in pricing and distribution systems.
Social protection spending is also set to expand to Tk 1.45 trillion, reflecting election pledges to widen welfare coverage. New initiatives, including family cards and expanded agricultural support schemes, are expected to feature prominently. However, concerns remain about targeting accuracy and administrative leakage.
Structural Weaknesses beneath Fiscal Expansion
Beyond annual allocations, deeper structural issues continue to shape Bangladesh’s fiscal constraints. The tax-to-GDP ratio remains among the lowest in the region, limiting the government’s ability to finance development without resorting to borrowing.
Institutional weaknesses in tax administration, including inefficiencies in VAT collection and enforcement gaps, further reduce effective revenue mobilisation.
Economists argue that without significant reform, incremental increases in tax targets may not translate into actual receipts.
The banking sector adds another layer of risk. Non-performing loans, once officially reported at Tk 1.22 trillion, have been reassessed at nearly Tk 6 trillion following revised disclosures -- equivalent to roughly 35–36 percent of total loans. This has raised serious concerns about financial stability and governance.
Credit discipline remains weak, and concerns persist about political interference in lending decisions. As a result, the banking system’s capacity to support productive investment is increasingly constrained, while risks accumulate on balance sheets.
Trade and competitiveness challenges are also intensifying as Bangladesh approaches graduation from Least Developed Country status in November 2026. Without productivity gains and logistical reforms, analysts warn that export competitiveness could face additional pressure.
Political Economy of Expectations
The budget is also shaped by heightened public expectations. After a prolonged period of economic stress, households are looking for relief from inflation, improved job prospects and greater stability in basic costs such as energy and food.
The government’s response has been to expand welfare-oriented measures, including increased social safety spending and targeted support programmes. Yet economists caution that such measures, while necessary, cannot substitute for structural reform.
Economist Zahid notes that while social protection expansions are welcome, their effectiveness depends on delivery systems. Existing programmes, he argues, suffer from inefficiencies and inclusion errors, reducing their impact on intended beneficiaries.
Mustafizur similarly emphasises that without strengthening institutions and improving governance, fiscal expansion risks being absorbed by inefficiencies rather than development outcomes.
The Reform Dilemma
A recurring theme in economic assessments is the absence of bold structural reform. Analysts argue that the current moment offered an opportunity to address longstanding weaknesses in tax administration, banking governance and public expenditure efficiency.
Instead, the approach appears more incremental. While there are references to efficiency improvements and digitalisation, there is limited indication of deep institutional restructuring.
Some critics suggest that this reflects political caution in a transitional period. Others argue it reflects institutional inertia that has persisted across governments regardless of political identity.
At the same time, the government’s fiscal stance indicates a preference for maintaining spending momentum rather than tightening expenditure. This is particularly evident in the expansion of development allocations and social protection initiatives.
Subsidy Pressures and Fiscal Rigidity
Subsidies remain a major source of fiscal rigidity. Electricity, fuel and food subsidies continue to absorb large portions of the budget, limiting flexibility in reallocating resources toward productive investment.
While recent price adjustments in energy sectors have provided partial relief, subsidy obligations remain substantial. Economists argue that without structural reform in pricing mechanisms, these pressures will persist.
Social Protection Expansion and Political Signalling
The expansion of social protection initiatives is one of the most visible features of the upcoming budget. The introduction of Family Cards, farmer support schemes and expanded allowances reflects both economic necessity and political signalling.
Under the proposed framework, 4.1 million beneficiaries are expected to receive family cards, while 4.25 million farmers are slated to receive annual support payments.
Additional provisions include stipends for families of those affected by the July Uprising and allowances for religious service workers.
However, questions remain about administrative capacity and targeting efficiency, particularly given the scale of existing social safety net programmes.
Debt Risk and Macroeconomic Balance
At the centre of the broader debate is the risk of rising debt dependence. With deficits financed through borrowing and interest payments increasing, concerns are growing about long-term sustainability.
Mustafizur warns that without improved revenue performance and efficient spending, the economy risks entering a debt-dependent cycle that constrains future policy space.
A Budget under Scrutiny
Ultimately, the imminent budget represents a convergence of political ambition and economic constraint. It seeks to deliver on electoral promises, maintain development momentum and stabilise public expectations -- all within a narrow fiscal corridor.
Whether it succeeds will depend not only on the size of allocations, but on the effectiveness of implementation, the strength of institutions and the willingness to confront structural weaknesses that have accumulated over time.
For now, the numbers are known. The outcome is not.
