The size of the proposed budget for fiscal year 2026-27 is Tk 9,38,000 crore, of which Tk 3,16,075 crore has been earmarked for development spending and Tk 6,05,740 crore for operating expenditure. The revenue target is Tk 6,95,000 crore, resulting in an overall deficit of Tk 2,43,000 crore. In comparison to the FY2025-26 budget, the proposed budget for the upcoming fiscal year has been increased by 18.7 percent, while development spending, operating expenditure, as well as the revenue target have been raised considerably.
There is no doubt about some of the budget’s priorities, such as development for all, support for SMEs, family and farmers’ cards, bonded warehouse benefits, investment, education, health, social protection, energy security, and financial sector reform. But there is always many a slip between the cup and the lip, which reminds us of the budget’s implementation challenges.
The first challenge revolves around the GDP growth target of 6.5 percent, which is 2.36 percentage points higher than the provisional growth rate for FY2025-2026 of 4.14 percent. An economy generally grows steadily, not abruptly, if no miracle happens. To achieve this target, the private investment must increase rapidly. But the reality is that investment in FY2024-25 was merely 22.03 percent, the lowest level in 11 years.
Furthermore, investment is primarily dependent on the interest rate, determined mainly by the risk-free interest rate, inflation and premiums for various risks. The inflation rate was 8.63 percent as of May 2026, which pushed the average interest rate to around 12 percent. This high interest rate or the cost of borrowing for businesses is bound to squeeze investment. Therefore, in addition to lowering the interest rate, bureaucratic red tape must be reduced, smooth utility supply must be ensured, law and order situation should be improved significantly, and investors’ confidence needs to be restored. Otherwise, the investment will not increase as hoped in the proposed budget.
Meanwhile, the goal to bring inflation down to 7.5 percent, although it reached 8.63 percent as of May 2026, might prove challenging. This target may appear logical, but it must be noted that the sources of inflation in our country are driven largely by imports. The high dollar price, combined with the recent rise in fuel prices, will have a long-term effect on inflation. Moreover, local syndicates and extortion at different points of the supply chain will also impact inflation. Without considerable improvement in these areas, there is little hope that inflation will come down.
Furthermore, the private sector credit growth target has been set at 9.4 percent, which is almost double the rate as of April 2026: 4.75 percent. To reach the target, a lower cost of borrowing, minimum government borrowing from banks, and a robust banking system with low non-performing loans will be required. Whether such a conducive environment to boost private credit growth can be achieved remains a question. Even the export growth targeted at 8.7 percent is highly inconsistent with ground realities; exports fell by 2.60 percent year-on-year in the July-May period of the current fiscal year.
In general, the budget deficit should be within 5 percent of GDP and the proposed budget’s deficit is 3.6 percent of GDP. As the volume of deficit increases with the increase in budget size, the ability to finance the deficit remains a major challenge for the government. The plan is to finance the deficit from local and foreign sources. The expected loans from local banks and foreign sources are 46 percent (Tk 112,000 crore) and 45 percent (Tk 109,850 crore), respectively. The target borrowing from banks may increase in the end because in the current fiscal year, the government already borrowed more than Tk 125,000 crore from the banking sector due to revenue shortfalls.
In contrast, the foreign loans are less expensive, but they come with many terms and conditions that often require strict compliance. Compared to the previous year’s foreign loans, this year’s target is almost double. The actual challenge is to mobilise these funds.
In the FY2025-26, the government failed to collect the target revenue and had to borrow more from banks. Without fundamental institutional reforms, how would the target revenue of Tk 6,95,000 crore be collected in the upcoming fiscal year? If the National Board of Revenue fails to collect this targeted revenue again and foreign loans do not come as expected, the alternative financing choice could either increase borrowing from local banks or the Bangladesh Bank. The former will crowd out private sector credit flow and the latter will increase inflation.
Besides, there will be inflationary pressure due to the new pay scale for which Tk 44,000 crore has been set aside. The prices of goods and services have already started rising in the market. The general mass living on fixed income will primarily face the heat of inflation. The higher pay scale is expected to reduce public sector corruption. However, there is no historical record of that happening in the country. Then how can it be expected that a higher pay scale would reduce corruption this time? To avoid inflationary pressure, wage indexation could be put in place to automatically adjust wages to keep pace with inflation every year, so that purchasing power remains unchanged as the cost of living rises.
Meanwhile, the banking sector, through which about 86 percent of the country’s financial intermediation is conducted, is currently burdened with abnormally high non-performing loans. Besides, the sector’s weak capital base and fresh unrest in the Islami Bank Bangladesh PLC may spread the systemic risk, affecting the entire banking sector. Without bringing stability in banking, the budget implementation will be difficult because our economy is exceedingly dependent on this sector.
Also, the effectiveness of social security programmes will depend on reaching the intended people, administrative efficiencies and prevention of leakages. Developing beneficiary databases without duplication is a precondition to attaining competence in this regard. When a slum-dweller or a rickshaw puller says that budgets come and go, but they don’t get the benefits, it speaks a lot about the failure of the budget implementation process.
The philosophy of the budget should be driven by the concept that the rich will pay more taxes than the poor. Hence, more revenues must be collected from direct taxes rather than indirect taxes to make the process equitable. The implementation of the budget must focus on the efficiency of spending the allocations, ensuring it is not hindered by corruption, bureaucratic red tape and governance failure.
The increased allocation in priority sectors is only the first step. It does not guarantee proper implementation. The successful execution of the budget ultimately depends on institutional capacity, efficient use of funds, and evaluating and monitoring whether the programmes are delivering the expected results. A budget becomes successful only when it can improve the lives of people, particularly the poor.
Dr Md Main Uddin is professor and former chairman of the Department of Banking and Insurance at the University of Dhaka.
Views expressed in this article are the author's own.
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