Budgets often reveal more through their tensions than through their promises. The proposed budget for FY2026-27 is no exception. It arrives at a difficult moment: growth has slowed, inflation has hurt ordinary households, the banking sector is under severe stress, and debt servicing is eating into fiscal space. The budget speech recognised many of these problems with unusual directness. That is useful. A budget that begins by admitting distress has at least cleared the first hurdle. But recognition is not recovery. The real question is whether this budget offers a credible route from stabilisation to renewed growth, or whether it puts too many ambitions on a fragile administrative and fiscal base.
The macroeconomic framework is cautious in its deficit target but ambitious in its growth narrative. A proposed deficit of around 3.6 percent of GDP is, on paper, manageable. The plan to reduce bank borrowing slightly also goes in the right direction. Yet, the budget wants several difficult things at once: lower inflation, higher investment, stronger revenue collection, larger social and infrastructure spending, bank recapitalisation, and a broad package of tax incentives. Each goal is defensible separately. Together, they create a demanding policy equation. The speech does not fully explain the sequencing. How will inflation fall if public spending rises and energy prices remain uncertain? How will private investment revive when credit is costly, and banks are repairing damaged balance sheets? How will revenue rise while exemptions and concessions expand? These are not technical footnotes. They sit at the heart of the budget’s credibility.
A further risk is external: LDC graduation, volatile remittances, and fuel price shocks could quickly unsettle assumptions, especially if export diversification remains slow and the exchange rate again comes under pressure.
The revenue target is the least convincing part of the proposed budget. The government has set total revenue earnings at Tk 6.95 lakh crore for FY2026-27, including Tk 6.04 lakh crore from the National Board of Revenue (NBR). This implies quite a high jump from the revised revenue target of the outgoing fiscal year. At a time when growth is weak, imports remain under pressure, private investment is subdued, and compliance capacity is still limited, such a sharp increase appears overly optimistic. The country’s tax-GDP ratio has remained below seven percent for years, not because targets were modest but because the tax system is narrow, exemption-heavy, discretionary, and administratively weak. The budget talks about digitalisation, risk-based audits, a broader tax base, lower exemptions, and separation of tax policy from tax administration. These reforms are necessary. But they will not produce revenue overnight. Tax reform is slow, contested, and politically difficult. A more realistic budget would have acknowledged this lag and built expenditure plans around conservative revenue assumptions. Instead, it seems to rely on an ambitious revenue projection to make the deficit look manageable. That is risky. If revenue underperforms, the government may either cut development spending midway, borrow more from banks, delay payments, or squeeze essential services. None of these outcomes would help stability.
The investment package is forward-looking in its choice of sectors, but perhaps too optimistic about what tax incentives can do. Stable corporate tax rates may reduce uncertainty. Lower withholding taxes on foreign financing may reduce industrial costs. Free Trade Zones and liberalisation of off-dock and ICD investment may help export logistics. Incentives for renewable energy, electric vehicles, battery manufacturing, semiconductors, electronics, startups, freelancers, and regional investment also signal an attempt to connect fiscal policy with structural transformation. Still, solar power, electric vehicles, batteries, semiconductors, and advanced electronics don’t emerge simply because duties are reduced. They require skilled workers, reliable energy, standard laboratories, supplier networks, technology partnerships, predictable regulation, and access to finance. The semiconductor proposal needs particular caution. Bangladesh may find real opportunities in design services, testing, packaging, and/or electronics-linked components. But a broad semiconductor ambition without a grounded industrial roadmap could turn into import-dependent assembly, dressed up as industrial upgrading.
On public expenditure, the budget’s social emphasis deserves acknowledgement. Education, health, social protection, agriculture, and employment are the right areas to prioritise. The promise to raise education and health spending over time is necessary, given Bangladesh’s chronic underinvestment in human capital. But allocation is only the beginning. Schools need trained teachers, while hospitals need doctors, nurses, medicines, and functioning referral systems. Social protection needs accurate targeting, predictable payment, grievance mechanisms, and integration with labour market pathways. The budget speaks of value for money and measurable outcomes. That language is encouraging. But the country’s record of public investment implementation, procurement discipline, and local-level delivery remains weak. Unless the government changes incentives inside the bureaucracy, higher allocations may not translate into better services.
The banking sector is another hard test. The budget acknowledges an alarming level of non-performing loans and proposes reforms in governance, supervision, recapitalisation, and central bank authority. These are necessary. But recapitalisation without accountability would be dangerous. It could socialise losses while reforming the behaviour that caused the losses. Weak banks need capital, yes, but they also need changes in ownership influence, loan approval practices, board accountability, asset recovery, and regulatory enforcement. Depositors will not regain confidence merely because the budget promises reform. They will look for action: credible audits, visible recovery of bad assets, an end to politically connected lending, and consequences for wilful default.
The budget’s employment agenda is broad, and rightly so. It discusses SMEs, industry, agriculture, services, ICT, freelancing, creative activities, and regional investment. The stimulus and refinancing measures for small enterprises and closed industries may help if delivered transparently. However, the problem is not only a lack of money. Many firms face weak demand, power uncertainty, high input costs, customs delays, poor logistics, and policy unpredictability. Young people need training linked to actual jobs. Employment exchanges at the district and upazila levels could help if they became real labour market platforms. If they become paper registries, they will add little.
The way forward, therefore, must be disciplined. First, the government should publish a clear reform calendar with quarterly milestones on tax reform, banking governance, ADP implementation, social protection delivery, and investment facilitation. Second, revenue projections should be revised through a more realistic medium-term framework, with clear contingency rules if collections fall short. Third, all tax incentives should be time-bound, costed, and linked to jobs, exports, technology transfer, or regional investment. Fourth, deficit financing must avoid crowding out private credit. Finally, social spending should be judged by outcomes, not announcements.
The proposed FY2026-27 budget has some sound priorities. It also carries large risks. Its success will depend on administrative seriousness, fiscal honesty, and the political will to withdraw benefits when they fail to produce results.
Dr Selim Raihan is professor of economics at Dhaka University and executive director at the South Asian Network on Economic Modeling (Sanem). He can be reached at [email protected].
Views expressed in this article are the author's own.
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