The Daily Star
The proposed national budget for FY2026-27 provides an indication of the newly elected government’s economic philosophy and development priorities. It identifies 10 priority areas, including investment-led growth, quality education and healthcare, universal social protection, financial sector stability, energy security, digital transformation, environmental management, and accountable institutions, which are broadly consistent with the country’s development needs. However, whether the proposed fiscal framework, macroeconomic assumptions, and implementation capacity are sufficient to translate these ambitions into tangible outcomes is the real question.
The new budget projects a GDP growth of 6.5 percent in the upcoming fiscal year, a sharp rise from the revised estimate of five percent for the outgoing year by the finance ministry, and the provisional estimate of 4.14 percent for the same period by the Bangladesh Bureau of Statistics (BBS). Achieving such a significant improvement in a single fiscal year would require an exceptionally strong rebound in investment, industrial production, and exports. This target appears ambitious as private investment, the main driver of economic growth, is projected to increase only marginally—from 21.22 percent of GDP in FY2025-26 (revised) to 21.33 percent in FY2026-27—after remaining stagnant for more than a decade. Although public investment is expected to rise from 10.8 percent (revised) to 13.1 percent of GDP, achieving the growth target will ultimately depend on a stronger recovery in private investment.
The inflation outlook presents a similar challenge. The government aims to reduce inflation to 7.5 percent in FY2026-27. However, during the July-May period of FY2025-26, the moving average inflation was 8.63 percent. In Bangladesh, inflation has increasingly become structural rather than purely monetary. It reflects supply-side bottlenecks, high food prices, energy costs, exchange rate adjustments, and persistent market inefficiencies. Bringing inflation down will, therefore, require more than a tighter monetary policy, depending equally on ensuring adequate food supplies, improving energy availability, maintaining exchange rate stability, reducing supply chain disruptions, and strengthening market oversight.
The projection for private sector credit growth also warrants careful scrutiny. The proposed budget expects private credit growth of 9.4 percent in FY2026-27, despite actual growth being 4.75 percent as of April 2026. Weak business confidence, cautious bank lending, and financial sector stress continue to constrain credit demand and supply alike. Unless confidence improves significantly, higher credit growth may prove difficult to achieve.
The external sector projections also reflect considerable optimism. Export growth is expected to accelerate while imports are projected to rise sharply, reflecting stronger domestic demand and investment. Remittances are expected to continue growing, while forex reserves are projected to increase substantially over the medium term. Although these projections are not impossible, they depend heavily on favourable global conditions, stronger domestic competitiveness, and continued macroeconomic stability. Bangladesh’s export performance will also be influenced by slowing global demand, geopolitical uncertainties, and preparations for LDC graduation.
The fiscal framework underpinning the budget is equally ambitious. Public expenditure is projected to increase by around 19 percent over the revised FY2025-26 budget, while revenue is expected to grow by 18.2 percent. The budget deficit is projected at 3.6 percent of GDP, financed through a combination of domestic borrowing and external loans.
The greatest uncertainty lies in revenue mobilisation. Bangladesh has consistently struggled to achieve its revenue targets over the past decade. Revenue collection during FY2025-26 fell substantially short of expectations, implying that the FY2026-27 target would require an exceptionally large increase in actual collections. Much of the projected revenue growth is expected to come from the National Board of Revenue (NBR), particularly through VAT and income taxes. While measures to improve tax compliance, broaden the tax base, and integrate taxpayer databases are welcome, implementation challenges remain significant.
The new budget assumes a substantial increase in external financing to support higher development spending. However, Bangladesh has long been struggling with delays in project implementation and in disbursement of foreign loans, which raises questions about whether these targets can be achieved. As concessional foreign assistance gradually declines, the country will increasingly depend on external borrowing rather than aid. This will require stronger sovereign creditworthiness, sound macroeconomic management, and compliance with the lenders’ requirements. Without improving institutional capacity, implementation efficiency, and the country’s credit profile, the projected level of external financing may not fully materialise, posing risks to budget execution.
The fiscal measures of the proposed budget provide greater predictability. A more predictable tax framework allows maintaining personal income tax rates until FY2027-28 and corporate tax rates until FY2030-31, providing greater certainty for businesses and investors. Incentives for timely tax filing, stronger enforcement, and digital integration of tax databases could improve compliance and broaden the tax base. The budget also supports domestic industries, renewable energy, pharmaceuticals, and digital economy through targeted tax incentives. Tax-free income threshold may be raised to Tk 4 lakh from the present Tk 3.5 lakh, offering some respite to the lower- and middle-income households. However, the government’s continued reliance on indirect taxes may add to their financial stress, undermining the fairness of the overall package.
Job creation gets limited emphasis in the proposed budget. It does not appear fully aligned with the government’s pledge to create one crore jobs within 18 months. It assumes that stronger economic growth will naturally translate into higher employment. However, recent experience shows that growth alone does not automatically generate sufficient quality jobs. Structural transformation requires deliberate policies that promote labour-intensive industries, expand exports, strengthen entrepreneurship, and improve workers’ skills.
The budget includes welcome support for SMEs, freelancers, women entrepreneurs, and the digital economy, all of which can encourage self-employment and innovation. However, these initiatives alone are unlikely to generate employment at the scale envisioned by the government. A more comprehensive employment strategy would have prioritised technical and vocational education, apprenticeship programmes, workforce reskilling, digital job-matching platforms, and stronger links between education and industry. If employment generation is to become the centrepiece of Bangladesh’s development strategy, future budgets will need to move beyond growth targets and place much greater emphasis on creating productive, high-quality jobs.
Investing more in education, health and social protection is one of the proposed budget’s strongest features. Compared with the revised FY2025-26 budget, allocations to these sectors have increased substantially, signalling a welcome shift towards human capital development. However, larger allocations alone will not guarantee better outcomes. Weak implementation, governance failures, and institutional constraints often reduce the effectiveness of public spending.
The expansion of the Family Card programme deserves particular attention. Providing subsidised essential commodities to low-income households can help protect vulnerable families from the ongoing effects of high inflation and rising living costs. If integrated with digital beneficiary databases and transparent delivery systems, the programme can become an important pillar of the country’s social protection architecture. However, its success will depend on accurate targeting, minimising leakages, ensuring nationwide coverage of eligible households, and maintaining regular monitoring.
Overall, the FY2026-27 budget is an encouraging starting point for the new government. But its success will ultimately depend on effective implementation, which has to ensure that every spending delivers meaningful economic and social returns.
Dr Fahmida Khatun is an economist and executive director at the Centre for Policy Dialogue (CPD).
Views expressed in this article are the author’s own.
Views expressed in this article are the author’s own.
Source: https://www.thedailystar.net/opinion/views/macro-mirror/news/ambition-execution-the-real-test-the-fy2026-27-budget-4210661
