Will 'conventional' FY26 budget hold up against looming economic strains? Analysts weigh in

After a year of political upheaval and uncertainty, the overarching hope was that the interim government would deliver a fiscal framework capable of riding out the prevailing economic headwinds and setting the country on firmer footing to drive state reforms.

Navigating the weight of public expectations, Finance Advisor Salehuddin appears to have erred on the side of caution by rolling out a conservative Tk 7.90 trillion spending plan for FY26 on Monday.

The proposed budget has garnered mixed reactions from analysts.

While some see the decision not to expand the Annual Development Programme (ADP) as a prudent move, others are wary about its potential ramifications on employment.

A few have also argued that the spending cuts are not "substantial" enough.

The view on the targets set for inflation and GDP growth also varies, with some describing them as “ambitious” and others calling them "complex". Some analysts also feel the budget lacks sufficient measures to boost job creation.

In the changed political reality following the July Uprising, this year’s budget was presented outside the halls of parliament and in a novel format.

The budget is set to run up a deficit of Tk 2.26 trillion, which is 3.6 percent of GDP. To offset the shortfall, the government plans to raise Tk 1.25 trillion from domestic sources and Tk 1.01 trillion from foreign sources.

SOME MEASURES ARE 'BOLD': ZAHID HUSSAIN

Terming the development spending as “conventional”, Zahid Hussain, former lead economist at the World Bank's Dhaka office, believes some ADP projects must be dropped as there is "no scope" to fund them.

"Others will have to be scrapped due to lack of importance. The cuts that have been made isn't particularly significant,” he said.

However, he praised the government’s approach on the revenue side, calling some of the budgetary measures “bold” and “enterprising”.

“Several sector-specific incentives are expiring this month, and the government hasn’t extended them. Incentives have also been reduced in other areas, which will help boost revenue.”

However, he warned that rolling back these incentives could provoke pushback from some sections of the business community during budget implementation.

“The proposed budget is a positive step for the economy. But the big question now is whether the influential players in the financial sector will allow it to be implemented. The move is like putting your hand in fire. If you can’t follow through, you’ll get burnt. The government has shown the courage to do that.”

CURBING CORRUPTION KEY TO PROTECTING JOBS: SAIFUDDIN KHAN

Prof Muhammad Saifuddin Khan of Dhaka University's Economics Department believes the government’s development expenditure is likely to decline in the coming fiscal year.

“Spending on mega projects has already gone down. The government may not finance many of them this time. That’s why development expenditure will likely be lower.”

The conventional wisdom is that higher development spending typically stimulates economic activity, which in turn, has a positive impact on employment. On the other hand, a reduction in such spending creates downside risks.

“We must clamp down on corruption. If irregularities can be curbed and the development budget is implemented properly, there should be no problem,” said Saifuddin.

The proposed budget also includes increased special benefits for government employees.

Criticising this move, Saifuddin said: “The economy is still not back to a normal rhythm and there remains a degree of crisis. The government could have reduced its administrative spending instead. At a time when everyone is struggling, there was no urgent need to increase benefits for public servants. That could have waited.”

'IS THERE A PLAN TO CREATE JOBS?' ASKS MUJERI

Mustafa K Mujeri, former chief economist of Bangladesh Bank, has raised questions about whether the new budget offers any meaningful measures to generate employment.

“The budget talks about building a sustainable economic framework. But that requires concrete action.

"Is there any element in the budget geared towards job creation? Jobs require investment. But investment isn’t growing. For that, we need the right environment, both economically and socially.”

Mujeri, also a former director general of the Bangladesh Institute of Development studies, noted that while the government has reiterated its commitment to attracting investment through reforms, such initiatives appear only on a very limited scale in the budget.

“This is an interim government. There is an opportunity to institute reforms. But that requires firm actions. The interim government can seize that opportunity.”

Emphasising the need for inclusive reform measures, Mujeri said: “Reforms must be carried out with the participation of all stakeholders. The process needs to be transparent and widely accepted. Those who benefit from reforms should be actively involved in the process.”

On the budget’s target to cap inflation at 6.5 percent, he said: “A comprehensive policy framework is needed. Without that, controlling inflation will not be possible.”

Addressing the proposed tariff waivers on 626 imports to ease trade tensions with the United States, Mujeri was cautious.

“Reducing tariffs on imports from the US will only be effective if local businesses find it profitable. We also need to consider how much actual demand or opportunity there is for importing from that country.”

BRINGING INFLATION DOWN WILL BE 'CHALLENGING': SAYEMA HAQUE BIDISHA

Prof Sayema Haque Bidisha of the Department of Economics at the University of Dhaka has described the government’s target of reining in inflation to 6 percent as highly challenging.

Speaking to Jamuna Television during a post-budget discussion, she said: “This budget is being described as one that promotes equity and aims to reduce inequality. From that perspective, what matters most is how resources are allocated to key sectors and what the tax structure looks like.

“Is the tax structure progressive? Has there been an effort to expand the direct tax net? And how have allocations been made in essential sectors like education, health, and social safety nets? That’s what will reveal the underlying philosophy of this budget.”

Commenting on inflation control, she emphasised that both monetary and fiscal policies need to work together.

“When we talk about controlling inflation, both monetary policy and fiscal policy must function in tandem. The current monetary policy is contractionary. If it becomes even more restrictive, it could negatively impact investment.

So, I don't see much room for additional measures through monetary policy.

“We’ve also seen some cuts in fiscal spending. So, if we’re focusing on inflation, we really need to strengthen market management.”

The finance advisor set a target of keeping average inflation within 6.5 percent in his budget speech.

He said that various initiatives taken by the interim government have already helped lower point-to-point inflation from 10.89 percent in December 2024 to 9.17 percent in April 2025.

But Bidisha expressed doubt about achieving the target, especially in the context of food prices.

“Food inflation is still at a high level. So, bringing overall inflation down to 6 percent will be extremely difficult in my view.

"Without sweeping changes in market governance and the broader structure of monetary and fiscal policies, it will be very difficult to reach that target.”

GROWTH TARGET 'OVERAMBITIOUS': SELIM RAIHAN

While the new budget attempts to reflect public expectations, Selim Raihan, executive director of South Asian Network on Economic Modeling (SANEM), sees risks arising from pre-existing structural issues.

In his reaction on private television channel Channel 24, he said: “The decade-long, deep-rooted problems in budget formulation still remain embedded within the old institutional framework. We haven’t been able to move much beyond that.”

Referring to the targets of achieving 5.5 percent GDP growth and bringing inflation down to 6.5 percent, he said: “These projections seem overambitious to me.”

Explaining his concerns, he said: “Both domestic and foreign investment appear to be in a state of stagnation. There may be underlying concerns among investors, which is why they are holding back on making major investments. As a result, we’re already seeing the immediate impact on employment. No new job creation is happening.”

On the government's plan to split the National Board of Revenue (NBR) into two separate bodies, he said: “There’s already a sense of instability within the NBR. The proposed bifurcation of the NBR is facing opposition, and unless reforms are executed properly, I’m worried about the government’s ability to meet revenue targets in the coming fiscal year.”

CUTTING DEVELOPMENT SPENDING A 'WELCOME MOVE': MASRUR REAZ

Masrur Reaz, chairman of Policy Exchange, has lauded the decision to limit development expenditure in the new budget.

“One of the most positive aspects of this year’s budget is that expectations have been kept modest, which is reflected in the overall size of the budget.

"Budgets usually increase every year, but this time the overall size is Tk 70 billion less than last year. The ADP has been cut by 13 percent compared to the previous year. This is a welcome step.”

While he acknowledged several good initiatives for the business sector, he also felt that more could have been done.

Speaking to private broadcaster Ekattor TV, Reaz said: “One of the notable positive measures is related to the current gas crisis -- a major problem for businesses.

"The government has increased the subsidy for LNG to over Tk 90 billion, which is a positive step.”

However, he criticised the proposal to increase VAT on online platforms, saying: “The proposed VAT hike could undermine business growth, especially in the digital sector.

"It will create inequality and pose a barrier to the promising opportunities for women entrepreneurs operating online.”