Budget 2026: Bangladesh eyes 6% increase in government spending

The interim government has proposed a Tk 7.9 trillion budget for the 2025–26 fiscal year, reflecting a 6.18 percent increase from the revised budget for the outgoing financial year.

The spending plan amounts to 12.65 percent of the country’s total GDP, which stands at Tk 62.44 trillion.

Finance Advisor Salehuddin Ahmed presented the budget on Monday in a televised address, with the proposal approved earlier by the Advisory Council in the absence of a sitting parliament.

The earlier budget, placed by former finance minister Abul Hassan Mahmood Ali for FY2024–25, was 11.56 percent larger than the revised FY2023–24 plan, accounting for 14.24 percent of GDP.

The last off-parliament budget was presented in 2008, under the military-backed caretaker government. Salehuddin was then the governor of the Bangladesh Bank.

While the Muhammad Yunus-led caretaker administration took charge of reforming the state and establishing consensus, the finance advisor did not attempt any reform in the budget structure, as he focussed on the economic indexes, causing worries.

If finalised, this would mark the first time since independence that the size of the proposed budget is smaller than the previous fiscal year’s plan.

Last year, Mahmood vowed to “chart a sustainable path towards a ‘Smart Bangladesh' amid global economic turbulence”. However, his government did not get the chance to implement the budget. Within a month of the budget approval, the 15-year Awami League rule ended in the face of a mass uprising led by students on Aug 5.

During the anti-government movement, violence, curfew, and internet blackouts hit the country while the police system collapsed. Besides, the national economy suffered a major setback. Trade and commerce came to a standstill.

After taking office, the Yunus government had to deal with the pressure of double-digit inflation, combined with the pressure to take different steps to alleviate the ailing economy, although the pace of business and commerce could not be restored due to political uncertainty.

For the last nine months, some party or the other took up the movement with demands almost every day, and the government had to struggle to resolve them. In the meantime, it had to promise to implement the strict conditions for the IMF loan instalment.

Salehuddin has focused on increasing the social safety net, controlling the revenue deficit and creating an investment-friendly environment. Besides, he had to think about repaying the foreign debt.

The interim finance minister has tried his best to run the wobbly economy at a steady pace to keep it on track. He decided the title of the budget based on his old equation as: “Building an Equitable and Sustainable Economic System”.

Echoing the vision of Yunus in his budget speech, Salehuddin said: “The main goal of everything we’ve undertaken to restore economic stability and build a better society is to build a zero poverty, zero unemployment and zero carbon-based society, through which the quality of life of the people of this country will change radically and we will be freed from the vicious cycle of inequality.

“By realising the dream that laid the foundation for the July Uprising, we want to leave a beautiful, livable home for the next generation, and we want to bring a wave of far-reaching change to the lives of the people. We have tried to prepare this year's budget with that goal in mind.”

The development sector has always been the key focus in the budgets of the Awami League government, which had set a goal of taking Bangladesh to the ranks of developed countries by 2041. Salehuddin, however, was free from that push.

His Tk 7.9 trillion budget has a development cost of Tk 2.4 trillion, which is 6 percent more than the revised budget of the outgoing fiscal year.

This includes the already-approved Annual Development Plan (ADP) of Tk 2.3 trillion.

This year’s operation cost, barring food cost, loan, advance payment, domestic and foreign debt payment and structural coordination cost, has been fixed at Tk 5.35 trillion, which is 5.79 percent more than the revised non-development budget of the last fiscal.

Of this amount, Tk 1.22 trillion will be used for paying the interest on the government's domestic and foreign debt, which is 22.79 percent of the total non-development expenditure.

Another 16 percent of the non-development expenditure will be spent on paying the salaries and allowances of the government employees, amounting to at least Tk 846 billion.

When the national economy rebounded in 2021 following the pandemic-induced slowdown, imports rose.

This put pressure on the government's accumulated dollars.

Although exports went up as well, they could not match the imports while remittance inflow slowed down, fuelling worries.

With the onset of the Ukraine war in 2022, food and fuel prices started to escalate around the world.

As inflation was rising, the government curbed the import of luxury goods to save dollars and adopted the path of austerity.

When that too failed to work, the Awami League government had to take a loan from the IMF to increase the supply of dollars.

The interim government also continued that loan agreement and currently is under pressure to increase revenue collection and control the deficit as a condition of the loan.

Although the National Board of Revenue (NBR) is lagging behind the target of revenue collection for the outgoing fiscal, the finance advisor expects to get about 72 percent of the potential expenditure for the upcoming fiscal year from the revenue sector.

The IMF suggested a target of Tk 5.8 trillion in revenue collection.

The proposed budget, however, has set the revenue sector income at Tk 5.64 trillion. This figure is 8.9 percent higher than the revised revenue income of the outgoing fiscal year.

Salehuddin expects that Tk 4.99 trillion can be collected as taxes through the NBR.

As a result, the NBR's tax collection target is increasing by more than 7.66 percent, which is equivalent to 63 percent of the total budget.

Like last year, the maximum tax collection target has been set from Value Added Tax or VAT, at Tk 1.88 trillion. This figure is 5.56 percent higher compared to the revised target of the outgoing fiscal year, which stood at Tk 1.82 trillion in the budget of the outgoing fiscal year, and Tk 1.78 trillion in the revised one.

The budget is expected to collect Tk 1.82 trillion from income tax and profits. In the outgoing revised budget, the amount was Tk 1.69 trillion.

The finance advisor has planned to collect Tk 514.38 billion from import duty, Tk 682.44 billion from supplementary duty, Tk 780 million from export duty, Tk 60.9 billion from excise duty and Tk 26.3 billion from other taxes and duties in the new budget.

In addition, he hoped in the budget proposal that Tk 50 billion would be collected from foreign grants.

The original budget for the outgoing fiscal year had set a total revenue collection target of Tk 5.41 trillion, but after the interim government took charge, it was revised to Tk 5.18 trillion. But only 80 percent of the target has been achieved by April.

Salehuddin said in his budget speech, “The National Board of Revenue's activities continue to achieve the medium-term revenue collection target, including rationalising tax exemptions to increase revenue collection.

“The manpower has been increased to further strengthen the activities of the National Board of Revenue. In addition, the issue of gradually reducing tax exemption benefits, expanding the tax net, and setting VAT at the same rate on various goods and services is under active consideration.”

The original budget for the fiscal year 2024-25 was Tk 7.96 trillion, later curtailed to Tk 7.44 trillion.

The budget proposal presented by Salehuddin for the new fiscal year has an overall deficit of Tk 2.26 billion in income and expenditure, which is 3.6 percent of the total GDP.

Usually, an attempt is made to formulate a budget keeping the deficit within 5 percent. However, due to pressure to raise money, the deficit has been more than 4.9 percent every time since the 2013-14 fiscal year during the Awami League regime. Mahmood brought it down to below 5 percent in the outgoing financial year. Salehuddin has opted to reduce it further.

As always, the finance advisor will have to rely on domestic and foreign loans to meet the budget deficit.

Salehuddin, however, has greenlighted foreign sources to reduce borrowing from domestic sources at high interest rates.

He hopes to cover the deficit by borrowing Tk 1.35 trillion from abroad and Tk 1.25 trillion from domestic sources.

Among the domestic sectors, the budget has set a target of borrowing a record Tk 1.04 trillion from the banking sector, Tk 125 billion from savings certificates and another Tk 85 billion from other sectors.