CPD sees disconnect between budget goals, implementation strategy

The Centre for Policy Dialogue (CPD) has said that while the proposed national budget for the upcoming fiscal year outlines expectations and commitments for reform following the change in government, its implementation strategy does not align with those goals.

“This government came into power following the Anti-discrimination Movement. The budget proposal speaks of eliminating inequality across sectors, especially in the financial sector. But we don’t see alignment between that commitment and the budget’s implementation strategy,” Fahmida Khatun, the private research organisation's executive director, said on Tuesday.

The think tank outlined its analysis of the proposed budget at a media briefing at Lakeshore Hotel in Dhaka's Gulshan on Tuesday.

Throughout the session, discussion repeatedly returned to the subjects of revenue collection and the need for reform.

On Monday, Finance Advisor Salehuddin Ahmed unveiled a Tk 7.89 trillion spending plan for FY26 -- Tk 70 billion smaller than the current year’s budget.

The budget deficit has been set at Tk 2.26 trillion, or 3.62 percent of GDP, compared with last year's Tk 2.56 trillion, equivalent to 4.57 percent of GDP.

Despite lofty targets, revenue collection has once again fallen short this fiscal year.

Fahmida noted that based on revenue performance until March, government earnings would need to increase by 29.4 percent over the remaining months to meet the target.

To meet the target in the final two months, an additional Tk 1 trillion must be collected, a scenario the CPD views with scepticism.

The budget was described by Finance Advisor Salehuddin as “somewhat unconventional”.

“For the first time in our history, we are proposing a budget smaller than the previous year’s,” he said.

He signalled a move away from the growth-centric model to focus more on inclusive development.

Salehuddin noted that in under 10 months, the interim government had made significant progress towards reform and expressed hope that the aspirations of the July Uprising would soon be fulfilled.

Fahmida argued that eliminating inequality will require deep structural reforms in revenue collection.

“Revenue collection has always followed a similar pattern, and this time is no different. The revenue target in the new budget is highly ambitious and remains a major concern. For the past 10 years, we’ve consistently seen these targets go unmet.”

She stressed that achieving the revenue goals would require significant reform, adding:

“Reform is necessary — the kind that has long been discussed but not fully implemented.”

Fahmida warned that if revenue does not increase, the deficit will widen further. This year's lower deficit figure signifies efforts to control inflation.

The proposed revenue target for FY26 is Tk 5.64 trillion, which is 8.9 percent higher than the revised estimate for the current fiscal year.

However, the CPD sees no clear strategy to achieve this target, especially in the context of existing discontent within the National Board of Revenue (NBR) after the government announced plans to split the organisation into two separate bodies.

“Because of protests and unrest among NBR officers, revenue collection is already being affected at a time when it should be peaking,” said Fahmida.

Currently, Bangladesh’s tax-to-GDP ratio is around 9 percent, far below the 17–20 percent seen in similar economies.

CPD Distinguished Fellow Mustafizur Rahman said, “Unless we raise the tax-to-GDP ratio above 17 percent, it will be impossible to reduce inequality through this budget.”

He urged the government to use technology more prominently and undertake serious reform to improve tax collection.

“The government is becoming increasingly reliant on indirect taxes like VAT. This needs to shift towards direct taxation and wealth taxes if revenue is to be increased sustainably.”

Fahmida also criticised the continued provision allowing the legalisation of black money.

“This creates a moral conflict for honest taxpayers and directly contradicts the budget’s stated aim of fighting inequality.”

Mustafizur pointed out that efforts to curb money laundering have helped increase remittances via formal banking channels, with an additional $7 billion received in just one year.

On the issue of inflation, Fahmida explained that it has eased only gradually, despite various efforts.

“Earlier, inflation wasn’t even acknowledged properly. As a result, monetary and fiscal policies were often at odds with each other.”

She believes that inflation could be brought down to normal levels through coordinated monetary, fiscal, and market management policies.

Fahmida also noted positive trends in several macroeconomic areas, including foreign exchange reserves, the exchange rate, remittance inflows, and trade management.

The proposed budget deficit stands at Tk 2.26 trillion, or 3.62 percent of GDP, while the deficit for the current fiscal year was Tk 2.56 trillion, equivalent to 4.57 percent of GDP.

If the full expenditure outlined in the new budget is implemented, the nominal GDP is projected to reach Tk 62.45 trillion by the end of FY26.

Referring to persistent challenges such as inflation and high levels of non-performing loans, Fahmida noted that the economy had been under pressure for the past three years.

"Some macroeconomic indicators are taking a positive turn. The rise in remittances and foreign exchange reserves has improved our capacity to meet foreign debt obligations.”

Against this backdrop, she emphasised that the primary focus of the upcoming budget should have been macroeconomic stability and taming inflation.

“The budget should have clearly laid out the steps and strategies to achieve these goals.”

The proposed budget sets the inflation target at 6.5 percent and GDP growth at 5.5 percent for the next fiscal year.