FY2026-27 budget targets: A bridge too far?

In the budget for FY2026-27, the finance minister has proposed several important departures and new measures that deserve both attention and appreciation. These include some significant changes or initiatives in fiscal policies and measures, attempts to reset allocative priorities, and deregulation in several areas. The proposed budget has significantly increased allocations for health, education, and social safety nets, and set out plans to roll out targeted measures to stimulate investment and improve ease of doing business.

The above is reflected in measures to rationalise VAT and import duties, convert taxes deducted at source into advance income tax to be subsequently adjusted with payable taxes, widen the remit of bonded warehouse facilities and use of bank instruments to cover most export-oriented sectors, and calibrate import duties on intermediate and finished goods in support of import-substituting and export-oriented industries. Several measures have been proposed to encourage innovation, incentivise the creative economy, encourage youth-led entrepreneurship, and promote investment in IT-enabled services.

Whether these measures and signals would translate into real investment, supply-side response, job creation, lowering of the inflation rate, and attaining the government’s aspiration to graduate to a welfare state built on high economic growth, social inclusiveness, and environment-friendly development process remains to be seen. Much will hinge on the implementation of the budgetary proposals and their delivery to produce expected outcomes. This is where the policymakers are likely to face formidable challenges, originating both from within the budgetary framework and from institutional factors.

To illustrate this point, one of the budget’s key weaknesses concerns the FY2025-26 benchmarks against which the FY2026-27 targets have been set. Several instances may be cited in this connection. For example, while the BBS projection of GDP growth for the outgoing FY2025-26 is 4.14 percent, the corresponding figure cited in the budget is 5 percent. So to reach the target of 6.5 percent planned for FY2026-27, GDP will have to actually grow by 2.4 percentage points, and not 1.5 percentage points as envisaged in the budget. Similarly, revenue income for FY2025-26 has been estimated at Tk 5,88,000 crore, but the actual figure for the July-April period of FY2025-26 is only about Tk 3,27,000 crore. This will necessitate a 221 percent rise in revenue collection during the last two months of May and June 2026 compared to the corresponding two months of FY2024-25.

Thus, if the FY2026-27 revenue generation target is to be attained, the growth of revenue must be higher than the 18 percent mentioned in the budget speech. The growth rate will need to be perhaps as high as 35 to 40 percent, a formidable task by any count.

Moreover, BBS figures show that the average inflation rate for the July-May period of FY2025-26 was 8.63 percent. However, the budget mentions a relatively lower average inflation rate for the year: 7 percent. Although export growth for July-April, FY2025-26 is negative, at -2.5 percent, the budget envisages a growth rate of 9 percent in FY2025-26! Indeed, exports will have to grow by an impossible 155 percent in June compared to the previous year if the growth mentioned in the budget is to be attained in FY2025-26. The projection of remittance flows is also quite surprising. During the first 11 months of FY2025-26, $32.76 billion remittance has been received—a 19 percent growth over FY2024-25, averaging almost $3.0 billion each month. Yet, the budget’s projection for FY2025-26 is only 10.1 percent growth from the $30.328 billion of remittance received in FY2024-25. This would mean remittances in June 2026 would be a meagre $0.6 billion when in June 2025 the amount was $2.8 billion, or a negative growth of 78.6 percent.

These misalignments of key performance indicators for FY2025-26, used as reference points for designing the FY2026-27 budget, call into question the veracity and soundness of the performance targets set out for the upcoming fiscal year. The newly elected government had a reason and an opportunity to depart from this budget tradition often followed by previous political governments, too. BNP was at the helm of power only during the fourth quarter of FY2025-26 (March-June, 2026) and didn’t have control over attaining the FY2025-26 budget targets. As such, a more realistic baseline would have allowed it to set more attainable macroeconomic targets, but the government didn’t choose to take advantage of this opportunity.

As noted before, the quality of budget implementation will determine whether investment is stimulated, inflation is reduced, and new jobs are created as planned. Here, three factors would be crucial: (a) institutional capacity to deliver the budgetary targets, (b) quality of macroeconomic management, and (c) good governance and accountability in all spheres of budget implementation.

Reduction of import duties and waiver of VAT and advance income tax on many items would no doubt have revenue implications. Against this backdrop, full-scale digitalisation, based on interoperable and integrated systems, should be implemented to attain the high revenue mobilisation target of Tk 6,95,000 crore. Many countries have established a QR-based and cashless system of transactions, which Bangladesh should adopt if the tax base is to be broadened and income and expenditure statements are to be reconciled.

While astute budgetary proposals, resource allocations, and fiscal measures are necessary, they are not sufficient for implementation to produce the expected results. For that, a conducive business environment, broader macroeconomic management, and institutional capacity to implement the proposals and measures are required.

Concerned institutions, therefore, must have the capacity to manage resources, ensure allocative efficiency, and attain expected outcomes and impacts. For example, the education and health sectors have been allocated significantly higher allocations in the FY2026-27 budget compared to any time in the past. This is justified. However, experience shows that these sectors have previously struggled to spend even much lower allocations. Thus, the ability to spend the newly allocated resources by ensuring good value for money is a must to achieve the education and health sector-related outcomes on the ground.

Close involvement of local communities and service-receivers in implementing the social safety net programmes, including the Family Cards and Farmers Cards; transparency and accountability in resource utilisation; and an effective system of grievance redressal are necessary to implement these programmes effectively. A welcome initiative in this context is the budget’s promise to set up digital platforms and dashboards for monitoring progress and redressing grievances.

Curtailing inflation will depend, to a large extent, on stimulating supply-side response through higher investment. But of no less importance will be the quality of market management. Overseeing, monitoring, and managing the various players operating between customs points and retail points, and between farm gate and consumers, will be crucial. Public institutions tasked with these responsibilities will need to play a proactive role here.

There is hope that the government will employ its best effort to ensure that the allocated money is actually spent on the ground. In case revenue mobilisation cannot reach the very high growth target set in the budget, the government might be compelled to borrow more than it was envisaged in the budget. Higher domestic borrowings could crowd out the private sector. Higher foreign borrowings are already creating a pressure of increased external debt servicing obligations in the budget. Already, a significant amount of money is being allocated in the budget against repayment of domestic and external debt; this amount is expected to rise over the near-term future. The debt situation should be kept under active monitoring and periodic review to reduce the attendant risks of falling into the dreaded debt trap.

In the 1977 film titled A Bridge Too Far, directed by Sir Richard Attenborough, the heroic objectives of the Allied mission could not be achieved because of delays, coordination failure, and unexpected resistance. One hopes that the present government will rise to the occasion and confront prevailing formidable challenges successfully to accomplish the mission, get to the bridge, and attain the lofty goals set out in the FY2026-27 budget.

Professor Mustafizur Rahman is distinguished fellow at the Centre for Policy Dialogue (CPD). 

Views expressed in this article are the author's own. 

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