Bangladesh's new budget revenue targets face execution risks: Fitch Ratings
The rating agency also flagged higher spending commitments, particularly on social programmes and infrastructure, which account for 29.7% and 18.7% of total expenditure respectively.
Highlights:
- Fitch forecasts 3.5% GDP growth, below the government's 6.5% target
- Weak reform implementation remains a key concern
- Energy sector reforms could support future growth
- Budget success depends on stronger revenue mobilisation and execution
Bangladesh's fiscal year 2026-27 budget sets revenue targets that look challenging to achieve in light of the country's weak record on tax mobilisation and reform implementation, according to Fitch Ratings.
In a report issued today (16 June), the global credit rating agency noted that the budget aims to raise the revenue-to-GDP ratio to 10.2%, up from around 8% in FY26. If achieved, this would mark the highest level since 1993.
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Fitch said revenue execution will be the main fiscal challenge, as the budget targets 18% year-on-year growth in nominal revenue alongside a 19% increase in spending.
It added that proposed measures such as simplifying tax procedures, reducing exemptions, easing VAT compliance for SMEs, and boosting non-tax revenue from state-owned enterprises could help broaden the tax base over time, but past reform efforts have been held back by weak implementation.
The rating agency also flagged higher spending commitments, particularly on social programmes and infrastructure, which account for 29.7% and 18.7% of total expenditure respectively.
It said this reflects the priorities of the newly elected government but increases pressure to meet revenue targets.
Fitch noted that Bangladesh's history of undershooting expenditure may still help contain the fiscal deficit if implementation once again falls short. It kept its FY27 fiscal deficit forecast unchanged at 3.6% of GDP, in line with the government's target, but said this assumes both lower revenue and lower spending than budgeted.
On growth, Fitch described the government's projection of 6.5% real GDP growth in FY27 as overly optimistic, forecasting instead 3.5%, citing a fragile banking sector, weak private-sector credit growth, policy weaknesses, and an uncertain external environment.
The agency also said energy sector measures, including prioritising domestic gas exploration, improving efficiency in generation and distribution, and strengthening liquefied natural gas infrastructure, could support medium-term growth if implemented effectively.
Fitch further noted Bangladesh's request for a new IMF programme, while saying the final review of the current arrangement due to expire in January 2027 now appears unlikely.
Looking ahead, Fitch said medium-term fiscal and growth improvements will depend on the government's ability to implement reforms more effectively. The authorities aim to raise the revenue-to-GDP ratio to 11% by FY30–FY31 and lift investment to 40% of GDP, alongside boosting foreign direct investment to 2.7% of GDP.
The budget also includes measures such as a reduction in withholding tax on machinery rental payments to non-residents, continued infrastructure development including bridges and expressways, and incentives for public-private partnership projects.
It maintains a 2.5% cash incentive for remittances and extends duty-free import facilities to support export diversification beyond the ready-made garment sector.
