A budget meant to fix, not to dream

Highlights:

• Interim government prioritizes economic repair over political grandstanding
• Inflation easing slowly; foreign reserves and banking show slight recovery
• Growth, investment, and job creation remain critically weak
• IMF loan demands urgent tax reform and fiscal discipline
• Energy shortages, weak demand hurt businesses and deter investment
• Budget's success depends on real relief, not just numbers

This year's national budget does not come from an elected government—it arrives from an interim administration, arguably the most technocratic Bangladesh has seen in recent memory. Unburdened by the usual political calculations, this government has the space—and perhaps the will—to confront hard truths. And in some places, signs of that resolve are beginning to show.

Inflation, though still stubborn, has begun to retreat, if only inch by inch. The haemorrhaging of foreign exchange reserves has been stemmed; the bleeding hasn't stopped entirely, but the patient is no longer on the brink. Even the chronically troubled banking sector—riddled with default loans, regulatory indifference, and political interference—is starting to show flickers of recovery, excluding the predictable dozen or so banks that remain perennial wards of the state.

There's more. Remittances surged by over 28% to $24.53 billion between July and April of FY2024–25, providing a much-needed cushion. Exports, too, have posted a nearly 10% growth in the same period—a rare bright spot. Encouraging whispers are emerging around improving the business climate: easing harassment by revenue officials, reforming customs duties and tariffs, and putting the brakes on politically driven development projects.

But let there be no illusions—what lies ahead is no ordinary clean-up job. It's a structural repair.

Growth has slipped to its lowest in years. Energy insecurity is deepening. Investment remains frozen in place. And job creation—once a key bragging right for policymakers—has slowed to a crawl. Inflation has hovered stubbornly above 9% for three consecutive years, a figure that no longer just haunts spreadsheets but knocks daily on the doors of ordinary households. Consumers are hurting, small businesses are struggling to breathe, and private investment is circling overhead, unwilling to land.

Also, the IMF, like a stern schoolmaster, watches every move. Its $4.7 billion loan is not just a cheque, but a prescription with sharp instructions and even sharper timelines. At the heart of it: scale up tax revenues that remain stuck at a dismal 8%. The government's remedy so far? Lean harder on the same weary taxpayers.

And yet, expectations are high—as they perhaps should be. At the helm is Nobel laureate Prof Muhammad Yunus, flanked by some of the country's most respected economic minds, from finance and planning advisers to the central bank governor.

Still, the FY2025–26 budget may not be a grand vision statement. It can't afford to be. It will be a fixing budget—one tasked with firefighting, patchwork repairs, and stabilising a listing economic ship long tossed by the winds of mismanagement and complacency.

In this context, senior economists warn, the government must walk a tightrope of trade-offs. There is little room for grandstanding. Every move must count.

Containing inflation requires fiscal and monetary discipline, according to Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD). But excessive tightening risks stalling growth further and drying up what little investment appetite remains. On the flip side, she said spending more to revive demand could fan the very inflation it aims to tame. Similarly, IMF-backed reforms—ranging from tax broadening to subsidy cuts—are necessary for long-term health but come with steep political costs, particularly when the public's patience is already frayed.

This government must also make peace with the fact that, unlike a politically elected administration, it lacks the runway to chart a five-year course. There is no Vision 2026 guiding this budget, no electoral anchor tying policy decisions to longer-term national ambitions. It must instead focus on the immediate: restoring stability, repairing broken disciplines, and ensuring a functioning, credible economy, economists say.

To that end, the budget should pursue five priorities, says Dr Selim Jahan, former director, Human Development Report Office and Poverty Division of UNDP. 

First, economic stability—without which nothing else matters. Second, the restoration of fiscal discipline, especially through greater transparency and accountability in how public resources are managed. Third, a reduction in inflation alongside measured growth stimulation. Fourth, an emphasis on completing ongoing projects rather than launching new prestige ones. And fifth, a sober, pragmatic approach to managing debt and subsidy burdens, both of which have ballooned beyond comfort.

Dr K A S Murshid, former Director General of the Bangladesh Institute of Development Studies (BIDS), does not mince his words when it comes to assessing the current economic landscape.

"Our most immediate and urgent task is economic stabilization," he says, pointing to some recent improvements in the banking sector—but cautioning that the progress is far from sufficient. "We are still bogged down by very basic structural constraints. Investor confidence remains weak. Businesses are facing headwinds on all fronts—energy shortages, worker unrest, restricted access to bank credit, and persistent difficulties in opening letters of credit."

His biggest concern, however, is the broader economic environment. "Above everything else, we must restore macroeconomic conditions—and that includes keeping a very close eye on food production. Any instability there would have far-reaching consequences."

Looking ahead to the FY26 budget, Murshid says his expectations are rooted more in realism than in reformist ambition. "I expect pragmatism—nothing flashy, just a clear focus on regaining stability. But I remain concerned about the revenue side. Given the current economic downturn, it's difficult to see how the NBR can significantly improve tax collection."

He points to a key structural issue: the over-reliance on indirect taxes. "With GDP growth slowing, I doubt the tax-to-GDP ratio will improve—in fact, the denominator itself is shrinking. I fear that instead of broadening the base, we may see a further rise in indirect taxes. That would be unfortunate, as it burdens the poor and undermines equity."

While economists deliberate on fiscal discipline and macroeconomic stability, businesses are caught in the grip of far more immediate concerns—energy and survival.

"I don't need lofty promises. First, I need energy. Then, talk to me about a pro-business environment and safety and security of my investments," says Md Khorshed Alam, Managing Director of Little Star Spinning Mills Ltd and a director of the Bangladesh Textile Mills Association.

He had been assured of improved gas supply by the energy adviser on Saturday. Has it arrived?

"Maybe. Maybe not. I can't even tell," he says, frustration creeping into his voice. "There's no electricity in the mill, so I can't check the gas pressure or monitor production online."

Alam runs a modern operation—he tracks everything from gas pressure to yarn output digitally. But without power, that system falls apart. His words reflect the broader anxiety gripping Bangladesh's industrial hub in Ashulia, Savar and Gazipur: policy promises are meaningless if factories can't even stay lit. 

Beyond energy, Shams Mahmud, former president of the Dhaka Chamber of Commerce and Industry (DCCI), expressed concern over the government's increasing reliance on bank borrowing, warning that it could crowd out the private sector and make it harder for businesses to operate.

"Whatever proposals regarding advance income tax I've seen in the media will significantly impact industries—from RMG and textiles to cement, steel, and agro—by driving up operational costs," Mahmud told The Business Standard. "I would be happy to see some allocations aimed at expanding the tax base, but so far, the government has targeted the existing taxpayers," he said.

He also pointed to political uncertainty as a major deterrent to new investment and job creation. "One of the key reasons behind last July's uprising was the severe lack of employment opportunities," he added.

But for people like Masud Rana, a private car driver earning Tk 20,000 a month, and Kabir Hossain, who runs a small grocery shop on Dilu Road in Dhaka, the national budget feels like a distant dialogue among people disconnected from their reality. Their daily struggle isn't about deficits or policy priorities—it's simply about survival. 

"My income runs dry by the 20th of every month," says Rana, recently married, now juggling both hope and hardship. "It costs Tk20 just for a cup of tea and a biscuit, just to keep hunger quiet for a while. The rent goes up every year, and there's no one to hold it back."

Kabir's troubles are no less acute—his business, once modestly steady, now grapples with thinning profits and falling sales. Since the start of the Russia-Ukraine war over three years ago, prices have spiraled, breaking the supply chains that fed his shelves and the wallets that once bought from them.

"Even suppliers who used to give me goods on credit now refuse without cash upfront," Kabir says. "They're afraid. Just like I am."

In a world of budget documents and policy reforms, Masud and Kabir stand as reminders that behind every line item lies a life—stretched, uncertain, and waiting for relief.

Yes, there are green shoots. But they grow in rocky soil. And the real test of recovery will be not in spreadsheets—but in shops, factories, and kitchens across the country.