Can the budget spur investment, jobs?

Infograph: TBS

The Tk7.9 lakh crore national budget for the fiscal 2025-26, proposed today by Finance Adviser Salehuddin Ahmed, was fairly balanced from a macroeconomic stability perspective, particularly in terms of fiscal consolidation and duty rationalisation, according to experts and stakeholders.

However, it lacks clear direction on several pressing economic challenges, such as improving the business environment, attracting investment, reforming the banking sector, controlling inflation, and supporting CMSMEs, at a time when job creation remains sluggish, the Dhaka Chamber of Commerce and Industry (DCCI) said in its immediate reaction.

The investment-to-GDP ratio, which has already fallen below the pandemic level, is projected to inch up to 30.25% in FY26. The government expects private investment to rise slightly to 24.31% of GDP, up from the provisional estimate of 22.48% this fiscal year.

Meanwhile, in a bid to curb inflation and ensure fiscal consolidation for building an "equitable and sustainable economic system," the government has scaled back its own investment target to 5.94% of GDP, down from 7.29% in 2020.

"Private investment target is not achievable," said economist M Masrur Reaz, chairman of Policy Exchange Bangladesh.

He said the falling domestic demand amid high inflation, high interest rates and the continuing energy crisis are the major factors behind his prediction.

"Also, the uncertainty about the country's transition towards an elected government emerged to be a big factor behind investors' reluctance," he added.

Humayun Rashid, former president of the International Business Forum of Bangladesh, said, "With firms struggling to survive the rising costs and falling sales, higher new investment is a far cry until entrepreneurs see a better business environment, tolerable borrowing costs and political stability."

The budget offers support to select sectors by reducing tax and duty burdens or extending tax-VAT relief periods. For instance, the advance tax on raw material imports for local manufacturers has been cut to 2% from 3%. However, around 152 imported items will now face a 2% advance income tax, likely increasing their costs.

"The relief offered to industries has been taken away from their other pockets. Broadly, the budget is not going to boost investment," former DCCI president Rizwan Rahman told TBS.

"The turnover tax raised from 0.6% of sales to 1% is a big blow to firms, especially during the economic crisis," he said.

However, the government said once a company earns enough to pay corporate tax, the turnover tax already paid will be adjusted, aiming to ease dealings with the revenue authority.

"A firm may get the benefit once it starts making money, but what about the struggle to get there?" asked Rizwan.

Bangladesh Textile Mills Association President Showkat Aziz Russel said the budget would "kill the sick cows" in local industries as the government seeks to "milk them more".

"The specific tax on local yarn producers has been raised to Tk5 per kg from Tk3, even as they struggle to stay in production with razor-thin margins and a severe gas crisis," he said.

"Uninterrupted energy supply is a crying need for industries, yet the government is cutting allocations in this crucial sector," added the textile entrepreneur.

"The budget is not as friendly for business and investment as expected," DCCI President Taskeen Ahmed said in a statement.

Technology entrepreneur Fahim Mashroor, former president of the Bangladesh Association of Software and Information Services, said the budget lacks innovative or disruptive elements that could help investment.

Turnover tax lowered for telecom operators to 1.5% from 2%, but corporate tax for all non-listed companies has been elevated to 27.5% which was 25% for firms comply with the banking channel transaction criteria, Fahim said, adding that the country needs to lower its high tax burden to match with the comparator economies for attracting investors.

With sluggish investment, job creation dried up, and without a breakthrough, around 1 crore new entrants in the job market may fail to find any job in the next five-six years, Fahim warned, who observed a 10% drop in job circulars at his leading recruitment portal BD Jobs this fiscal year.

The government said it will train some 25,000 small entrepreneurs and allocate Tk1,000 crore to disburse loans among 10,000 small entrepreneurs in the next fiscal year.

Humayun Rahsid said it is not enough, as he is worried about no visible midterm plan to train the youth for modern jobs home and abroad.

However, the Tk5,400 crore allocation for public private partnership (PPP) projects is a good move to promote the business and investment model, he added.

The interim government announced a smaller budget for the first time in Bangladesh. However, it is 6.76% higher than the revised budget of the outgoing fiscal year.

Entrepreneurs criticised the higher tax on the struggling steel and cement industries, which risks a further slowdown of development activities, especially when the government is spending less.