Good budget for hard times, but implementation a key question

The FY2027 budget arrives with an ambitious agenda: stabilise the investment climate, shield the poor, deregulate business, and diversify financing away from bank debt.

On paper, it is a coherent programme and it reflects a politically-elected government's election commitments. The question Bangladesh has asked of every budget for a generation – where will the money come from – remains, as ever, unanswered.

Start with what the government has got right. Tax predictability is a genuine concession to business. Freezing rates for five years gives investors something they have demanded for years: a horizon they can plan against.

The deregulation push, consolidating investment services under a single framework, addresses a bottleneck that has cost Bangladesh foreign investment it should have captured.

The push towards corporate bonds, mutual funds, green bonds, and Sukuk as alternatives to bank debt is structurally sound considering Bangladesh's investment ecosystem has leaned too heavily on bank financing for too long, and that reliance has contributed directly to the credit squeeze that drove private credit growth to a historic low of 4.7%.

The social protection expansion is the budget's most politically significant commitment. A 14% increase in the outlay to nearly Tk145,000 crore, and for the first time, education and health allocations reaching 2% and 1% of GDP respectively, represent a genuine shift in priorities. For low-income households that have spent four years absorbing inflation above 9%, these numbers matter.

But stated priorities and delivered priorities are two different things in Bangladesh's budget history.

In the outgoing fiscal year, revenue fell short by Tk1.04 lakh crore in the first ten months alone. That is not a rounding error, it is a structural failure that has repeated itself year after year, under government after government, with the same consequence each time: cuts to social spending, education, and infrastructure when the fiscal year runs out of room. 

The 14% social protection expansion and the historic education and health allocations are only as real as the revenue that finances them. If the NBR misses its target - and the pattern strongly suggests it will - the poor will bear the adjustment, as they always have.

Dr Hossain Zillur Rahman, executive chairman of PPRC, said the budget reflects the government's intention, at least in part, to provide relief to people and businesses and help revive economic activity.

"There is an abundance of feel-good goals in the budget, but it lacks the strategic depth needed to put the economy on a new trajectory," he told TBS.

Commenting on the significantly higher allocations for health and education, the former caretaker government adviser said a larger budget does not automatically translate into better services.

"There is little indication in the budget of how the quality of healthcare and education will improve," he said.

He also raised concerns about the efficiency of the bureaucracy tasked with implementing the budget. Of the proposed Tk9.38 lakh crore budget, around 66% has been allocated to operating expenditures.

"This raises questions about the efficiency of public spending, especially when the budget contains no meaningful roadmap for institutional reforms," he added.

Referring to the banking sector, Hossain Zillur said the budget includes some reform initiatives, but ongoing turmoil at Islami Bank Bangladesh undermines the credibility of those efforts.

"On the one hand, there is talk of banking reforms; on the other, chaos persists at Islami Bank. This contradiction creates a credibility gap," he said.

The ongoing energy problem in households and industries is the budget's most conspicuous silence.

Businesspeople across sectors have said the same thing with identical clarity: without a clear roadmap of energy supply, there will be hardly any new investment. 

Yet, the budget contains no clear roadmap for resolving the gas connection backlog, no timeline for addressing the 1,800 pending applications from factories ready to produce but unable to start, no specific mechanism for the thousands of crores taka in private investment sitting idle across the country waiting for energy.

Against this backdrop, the government's FDI target deserves scrutiny. The plan is to raise foreign direct investment from its current level of 0.45% of GDP to 2.7% by FY2030-31, a figure that, at current GDP size, would exceed $10 billion annually. That is a sixfold increase in five years, to be achieved in an economy where factories cannot get gas, and banks are poorly equipped. The ambition is not wrong. The sequencing is.

However, Shafiqul Alam, lead energy analyst at IEEFA, said the duty and tax waivers on solar panels, storage batteries and related equipment could be a game changer for Bangladesh's renewable energy sector.

According to him, the cost of installing 1 megawatt of solar power capacity could fall by around 30%, bringing generation costs down to Tk4-5 per unit, significantly lower than electricity supplied through the national grid.

"I think industries with available rooftop or unused land space will rush to install solar systems. Rural consumers with the financial means are also likely to adopt solar power," he told TBS.

As more consumers generate their own electricity, demand on the national grid will ease, helping reduce pressure on the country's power supply system and subsidies as well, he added. 

The proposed revenue target of Tk6.04 lakh crore for NBR, with an overall revenue target of Tk6.95 lakh crore, is, by the government's own recent track record, a work of optimism. NBR's actual collection in the outgoing fiscal year is expected to land at around Tk4.20 lakh crore. The new target demands growth of 23% to 42% over the previous fiscal target under current economic conditions.

The Foreign Investors' Chamber of Commerce and Industry was direct. "This target appears highly ambitious, making its realisation a significant practical challenge," FICCI said.

Hossain Zillur Rahman expressed scepticism about the government's Tk6.95 lakh crore revenue collection target, saying, "Actual collections are unlikely to come close to the target."

However, the chamber says meeting these fiscal goals will heavily depend on successfully expanding the tax net and bringing a substantial number of new taxpayers into the formal revenue system.

And, that is also done in this budget. 

Businesses will be required to have a Business Identification Number (BIN) to open or renew bank accounts, obtain or renew trade licences, and secure loans from non-bank financial institutions. Agents of mobile financial service providers such as bKash and Nagad will also be required to obtain a BIN.

Individuals, meanwhile, will need a Taxpayer Identification Number to open a bank account or keep their banking transactions active.

Experts say this move will pay off, but it takes time – at least two years. So, what will happen within this time? The proposed budget has set a deficit budget of Tk2.43 lakh, just 3.6% of GDP. It sounds very good, even compared to many developed economies.

The proposed deficit stands at Tk2.43 lakh crore – 3.6% of GDP. That sounds fiscally responsible, even by the standards of developed economies. But Bangladesh's deficit has rarely exceeded 5% of GDP not because the government collects enough revenue, but because it cuts spending when revenue falls short. And the spending it cuts first is invariably development expenditure – the roads, bridges, and public works that generate income for day labourers, the rural poor, and the workers at the bottom of the economic chain who have no other safety net.

That is the real budget. Not the Tk9.38 lakh crore announced on Thursday. The real budget is the one that emerges six months from now, after the NBR misses its target, after the ADP is revised downward, after the social protection outlay that was supposed to expand by 14% is quietly trimmed to make the numbers work.

Bangladesh has a budget of intentions. Whether it becomes a budget of consequences depends entirely on revenue. And on that, the government has offered ambition where it needed a plan.