As subsidies rise, govt faces mounting pressure to mobilise funds 

The government is facing growing uncertainty over how to mobilise funds to meet mounting expenditure pressures as a surge in global fuel prices threatens to widen the fiscal gap in the upcoming budget.

Officials at the finance division say the cost of subsidies in the power and energy sectors alone could approach Tk1 lakh crore annually, driven by nearly doubled oil and gas prices in international markets amid the Middle East war.

Additional pressure is seen from increased subsidies in agriculture and fertiliser alongside spending commitments linked to the government's election pledges.

However, revenue mobilisation prospects remain weak due to sluggish economic activity, raising concerns over how the government will bridge the widening gap between income and cost.

Against this backdrop, the government's coordination council is set to meet tomorrow to review the overall situation, identify risks and outline strategies for the next fiscal year's budget.

Finance ministry officials said they had initially begun work on a budget of around Tk8.8 lakh crore to Tk9 lakh crore for FY2026, expecting a post-election rebound in investment and employment.

But the overall global situation has forced a reassessment as rising energy costs squeeze fiscal space while revenue growth remains constrained.

Officials are now considering a contractionary budget, with the size likely to be between Tk8.5 lakh crore and Tk8.6 lakh crore.

The government is expected to set a revenue target of around Tk6 lakh crore for the next FY, including approximately Tk5.3 lakh crore from the National Board of Revenue. However, concerns persist over the feasibility of this target.

The Centre for Policy Dialogue has already warned that NBR collections in the current FY may fall short of the target by about Tk1 lakh crore.

"Global economic uncertainty and structural weaknesses in revenue mobilisation have made it increasingly difficult to balance income and expenditure while delivering on election promises," a senior finance ministry official said.

He also said that the final budget size could be revised upward, potentially reaching Tk9 lakh crore, depending on the government's decisions.

The government has set a target of raising GDP growth from a provisional 3.5% this FY to 5% in the next, alongside efforts to contain inflation and boost domestic demand.

However, officials remain sceptical about achieving these targets given global perspectives.

Currently, the government has been managing subsidy pressures through spending cuts and alternative financing measures. These include reducing allocations in various sectors, issuing bonds to borrow from the private sector and utilising funds earmarked for "unforeseen expenditures."

Recent austerity measures include a ban on government vehicle purchases and restrictions on foreign travel funded by the state. While such steps have helped manage additional costs for a few months, officials warn that sustaining them over a longer period will be challenging.

"If the situation persists, adjustments in fuel and power prices may become necessary," the finance ministry official said, cautioning that such moves could further fuel inflation. This, in turn, may require higher allocations for social safety net programmes to protect low-income groups.

While initiatives like the "family card" programme have already been introduced, officials say there is limited scope to expand new schemes in the next budget. Instead, the focus will be on improving efficiency and preventing duplication in existing programmes.

Budget support from development partners is feared to decline sharply, from around $3.5 billion in FY2025 to about $1.2 billion in the current FY. Inflows may remain just above $1 billion next FY, although an additional $1.8 billion could come from the IMF under ongoing programmes.