Can ‘optimistic’ growth, inflation targets be met?
The proposed budget for the upcoming 2025-26 fiscal year has taken a different approach this time — instead of the “growth-centric concept” that had dominated previous budgets, the interim government has opted for “holistic development” as the key goal. Economists, however, argue that some tax policies are contradictory and the growth and inflation targets are too optimistic
'Both inflation and growth targets seem overly optimistic'
Dr Selim Raihan; Executive Director, South Asian Network on Economic Modelling (SANEM)
I believe the interim government has genuinely tried their best under the current circumstances, and I will not question their effort. Throughout the budget, we do see acknowledgments of the economic difficulties the country is facing.
That said, my main concern lies in the approach: they have tried something new, but within the confines of an old framework. And that is where the problem begins.
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The structural issues that have long plagued our budgeting system remain intact. Because of that, many of the old problems that were previously overlooked are now reappearing. In my view, this attempt at renewal is likely to be hampered because it is relying on a system that should have already been overhauled. Initiatives may get stuck or delayed, not because the ideas lack merit, but because the system is not built to support them.
Two key issues that played a major role in the July Uprising were public frustration over discrimination and the lack of employment opportunities. Of these, I think the most urgent is employment — and the investment needed to drive it. Over the last decade, we have seen one of the lowest levels of private sector investment. And in the current political and economic climate, we cannot expect a major shift.
Right now, both national and foreign investors are hesitant. And that hesitation stems from uncertainty — we do not know how or when the national election will take place, or whether the transition will be peaceful. This creates a risk-averse environment where investments stall, and when investments do not happen, jobs do not get created. That is a major concern.
Given all this, the growth target of 5.5% for the next fiscal year seems difficult to achieve, at least from where I stand. Likewise, bringing inflation down to 6.5% from the current 9-10% feels overly optimistic. These two targets — growth and inflation — are where I believe serious questions need to be raised.
On the issue of discrimination and equity, I expected more. Health, education, and social security — these are three pillars where we urgently need transformation, not just marginal increases. I've seen the advisors mention these sectors throughout the budget, and that's good, but they haven't gone beyond the old thinking. There's no real breakthrough in how we plan to build a more equal society.
To put it simply, this is a budget that tries to do something new but is stuck using the outdated framework. Without reforming the core framework, even the best intentions will struggle to deliver results.
'Enhancing investment, employment within constrained budget will be key challenge'
Professor Sayema Haque Bidisha; Pro-Vice-Chancellor (Administration), University of Dhaka
This time, we have seen a contractionary budget. The budget proposal has been made in line with the recent monetary policy, which is also somewhat contractionary. This means it has been formulated with the highest priority given to keeping inflation under control.
However, enhancing investment and employment within a contractionary budget will be our key challenge.
We have been talking about an anti-discriminatory budget. From that point of view, the main things to look at in the budget are allocations in each sector and what the tax system looks like.
In other words, it is important to evaluate the tax system, the efforts to increase direct tax collection, and the amount of funding allocated to three key sectors — education, health and social protection. These factors are essential for assessing the budget.
The social protection sector also covers pensions and interest payments. So, to see the real picture, we need to take out the amounts spent on pensions and interest and focus on how much money is really given to help the grassrooted people.
Although inflation has come down below 10%, it still remains high. To control inflation, both monetary policy and fiscal policy need to work together. Monetary policy has already been made contractionary, and tightening it further could negatively impact investment. Therefore, there is little to do with monetary policy.
On the other hand, we have seen some cuts in fiscal policy. Now, the main focus needs to be on market monitoring. Especially since food inflation still remains at a very high level. I think bringing down inflation to 6% will be very difficult. Because unless there is a paradigm shift in market monitoring, it will be hard to achieve.
Disclaimer: This reaction piece is based on a public statement made during a televised interview.
'Capital market push raises already high tax for non-listed firms'
Dr M Masrur Reaz; Chairman and CEO, Policy Exchange Bangladesh
I believe this year's budget has been presented in three particular contexts: first, considering the ongoing process of stabilising our macroeconomy; second, the need to re-establish good governance following the July Uprising; and third, to accelerate our overall development through employment generation, investment, and preparation for the upcoming challenges — especially the 2026 LDC graduation.
In my view, the first priority should be to consolidate the recovery of the macroeconomy, and in that regard — particularly in terms of inflation — the budget scores well.
The overall size of the budget has been reduced by around Tk7,000 crore. Alongside that, the size of the Annual Development Programme (ADP) has also been cut. This will support inflation management and the broader fight against inflation. Furthermore, the monetary policy, which has been in a contractionary mode for the past two terms, will also aid in curbing inflation.
Had the budget been larger during this time of high inflation, and if unnecessary expenditures had increased through it, that would not have helped in fighting inflation.
Secondly, in terms of restoring governance, I believe there was more scope for action in the budget. For example, governance in the banking sector, energy sector, and our institutional capacities have collapsed significantly. The government does have a reform plan. Therefore, the budget could have been shaped keeping in mind the initiation of those reforms and the short-term, achievable reforms within a one-year timeframe — but I do not see much emphasis on that.
Our trade and investment sectors also require reforms. However, there is little in the budget that addresses increasing trade capacity or reforming the investment climate.
For instance, to encourage companies to get listed on the capital market, the difference in tax rates between listed and non-listed companies has been increased by raising the tax rate for non-listed companies. Now, the intention behind this is good — that more companies should enter the capital market. But in doing so, we have increased the tax rate for non-listed companies, which was already 25% — a high rate by South Asian or Asian standards — by an additional 2.5%.
I believe instead of doing that, if the rate for non-listed companies was brought down to 24%, and the rate for listed companies reduced further from 20%, we could have maintained a larger differential in a more beneficial way. Currently, while we have around 300 listed companies, there are over a hundred thousand non-listed companies and several more lakh partnerships or small businesses — most of whom will now face an increased tax burden. So, in terms of the investment environment, I think more could have been done.
There are also several other reforms — such as in education, health, and institutional capacity building — that needed greater attention. Constitutional reforms, or reforms in the civil service or security sectors, are long-term issues, as they are complex and require political consensus. But on matters like health, education, trade, investment, and institutional capacity, there is already national consensus. No one would oppose starting reforms in these areas. The relevant commissions have also submitted their reports by January.
Therefore, I believe those reforms should be initiated now. In doing so, the budget could provide confidence and direction through the economic and fiscal statements, and through allocations, it could support the preparation and implementation of those reforms. That is the gap I see at the moment.
In the private sector, there are a few minor gains, but nothing significant. However, in sectors dependent on gas — such as textiles, steel, backward linkages, cement and ceramics — there has been a prolonged gas crisis. To address this, the subsidy for LNG imports has been increased from Tk6,000 crore to Tk9,500 crore. I consider this a good initiative.
