Inflation control, investment attraction prioritised in upcoming budget

Highlights:

• FY26 budget to be enacted via presidential ordinance
• Funding concerns eased by IMF, World Bank support
• Power subsidy to drop from Tk62,000cr to Tk35,000cr
• Agriculture, food subsidy to stay near Tk30,000cr
• Total budget set at Tk7.90 lakh crore, down from Tk7.97 lakh crore
• Exchange rate reform may complicate inflation management

The Finance Division has framed next fiscal year's budget with a sharp focus on taming inflation, boosting investor confidence, and restoring macroeconomic stability.

These priorities will be finalised today in a key meeting chaired by the chief adviser. If elections are held on schedule, this will be the interim government's only budget.

In a departure from decades of tradition, the budget for the fiscal year 2025–26 will be unveiled on Monday, 2 June, rather than the first Thursday of the month. 

The change is due to the Eid-ul-Azha holidays, and the budget will be announced on national television by Finance Adviser Salehuddin Ahmed. 

It will be implemented through a presidential ordinance, as permitted under the current constitutional arrangement.

This marks the third instance of an interim government presenting the budget via televised address, following similar presentations by former adviser of the then caretaker government AB Mirza Md Azizul Islam during 2007–08.

The finance adviser has previously hinted that the upcoming budget is being framed with inflation control as the highest priority. 

"To shield the poor, we are increasing both the number of beneficiaries and the size of transfers under various social safety net programmes," he said. 

He also noted that employment generation, energy efficiency, and increased investment will receive strong emphasis.

Financing worries eased

Senior finance ministry officials told The Business Standard that worries over financing have significantly eased, thanks to confirmed support from the International Monetary Fund (IMF), World Bank, and other development partners. 

However, they said the implementation of IMF-prescribed reforms, especially the shift to a market-driven exchange rate, could make inflation control more difficult. 

Subsidies trimmed

The IMF has also waived its earlier condition that required the government to completely eliminate power and energy subsidies by 2026. 

Even so, subsidy limits must still be enforced. In the revised FY25 budget, Tk62,000 crore was allocated for power and energy subsidies, which should cover most pending dues. Next year, this allocation is expected to drop to Tk35,000 crore.

Subsidies for agriculture and food security are expected to remain largely unchanged, at around Tk30,000 crore. 

In contrast, export incentives are set to decline, in line with Bangladesh's anticipated graduation from Least Developed Country (LDC) status in November 2026.

Attracting FDI

The Finance Division has also been instructed to make the budget more investment-friendly, particularly to attract foreign direct investment. 

"We are incorporating new initiatives and may include legal reforms aimed at simplifying business operations and managing the risks tied to LDC graduation," a senior finance official said.

Given that this is the first budget following the July uprising that led to the formation of the interim government, policymakers are also expected to give special focus to food security, economic stability, and accelerating social development.

The budget will also highlight broader reform goals, such as good governance, inclusive growth, poverty reduction, women's empowerment, and climate resilience. 

Officials said the budget is being designed to respond to public demands raised during last year's political turmoil and to reduce social inequality.

Smaller budget

The budget will be smaller than the current one – a first since the country's independence in 1971 – due to a strategic cutback in the Annual Development Programme (ADP). 

The total budget has been proposed at Tk7.90 lakh crore, down from Tk7.97 lakh crore this year. The development budget will shrink to Tk2.4 lakh crore, while the ADP allocation is expected to fall from Tk2.65 lakh crore to Tk2.3 lakh crore.

Despite the overall reduction, spending on operating or non-development activities will rise. The estimated operating expenditure for FY26 is Tk5.5 lakh crore, compared to Tk5.07 lakh crore in the ongoing fiscal year.