Bangladesh’s triple deficits: Two phantoms, one real crisis

Every year, when Bangladesh's national budget is presented in parliament, public discussion revolves around a familiar set of numbers: the size of the budget, the fiscal deficit, the revenue target, the revenue shortfall, and the amount of borrowing needed to bridge the gap.

The recently announced national budget continues this pattern. The government has proposed a budget of approximately Tk 9.3 lakh crore, while projecting a fiscal deficit of roughly Tk 2.43 lakh crore, equivalent to about 3.7% of gdp. 

On the revenue side, the National Board of Revenue (NBR) has been assigned a collection target of about                                                                                                                                                                                                                                                                                              Tk 6 lakh crore. Yet, as has happened repeatedly over the years, independent analysts expect a substantial shortfall. 

In recent years, NBR revenue gaps have ranged from Tk 40,000 crore to more than Tk 1 lakh crore. The same pattern is expected to continue in the coming fiscal year.

The public is therefore routinely told that Bangladesh faces two major fiscal challenges: a budget deficit and a revenue deficit.

But what if both deficits are largely illusions? What if the country's real problem lies elsewhere? What if Bangladesh's most important deficit is neither fiscal nor financial, but moral and institutional?

To understand this, we need to distinguish between three deficits: the budget deficit, the revenue deficit, and what may be termed the EGG deficit—the deficit in ethics and good governance 

The first two are largely phantom deficits. The third is the real crisis.

The first phantom deficit: The budget deficit

The official narrative has long been straightforward. Government expenditure exceeds government revenue; therefore, Bangladesh runs a budget deficit and must rely on borrowing. 

For years, organisations such as Transparency International Bangladesh (TIB), Centre for Policy Dialogue (CPD), the White Paper Committee's investigative findings, and numerous researchers, journalists, and public policy analysts have highlighted extensive leakages in public expenditure through corruption, inflated procurement, collusion, rent-seeking, project delays, and overpricing. 

While estimates vary across sectors and methodologies, multiple studies have pointed to leakages large enough to rival—or even exceed—the reported fiscal deficit.

Some analyses suggest that as much as 40% of public expenditure may be lost through various forms of extraction, while other studies point to somewhat lower but still substantial levels of leakage. 

The precise figure is open to debate, but the existence of large-scale resource diversion is not. The central issue is therefore not whether leakages exist, but how large their cumulative impact has become.

Year after year, NBR misses its collection targets. Analysts often cite administrative weaknesses, limited capacity, informality, or economic conditions. Bangladesh's tax-to-GDP ratio remains among the lowest in the world, hovering around 8%. This is dramatically below the global average and significantly below many countries at comparable levels of development. 

The official budget deficit is approximately Tk 2.43 lakh crore. 

Against this backdrop, the estimated losses from corruption, overpricing, inefficiency, and systemic extraction appear comparable to, and in some analyses greater than, the reported deficit itself. Viewed through this lens, the official deficit begins to look less like a financing problem and more like an extraction problem. This leads to a provocative but important proposition:

Budgeted expenditure – systemic extraction = No budget deficit

This does not mean that every taka lost to corruption can be immediately recovered, nor does it suggest that public finance challenges are simple. 

Bangladesh's fiscal problem is not primarily a shortage of resources but a failure of governance. Just as a household whose income is routinely stolen has a theft problem rather than an income problem, a government that loses resources equivalent to or exceeding its fiscal deficit through corruption, waste, and overpricing has a governance problem rather than a genuine deficit problem. 

Viewed through this lens, much of the budget deficit appears less as an economic necessity and more as a phantom—a fiscal mirage created by systematic, institutionalised extraction within an elite-captured system.

The second phantom deficit: The revenue deficit

The second phantom appears on the revenue side.

Year after year, NBR misses its collection targets. Analysts often cite administrative weaknesses, limited capacity, informality, or economic conditions. These explanations contain some truth, but they do not explain the whole story.

Bangladesh's tax-to-GDP ratio remains among the lowest in the world, hovering around 8%. This is dramatically below the global average and significantly below many countries at comparable levels of development. 

Evidence suggests that substantial wealth exists in Bangladesh. Luxury consumption continues to grow. High-end real estate thrives. Large fortunes have accumulated. Significant sums have reportedly left the country through illicit financial flows and capital flight.

The real question is why so much taxable wealth remains outside the effective reach of the tax system. A revenue authority reflects political priorities as much as administrative capacity. Tax exemptions, special regulatory orders (SROs), discretionary powers, preferential treatment, weak enforcement, under-invoicing, trade misinvoicing, and political influence can all reduce effective tax collection.

As a result, many observers argue that a substantial portion of the revenue shortfall represents  a persistent failure of governance and political will.

Recent estimates suggest annual revenue shortfalls ranging from Tk 40,000 crore to over Tk 1 lakh crore. 

The same governance weaknesses that facilitate expenditure-side corruption often facilitate revenue-side leakage. If tax avoidance, tax evasion, preferential treatment, and regulatory capture were substantially reduced, much of the so-called revenue deficit would disappear.

This leads to a second conclusion:

Revenue target – Corruption and evasion = Zero revenue deficit

Once again, the issue is not fundamentally a lack of resources. The issue is the inability—or unwillingness—of institutions to mobilise those resources effectively, fairly, and honestly. 

If both the expenditure-side deficit and the revenue-side deficit are largely products of governance failure, then the obvious question is: what is the real deficit facing Bangladesh?

The Real Deficit: EGG

If the budget deficit and revenue deficit are largely manifestations of governance failure, then what is the actual deficit facing Bangladesh? The answer lies in what may be called the EGG deficit: a deficit of ethics and good governance.

Unlike fiscal deficits, this deficit cannot be financed through borrowing. Unlike revenue shortfalls, it cannot be solved through higher tax rates. Unlike budget gaps, it cannot be hidden through creative accounting. The EGG deficit manifests itself in several ways. Corruption becomes normalised rather than condemned. Public resources become opportunities for extraction rather than instruments of service.

Accountability becomes selective rather than universal. Institutions become vulnerable to capture by powerful interests. Honesty becomes costly while manipulation and illicit extraction become profitable. The result is a system that functions exactly as it has been designed to function.

Many people describe Bangladesh's governance challenges as evidence of a broken system. That diagnosis may be mistaken. The system is not broken. It works remarkably well. The problem is that it works efficiently for the wrong purpose.

Instead of maximising public welfare, it often maximises opportunities for extraction as part of an elite-captured system. From that perspective, recurring fiscal deficits are not accidental outcomes. They are predictable consequences of institutional design.

Why bigger budgets are not the answer

Public discourse often assumes that larger budgets indicate progress. 

Every year, commentators celebrate the fact that the budget is larger than the previous year's budget. Yet a larger budget does not necessarily mean better outcomes, especially in qualitative terms.

If leakage rates remain unchanged, a larger budget simply creates larger opportunities for extraction. A Tk 10 lakh crore budget with poor governance may deliver less public value than a Tk 6 lakh crore budget administered with integrity and efficiency. 

The obsession with budget size often distracts from the more important issue: quality. How much value does each taka create? How much reaches citizens? How much improves education, healthcare, infrastructure, public safety, and economic opportunity? How much disappears into private pockets?

These questions matter far more than headline budget figures. The nation needs fewer discussions about budget size and more discussions about budget quality, integrity, and effectiveness.

Educating the nation about the phantom deficits

Perhaps the most important task ahead is public education. 

Citizens are repeatedly told that deficits are inevitable. They are told that borrowing is unavoidable. They are told that the country lacks resources. But citizens rarely hear a different possibility: That a significant portion of the fiscal deficit may simply represent resources already lost through corruption and extraction.

The scale of the governance problem becomes even clearer when viewed against estimates that more than US$200 billion may have been siphoned out of the country through illicit financial flows and capital flight over the past decade and a half. 

Against this backdrop, periodic IMF assistance packages of US$4-5 billion appear remarkably small. The question naturally arises: is Bangladesh suffering from a shortage of resources, or from a system that allows resources to be extracted on a massive scale? 

Similarly, a significant portion of the revenue gap may represent taxes that should have been collected but were not. This suggests that the real crisis is not financial scarcity but governance failure.

Understanding this distinction changes the entire policy conversation. Attention moves away from borrowing, budget expansion, and accounting exercises, and toward institutional reform, transparency, accountability, ethics, and governance.

The path forward

If corruption and extraction are reduced, much of the reported fiscal deficit evaporates. If governance improves, much of the revenue shortfall disappears. If ethics and accountability become central to public life, fiscal sustainability follows naturally. The challenge before Bangladesh is therefore not merely economic. It is institutional. It is moral. It is systemic.

The country does not need a bigger budget nearly as much as it needs a better, ethical system. The real national conversation should no longer be about how to finance deficits. It should be about how to eliminate the conditions that create them.

Dr Mohammad Omar Farooq is  professor and head of the Department of Economics at United International University.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.