Budget FY26: A cautious blueprint in an era demanding boldness
Following a year of political upheaval and economic headwinds, the budget is disciplined in tone and conservative in scope
Bangladesh's national budget for FY2025–26, totaling Tk7.97 trillion, reflects an interim government focused on stabilisation and damage control.
Following a year of political upheaval and economic headwinds, the budget is disciplined in tone and conservative in scope. It aims to address persistent inequality, support the embattled banking sector, and navigate the evolving landscape of energy, exports, and external remittance flows. However, its restraint may ultimately limit its long-term impact.
Inequality: Targeted relief, systemic inertia
Keep updated, follow The Business Standard's Google news channel
The budget makes some effort to address inequality, allocating Tk1.39 trillion to social safety net programs - a modest but notable increase. The income tax-free threshold has been raised slightly, easing pressure on lower-income earners.
A Tk100 crore startup fund aims to nurture youth entrepreneurship, while increased food subsidies and housing support for marginalized communities signal targeted interventions.
However, inequality in Bangladesh is systemic, not incidental. While the education sector receives Tk95,644 crore and health Tk41,908 crore, deeper scrutiny reveals underwhelming changes.
Funding for primary education - critical for equalising opportunity - has actually been reduced by over Tk3,400 crore. Without significant investment in public education, healthcare, and rural infrastructure, redistribution will remain superficial.
Banking sector: A pause for stability
The government has wisely reduced its bank borrowing target from Tk1.38 trillion in the previous year to Tk1.04 trillion - a 24% decline. This should help ease liquidity strain and allow banks some breathing space to rebuild confidence. The continuation of cautious monetary policy and measured fiscal discipline also signals a preference for stability over risk-taking.
However, stability is not reform. Structural weaknesses - non-performing loans, governance issues in state-owned banks, and low credit penetration in rural and SME segments - remain largely untouched.
Legalising undisclosed income at a flat 15% tax may temporarily boost revenue, but it also risks undermining tax morale and credibility in financial reporting. A truly modern financial sector requires institutional overhaul, not tactical relief.
Power and energy: A shift in priorities, or a retreat?
This year's budget sharply realigns priorities within the energy domain.
Power Division's allocation has been cut by 30% to Tk20,342 crore, while the Energy Division's share has been boosted by 50% to Tk2,178 crore.
The government aims to reduce average power generation cost by 10%, develop new gas fields, and reduce dependence on imported fuels. These are prudent objectives, consistent with global trends toward cleaner, cost-efficient energy.
Yet, the halving of power subsidies raises real concerns. Consumers and industries alike may face higher tariffs. Additionally, development expenditure on the power and energy sector in the ADP has declined significantly, potentially delaying new grid and generation projects. The danger is not just inflation, but stalling industrial growth due to energy uncertainty.
Garments: The mainstay, left to weather the storm
The Ready-Made Garments (RMG) sector continues to anchor Bangladesh's export economy, accounting for over 84% of total export earnings. The budget preserves the reduced corporate tax rate - 12% for standard RMG firms and 10% for green-certified ones, which offers predictability to an industry navigating tight margins.
But beyond tax stability, support is limited. Rising global compliance costs, port inefficiencies, and a weak logistics backbone continue to eat into competitiveness. Changes in customs duties on imported inputs like Polyester Staple Fibre further strain producers. There is no substantial allocation to improve productivity, upgrade worker skills, or invest in R&D. In a globally competitive market, stagnation is regression.
Manpower export: A missed strategic lever
Remittance remains one of Bangladesh's key economic pillars. Yet, with manpower exports declining - exacerbated by regulatory freezes in major host countries - the allocation of Tk855 crore for expatriate welfare appears insufficient. There is no significant initiative to train workers for higher-skilled overseas employment, reduce migration costs, or open new labor markets. The result is likely continued dependence on low-skilled, low-wage migration, with limited remittance growth.
Conclusion: A budget of prudence when boldness was due
This budget is, in many ways, a survival budget - designed to maintain equilibrium during political transition. It deserves credit for fiscal restraint, efforts at targeted support, and pragmatic realignment in the energy sector. But deeper reforms - needed in banking, education, exports, and labour - have been deferred.
Bangladesh is not short of ambition, nor of potential. But ambition without investment and reform is only a postponement of reckoning. If this budget is a holding action, it must be followed quickly by one that is strategic, expansive, bold, and forward-looking.
Muhammed Aziz Khan is a member of the management board of the Institute of South Asian Studies of the National University of Singapore and Chairman, Summit Group.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard
