The national budget Bangladesh needs: Resuscitating the markets and the broader economy
The upcoming budget needs to confirm that the five-year plan is operational rather than aspirational
When the newly elected government delivers its first full budget on 11 June, the most consequential audience will be in the conference rooms of business chambers, trading rooms of Dhaka brokerages, the headquarters of the country's largest manufacturers, the small and medium enterprises that drive most of the employment, and participants in the parliamentary press gallery.
However, let's not forget the trading desks of frontier markets specialists in Singapore, London, and New York who have spent the last two years writing about Bangladesh as the next emerging market re-rating story.
In my view, the budget must do two things at once that have rarely been done well together in recent decades, which is to resuscitate a capital market that has been waiting for direction, and to revive a broader economy that has experienced three consecutive years of slowing growth amid persistent inflation and now, the external pressures of the Middle East conflict.
These are not separate tasks. The capital market and the real economy are the same patient, and the treatment required for one is the treatment required for the other. This is an important perspective shift we require vis-à-vis previous administrations which do not seem to have a good handle of this confluence.
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The encouraging reality is that the government has already articulated a coherent framework against which the budget can be evaluated. The five-year plan approved by the National Economic Council on 18 May, which aims to take Bangladesh to a trillion-dollar economy by 2034 and create one crore jobs by 2030, structures the recovery across three phases that align with the realities of the current moment.
The first twelve months focus on stabilising the fragile economy through strict monetary policy to control inflation, prudent exchange rate management to rebuild foreign exchange reserves, reduction of unnecessary expenditure, strengthening of social safety nets, resolution of the banking sector liquidity crisis, and emergency support for agriculture and SMEs.
The second phase covering years two and three focuses on rebuilding systems and institutions, with deep banking sector reform addressing defaulted loans, removal of regulatory barriers, opening of financing channels to restore private sector confidence, development of trade logistics, sectoral diversification, and prioritised youth employment programmes.
The final phase covering years four and five focuses on growth acceleration, with foreign direct investment rising to 2.5% of GDP, export base widening through engagement with complex global value chains, and climate-resilient infrastructure lowering the cost of doing business. Total revenue as a percentage of GDP is targeted to rise from 8% in fiscal 2024-25 to 11% by fiscal 2029-30, which provides the medium-term fiscal anchor that international financiers and rating agencies require.
I have to laud from the sidelines, the plan, although, of course, I would have enjoyed contributing to it and in fact, suggesting improvements I see as necessary and critical, particularly in the sequencing.
But more on that later.
To return to my area of strength, which is drawing in international capital: the international capital is watching this articulation with genuine interest.
Auerbach Grayson, the New York brokerage firm that has served as the bridge between Western institutional investors and frontier markets for decades, hosted Bangladesh's leading private bank and one of its largest pharmaceutical names at its Frontier Asia Conference in Colombo in February.
T Rowe Price disclosed in February that stock selection in Bangladesh was the primary contributor to relative performance in its frontier markets fund, an unusual public endorsement of a market that most foreign investors had been quiet about.
Undervalued Shares, the European publication that surfaces frontier opportunities to Western retail and family office capital, wrote in January that the country's leading private bank may one day be viewed as one of those frontier market stocks that compound returns over multi-year horizons.
East Capital, the European frontier markets specialist, has been positioning Bangladesh alongside Vietnam, Pakistan, and Sri Lanka as the kind of under owned, undervalued, post-stabilisation market where patient investors are rewarded.
Fitch Ratings has acknowledged the pro-private-sector tilt in the new government's stance and the credibility of the medium-term tax-to-GDP ambition. Yes, there has been a downgrading by Fitch, and I promise to follow up with a deeper analysis on how to fix that problem, which is actually more solvable than it appears immediately.
The global macro backdrop adds urgency to the moment. Brent crude is trading above 100 dollars per barrel, and the International Energy Agency has warned that the global oil market will remain materially undersupplied through October even if hostilities in the Middle East de-escalate by mid-year, because the damage to upstream Persian Gulf infrastructure takes years rather than months to rebuild.
Oil prices would not return to pre-war levels even by December or Q1 2027, if you ask me, so it is prudent to prepare for this reality. Hormuz traffic just doesn't return to normal as long as shipping insurance rates remain high, which they will, because of lingering uncertainties, potential underwater mines, and so forth, even after the war ends.
The budget must do two things at once that have rarely been done well together in recent decades, which is to resuscitate a capital market that has been waiting for direction, and to revive a broader economy that has experienced three consecutive years of slowing growth amid persistent inflation and now, the external pressures of the Middle East conflict.
The 30-year United States Treasury has breached 5% with sticky momentum, the five-year is at 4.25%, and consumer price inflation in the United States is at a three-year high.
These conditions are accelerating the structural conversation in global capital markets about fiscal dominance, dollar weakness, and the rotation of capital out of dollar assets toward markets offering real yield in local currency terms.
Frontier markets with credible reform trajectories and under owned positioning are the natural beneficiaries of this rotation when it materialises, and Vietnam's recent FTSE upgrade to Secondary Emerging status illustrates how quickly markets can re-rate when the policy and macro conditions align.
Bangladesh sits at a similar juncture, with the political stabilisation complete, the reform agenda articulated, and the upcoming budget representing the first major test of whether the government's articulated framework can be translated into actionable fiscal commitments.
The budget that delivers on this potential aligns the announced Annual Development Programme of three lakh crore taka for FY27 with the macroeconomic discipline that anchors the five-year plan's stabilisation phase.
Infrastructure spending, with transport and communication receiving 16.7% of the ADP, creates the demand that flows through contractor financing, supplier credit, and SME lending channels, reviving the credit growth that has slowed across the banking sector.
Education at 15.86% of the ADP, combined with the five-year plan's commitments to a National Foundational Learning Mission, expanded technical and vocational education toward 25% of total education by 2030, and a gradual lift of the national education budget toward 4-5% of GDP, addresses the structural mismatch between educational outcomes and labour market needs that has constrained the demographic dividend. Big kudos for this, to the government.
Health at 11.84% of the ADP supports the productivity of the workforce that the trillion-dollar economy target requires. Fuel subsidies, calibrated to protect domestic consumers and industry during a period when Brent is likely to remain elevated for several quarters, must be sized realistically rather than assumed to revert toward pre-conflict levels.
Banking sector reform, including the resolution of liquidity stress and the orderly addressing of defaulted loans, runs alongside the budget as the structural foundation that the five-year plan identifies as essential to phase two of the recovery.
Job creation is the through-line that connects every other priority. The five-year plan's target of one crore jobs by 2030 cannot be delivered through ADP execution alone. It requires the private sector to invest, the SMEs to expand, the youth to be trained for the jobs that emerge, and the foreign direct investment to lift from current levels toward the 2.5% of GDP target.
The budget supports each of these pathways through specific allocations on deregulation, business climate improvement, agricultural transformation toward high-tech and market-driven systems, youth and women's targeted programmes, and the creative economy buildout that the five-year plan envisions contributing 1.5% of GDP by 2035 from current levels near 0.17%.
Each of these initiatives compounds over time, and a budget that funds them coherently rather than as isolated line items signals that the government understands the integrated nature of the growth challenge.
Now, the capital market reads these signals before the broader economy does. The Dhaka bourse has already absorbed the macroeconomic pressures of the last eighteen months, with valuations now sitting at levels that international observers describe as reminiscent of Pakistan and Sri Lanka two years ago when those markets were viewed as transitional just before their elected governments triggered multi-year re-ratings through credible reform delivery.
If the budget translates the five-year plan's articulated framework into the fiscal commitments that international capital, multilateral institutions, and domestic markets can verify and respond to, the institutional-quality blue chips that international investors have been quietly tracking will begin attracting the bid that has been waiting on the sidelines, the ADP disbursement from July onwards will transmit through contractor and SME financing channels to support loan growth, and the capital market recovery will run ahead of the broader economic recovery rather than waiting for it.
This is how every successful frontier market stabilisation has unfolded, and the framework Bangladesh has now articulated contains every element required for it to unfold here as well.
The stakes are not abstract and this is an exciting time to be an analyst of matters pertaining to the Bangladesh economy and markets. The capital is real, the brokers have done the introductions, the funds have done the analysis, the manufacturing sector is waiting for the credit channel to reopen, the SME sector is waiting for both credit and regulatory simplification, and the working population is waiting for jobs that match their skills.
Now, the upcoming budget needs to confirm that the five-year plan is operational rather than aspirational. This only happens with committed managers at every step of the execution process, taking a scalpel to the bureaucracy to root out over-politicisation and rent-seeking behaviours, trumping meritocracy through systems-thinking, and the leader is already setting the tone I must say. Others need to follow suit.
The budget Bangladesh needs is one that resuscitates the markets and the broader economy together, because in the end they are the same patient, and there is only one treatment that works. I do envision a trillion dollar economy on the horizon. Bangladesh deserves one and will get it sooner than we think.
Sajid Amit, PhD, is a development practitioner, academic, investor, and researcher trained at Morgan Stanley, Columbia University, and Dartmouth College.
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.
