Zero hour of FY26 budget analysis and its acceptance

Breaking the long-standing tradition of presenting the budget on a Thursday within the first week of June, the FY26 budget was announced on Monday, 2 June 2025. Typically, a month is allocated for discussing and analysing the budget, but this year, the discussion period is reduced to seven days, if approved by 20 June. 

Extended Eid holidays further complicate matters for the private sector, which is grappling with maintaining production lines. Existing investment remains sluggish, while new investment is almost stagnant. Several large corporations are struggling to survive, resulting in significant job losses. The budget fails to open new avenues of hope for investors, many of whom are planning to scale down their business portfolios.

As outlined in the Mid-Term Macroeconomic Policy Statement (MTMPS), the budget aims to reduce inflation to 6.5% by September 2025, down from the current 9.17%, through a combination of supply and demand-side interventions—a positive direction. However, the contractionary monetary policy persists, with the policy rate remaining at 10%, which is detrimental to businesses. 

Exchange rate stability, maintained by Bangladesh Bank, is a notable achievement, though rates are still high. The budget projects a growth rate of 5% for FY25 and 5.5% for FY26. 

Remittance inflows have increased due to enhanced government expatriate welfare initiatives, though the budget lacks clarity on these measures. Foreign Exchange Reserves are expected to rise to $34 billion by 2026, from the current $26.7 billion, compared to Malaysia's $118.7 billion and Singapore's $351 billion as of April 2025. Bangladesh has a long way to go to match such benchmarks.

Other budget assumptions include reducing Annual Development Programme (ADP) and operating expenditures, ensuring an adequate supply of fertilisers to agriculture, and addressing workers' grievances. 

Reciprocal Tariffs imposed by the USA will be tackled through bilateral negotiations, with some initiatives already announced. Imports have risen by 5–9%, driven by raw materials and capital machinery for export-oriented industries, with exports growing by 9–10%. 

Revenue generation will be enhanced through automation, the balance of payments will be stabilised, and the tax-GDP ratio is expected to increase. Financing from domestic sources will be reduced, gradually lowering interest rates on T-Bills and T-Bonds. However, the government's bank borrowing target of Tk1.04 trillion may squeeze credit availability if business activity does not expand, limiting banks' earnings.

To prepare for LDC graduation, import tariffs have been reduced to boost export competitiveness, aligning Bangladesh's schedule at the WTO with bound rates. Minimum import prices are being phased out, and supplementary and regulatory duties are being streamlined. 

However, the budget provides little mention of alternatives to sustain domestic industries. The Smooth Transition Strategy (STS) is referenced, with an action plan outlined, but details on implementation, funding, or logistics development projects are absent. 

Creating a competitive business environment requires addressing structural and institutional barriers, reducing the cost of doing business, enhancing regulatory transparency, combating corruption, and streamlining bureaucratic procedures to foster an investor-friendly climate. The budget lacks supportive initiatives for investments, leaving existing entrepreneurs in a quandary about sustaining their businesses and preserving employment.

Efforts to simplify business licensing, permits, approvals, and no-objection certificates are minimal, with bureaucratic red tape persisting or even intensifying. To address Reciprocal Tariffs by the USA, customs duties on 110 items are proposed to be withdrawn, duties on 65 items reduced, supplementary duties withdrawn on nine products, and reduced on 442 others. 

These changes, based on MFN rates, were implemented without prior consultation with the private sector, potentially weakening Bangladesh's position in FTA negotiations with the USA. 

The licensing process remains complex, with BUILD's sixth version of its business licensing guidebook documenting 415 licenses across 53 organisations, including 42 from BIDA, 13 from CCCI&E, 20 from BRTC, and 48 from BEZA. 

The budget mentions plans to fully operationalise the Bangladesh Single Window (BSW) of NBR and One Stop Service (OSS) of BIDA, but trade facilitation remains slow. According to a 2022 NBR study, sea cargo clearance takes 11 days, air cargo 7 days, and land cargo 10 days, compared to 1–5 days in Singapore and 1–3 days in Sri Lanka. Without matching regional standards, Bangladesh's business competitiveness will lag.

The private investment target is set at 27.34% of GDP for FY25, falling to 24.02% in FY26, and continuing at 25.73% until FY28, per MTMPS. How these ambitious FY25 targets will be achieved is unclear, as the Economic Review Report 2025 remains unpublished. 

Reforms of Investment Promotion Agencies (IPAs) have stalled, and gaps between registered and implemented investments are unaddressed in the budget. SMEs, contributing 12% to GDP, face increased challenges. The budget expects to create 15,000 new entrepreneurs in three years, with plans for an SME database, digital platform, and loan distribution targets. 

However, policies are discouraging: VAT on plastic products has risen from 5% to 7.5%, taxes on cotton thread and MMF have increased, and advance tax on commercial importers has gone from 5% to 7.5%. Credit is available only with over 50% value addition, which is nearly impossible, burdening SMEs reliant on commercial importers. The announcement of a Central Bonded Warehouse (CBWH) for SMEs is a relief, but it must be implemented swiftly. 

A Tk100 crore Start-up Fund is positive, yet existing refinancing funds for start-ups at Bangladesh Bank remain underutilised. The budget also allocates Tk100 crore for 'Tarunner Utshob' (Youth Festival) to engage youth in development, but spending details are vague.

Online SME entrepreneurs face a VAT hike from 5% to 15%. An ordinance on 9 January 2025 reduced the VAT-exempt turnover limit for SMEs from Tk50 lakh to Tk30 lakh, and turnover tax eligibility (4% VAT instead of 15%) from Tk3 crore to Tk50 lakh. These changes burden small online businesses. 

The expansion of minimum tax, requiring entrepreneurs to pay tax regardless of profit or loss, lacks a clear refund policy. Repatriation of profits, royalties, and technical know-how remains a long-standing issue for investors, particularly foreign ones, due to misaligned policies among Bangladesh Bank, NBR, and BIDA. 

Multiple tax rates (e.g., eight VAT rates) persist, with no relief for new or innovative businesses. Simplifying tax compliance through digitisation, which could ease doing business, is underemphasised.

Employment was over 26 lakh at the end of 2024 and is expected to grow. Corporate closures have aggravated job losses, with no budget remedies. 

Poverty rose from 18.9% in 2022 to 22.9% in 2025, and hardcore poverty from 7.7% to 9.3%, per a World Bank report, driven by high inflation. If inflation is not controlled, poverty alleviation will remain challenging. 

Chambers of Commerce and Trade Associations must strengthen public-private dialogue to clarify business complexities arising from domestic policies and international obligations. 

With the post-LDC regime approaching, preparatory time is shrinking. Policies must be implemented swiftly to sustain investment and protect SMEs under WTO rules, following the examples of other countries.

Ferdaus Ara Begum. Sketch: TBS

Ferdaus Ara Begum is the CEO of BUILD—a Public Private Dialogue Platform works for private sector development. 

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.