Ambitious targets could push budget deficit to Tk 4 lakh crore

The actual fiscal deficit in the proposed national budget for fiscal year 2026-27 could be close to Tk 4 lakh crore, according to Research and Policy Integration for Development (RAPID).

The think tank said that the government is unlikely to meet its ambitious revenue and foreign financing targets.

RAPID made the projection at a seminar in Dhaka yesterday on the proposed budget for FY27, based on past trends in revenue collection by the National Board of Revenue (NBR) and foreign aid inflows.

In the budget, the finance minister has projected a deficit of Tk 2.43 lakh crore for the next fiscal year, equivalent to 3.6 percent of GDP.

RAPID Chairman Mohammad Abdur Razzaque said this projection may be “misleading”.

He said even under an optimistic scenario, NBR revenue may remain below Tk 5 lakh crore, leaving a shortfall of around Tk 1 lakh crore.

The government has set a net foreign borrowing target of Tk 1.09 lakh crore for FY27. But Razzaque said shrinking global concessional funding could leave foreign inflows about Tk 50,000 crore below the target.

Taken together, the economist estimated the actual deficit could reach Tk 3.93 lakh crore, or 5.8 percent of GDP.

Razzaque said that rising reliance on bank borrowing could weaken private sector recovery. However, he added that the deficit could appear smaller if spending targets are not fully met.

“Under a more plausible scenario, only 80-85 percent of the spending target might be met, which would reduce the deficit. But that would also mean that many allocation promises will not be fulfilled.”

PRIORITISE STABILISATION, GROWTH WILL FOLLOW

The RAPID chairman said the budget must support recovery without weakening macroeconomic stability.

He said the government is pushing growth to reach its goal of a $1 trillion economy by 2034, but this rush could undermine stability.

“A budget that expands spending without strong revenue mobilisation and prudent borrowing could prolong inflation, crowd out private investment, weaken reserves and delay recovery,” he said.

“If economic stabilisation can be ensured, growth will come on its own,” he said, adding that recovery must be built on stabilisation.

He, however, praised several measures proposed by the government to improve the ease of doing business.

FIVE GOVT STEPS TO ATTRACT INVESTMENT

At the seminar, Prime Minister’s Adviser on Finance and Planning Affairs Rashed Al Mahmud Titumir said the government is moving towards a $1 trillion economy and has prioritised five areas to support investment.

He listed them as policy continuity, including a five-year tax framework already announced in the budget, reducing red tape and corruption, ensuring energy security, coordinating monetary and fiscal policy while maintaining central bank autonomy to control inflation, and improving communication infrastructure.

He said revenue collection would improve next year due to two factors -- economic recovery and reduced errors or evasion in tax collection.

Titumir added that visible changes have already emerged in revenue collection.

CONCERNS OVER DEBT BURDEN

RAPID said Bangladesh’s accumulated debt has risen by more than 60 percent in three years.

Total debt stood at Tk 13.44 lakh crore in June 2022 and rose to Tk 22.06 lakh crore by December 2025. Foreign debt nearly doubled to Tk 9.59 lakh crore, with a significant share of budget spending now going towards interest payments.

Titumir said the government is focusing on debt management, adding that “This government has inherited these burdens.”

He said foreign debt has risen sharply under the previous Awami League government. During the Awami League government, foreign debt alone increased by 322 percent.

The adviser expressed optimism about managing the situation successfully.

RAPID also highlighted the potential impact of its Family Card programme. It said if the Family Card scheme covers 41 lakh poor households, the moderate poverty rate could fall by nearly 5 percentage points to 13.8 per cent. Full coverage could reduce poverty to 11.3 percent.

For this to work, RAPID said beneficiary selection must be free from political or administrative influence and reach genuine families.

According to a 2022 estimate, the moderate poverty rate in Bangladesh was 18.7 percent. Studies by various research institutions suggest that poverty has since increased due to inflation and other factors.

DIVERSIFICATION ON PAPER, NOT IN PRACTICE

At the seminar, business leaders called for tax reform and fairer incentives to promote export diversification.

Syed Nasim Manzur, Managing Director at Apex Footwear, said export diversification is widely discussed but policy remains inconsistent.

He criticised a rule allowing eight sectors to import duty-free through bank guarantees while requiring 30 percent value addition.

“This is unrealistic,” said the top footwear manufacturer.

He said that 30 percent value addition may be suitable for textiles due to its supply chain but should be closer to 15 percent in other sectors.

Nasim Manzur also proposed reforms including privatising loss-making state-owned enterprises, reducing corporate tax rates, restructuring value-added tax (VAT) into two or three tiers, revising turnover tax rules for exporters, and creating a separate trade negotiation office.

Rubana Haque, a former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said credible implementation and sequencing of priorities are critical.

She said skills development remains weak despite infrastructure growth, adding that education systems lack investment in teachers. She cited Sri Lanka, where primary school teachers are highly paid, contrasting it with Bangladesh.

She also said the deferral of graduation from the least developed country (LDC) category should be used as preparation time rather than delay. To boost exports, she suggested developing a large B2C platform similar to Amazon and adopting elements of the Vietnamese model.

Rasheda K Choudhury, a former adviser to the caretaker government, and M Abu Eusuf, executive director of the RAPID, also spoke at the event.