United News of Bangladesh

Finance Minister Amir Khosru Mahmud Chowdhury is preparing to unveil the Tk 9.38 lakh crore national budget for Fiscal Year 2026-27 on June 11, while the newly formed government faces some big challenges. Tasked with financing an ambitious economic recovery plan, policymakers are trapped between a fragile macroeconomic landscape inherited from previous administrations and structural vulnerabilities that threaten to push the nation into a debt trap. The upcoming budget faces a near-impossible revenue challenge. A deep dive into the country's financial state reveals that the government's ability to fund its spending is being severely squeezed from five distinct pressure points. The Revenue Shortfall: The primary engine of budget funding—tax collection—has effectively stalled. According to data from the Centre for Policy Dialogue (CPD), the National Board of Revenue (NBR) suffered a staggering shortfall of Tk 1.04 lakh crore during the July-April period of the outgoing fiscal year FY 2025-26. "Meeting the annual revenue target would now require an impossible growth rate of over 128 percent in the final two months," stated Dr. Fahmida Khatun, Executive Director of CPD. Bangladesh's revenue-to-GDP ratio hovers under 8 percent, one of the lowest in Asia, leaving the state heavily reliant on bank borrowing to plug a widening budget deficit. A Crippled Banking Sector and Toxic Loans: The government's traditional safety net—borrowing from local commercial banks—is running thin due to deep banking sector fragility. “Decades of poor governance, political cronyism, and unmitigated loan rescheduling have pushed the non-performing loan (NPL) ratio to a historic 30.6 percent,” said Dr. Zahid Hussain, a prominent Bangladeshi economist and the former Lead Economist at the World Bank’s Dhaka office. With billions of taka trapped in default loans, local banks are facing severe liquidity crunches. Economists warn that the government’s excessive domestic borrowing—which reached 98.5 percent of its full-year target by March 2026—risks completely "crowding out" private sector credit, starving legitimate businesses of capital, he pointed out. Starved Investment and Low FDI: Investor confidence in Bangladesh has cooled significantly due to regulatory unpredictability, energy shortages, and political transitions. Foreign Direct Investment (FDI) remains critically low, while private-sector credit growth dropped by over 6 percent year-on-year, said Dr. Fahmida. Compounding this crisis is the looming shadow of November 2026, when Bangladesh is scheduled to graduate from Least Developed Country (LDC) status. “Graduation means losing vital preferential tariff access for the Ready-Made Garments (RMG) sector, which is already seeing negative export growth trends. Without a rapid injection of local and foreign investment, funding structural growth will be unsustainable,” she opined. Global Shocks and Crushing Energy Prices: External shocks, particularly regional conflicts in the Middle East, have heavily disrupted global energy supply chains. Bangladesh has been forced to buy liquefied natural gas (LNG) from the spot market at nearly two-and-a-half times its usual price, said Dr Khondaker Golam Moazzem, a prominent industrial economist in Bangladesh who also serves as the Research Director at the Centre for Policy Dialogue (CPD). The government has earmarked an enormous US $3.5 billion purely for electricity and LNG subsidies in the upcoming budget. While retail power tariffs were recently hiked by Tk 1.52 per kWh to offset costs, these soaring energy bills are draining precious foreign exchange reserves and eating up fiscal space that should have gone toward infrastructure development, he said. Stagnant Wages and Surging Unemployment: On the human front, the economic slowdown has manifested as a severe employment crisis. Real GDP growth has slowed to roughly 3.9 percent, a sharp drop that has severely limited the creation of formal, well-paying jobs. With inflation stubbornly high at over 9 percent, low-income workers are seeing their purchasing power rapidly erode, said Dr. Zahid Hussain. The national poverty rate rose to 21.4 percent. Consequently, the government is being forced to expand costly social safety net programs, such as the Family Card cash-transfer scheme to 40.1 lakh households, adding further strain to an empty treasury, he said. "Resilience has underpinned Bangladesh's growth story," noted Jean Pesme, World Bank Country Director. "But without decisive, bold structural reforms in revenue mobilization and the financial sector, this resilience cannot last." As June 11 approaches, the Finance Minister faces a clear ultimatum from the country's top economic analysts: the FY2026-27 budget cannot rely on the old formula of printing money or heavy bank borrowing. To keep the economy afloat, the new government must focus on restoring governance to the banks, cutting bureaucratic waste, and radically restructuring how it collects revenue.