When the finance and planning minister formally presented his maiden budget at the national parliament last Thursday, he was aware of the fact that the country's annual public spending plan faces several local and global headwinds. He had to outline the budget for fiscal year 2026-27 in less than four months after the much-desired national election in February. It was a tough task, and he performed fairly well despite some flaws and limitations.
With a legacy of a distorted economy and global turmoil due to the US-Israel joint war on Iran, it was highly challenging for Amir Khosur to design an optimal budget. He was, however, largely fortunate that the Yunus-led interim government could halt the economic slide and attempted to restructure key areas such as the financial sector. This gave the newly elected finance minister a breathing space, although he did not acknowledge it in his lengthy budget speech, which lasted for about five hours. He also did not mention the white paper on the economy published by the interim government to offer a 'transparent account of the impact of economic mismanagement, corruption, and cronyism under Hasina.' Last month, the Washington-based Carnegie Endowment for International Peace released an analytical piece titled 'Bangladesh's Unfinished Revolution.' The paper stated that stabilising a deeply distressed economy was one of the interim government's most significant achievements. "It allowed the BNP government under Rahman to hit the ground running, rather than contend with acute economic turmoil on the first day in office," it added. Khosru, however, repeatedly and rightly mentioned the misdeeds of the fascist regime. "The fascist regime not only caused a deep economic crisis but also damaged seriously the socio-cultural fabric of the country," he asserted.
There is no doubt that the ousted Hasina regime caused serious damage to the country's financial sector through unabated plunder and corruption. The regime also distorted data to show higher and rosy economic growth. Using oppression, the brutal regime silenced dissenting voices, leaving little room to challenge the fabricated picture of economic advancement. As a result, the desired outcome of growth was largely absent as joblessness increased, inflation surged, and socio-economic disparity widened. This ultimately fuelled the July 2024 uprising that toppled the regime at the cost of at least 1,400 lives. As Hasina fled to New Delhi, it presented an opportunity to reset the country despite chaotic events. The government led by Tariq Rahman is now tasked with seizing this opportunity, which is a very big and challenging task. The proposed FY27 budget can be considered the first critical step.
The proposed outlay of Tk 9.38 trillion for the next fiscal year is 18 per cent higher than the original budget outlay of Tk 7.90 trillion for F Y26. The big budgetary jump is driven by the government's ambition to expand the economy and turn it into a 'trillion-dollar' one by 2034. "We aim to transform Bangladesh into a one trillion-dollar economy by 2034, driven by investment, productivity and job creation," asserted Khosru in his speech. It is one of the three main goals of the government. Two others are: (a) increase the tax-to-GDP ratio to 10 per cent in the medium term; and (b) further increase the tax-to-GDP ratio to 15 per cent by 2035.
As the finance minister offers perks to attract businessmen and consumers, he also needs ways to offset the consequential revenue losses. Many of such ways are not clearly disclosed in his budget speech and kept concealed in the finance bill. This tactic is nothing new, as almost every finance minister resort to it. Khosru set a revenue collection target of Tk 6.95 trillion, with around 87 per cent to be collected by the National Board of Revenue (NBR). In this connection, he proposed some aggressive measures, such as requiring a mandatory Tax Identification Number (TIN) to open bank accounts. However, the NBR chairman during the finance minister's post-budget press conference hinted at reviewing this decision.
To finance the large deficit of Tk 2.43 trillion, about one-fourth of total expenditure, the finance minister relied on both domestic and foreign borrowing. He set a target of Tk 1.08 trillion in foreign credit to cover the deficit. As foreign borrowing is costly and sources are shrinking, the minister apparently bet on deferring the country's scheduled graduation from Least Developed Country (LDC) status. The minister said: "The Government has formally requested a deferral of LDC graduation for at least three years. This additional timeframe is necessary to implement key domestic reforms and ensure a smooth and resilient economic transition."
The three-year delay in graduation, if approved by the United Nations (UN) finally, means Bangladesh will enjoy LDC-linked trade benefits during the period and some benefits for an additional three years after graduation in November 2029 instead of November this year. Khosru probably bet on the three-year extension when he proposed raising tariffs on imports to protect and incentivise local industry. The move is considered as protectionist approach by many. So, he proposed a series of 'restructuring and rationalisation of import duty, supplementary duty, and regulatory duty for fiscal year 2026-27' to 'promote domestic industry development, safeguard revenue, and maintain alignment with international trade policies.'
The proposed restructuring and rationalisation includes both tariff increases and cuts on various products. At the core level, the existing eight-tier import duty structure (zero per cent, 1 per cent, 3 per cent, 5 per cent, 6 per cent, 10 per cent, 15 per cent, and 25per cent) remained unchanged for the next fiscal year. To 'fulfill commitments made to the World Trade Organization' and to 'rationalise tariffs on items', the minister proposed a cut in import duty on 69 products and also cut or withdraw supplementary duty on 9 products. He, however, kept the 13-tier structure of supplementary duty unchanged, while revising the nine-tier structure of regulatory duty to a six-tier structure. The minister's hectic efforts to balance the tariff rationalisation indicates that he did not want to send a wrong signal or make it difficult for domestic industries to cope with the challenges in the post-graduation period.
Overall, the proposed budget comes at a time when 200 million people are eagerly awaiting a positive move forward to improve their lives and livelihoods. They are now trying to find out what the finance minister offered them, and obviously, not everyone will be happy, as it is also not possible to make everyone satisfied. So, some of the fiscal proposals will be revised to accommodate public opinion before the budget is finalised.
asjadulk@gmail.com