Bangladesh's first budget by the newly elected government sets "ambitious" revenue targets that may prove difficult to achieve given the country's weak track record in tax mobilisation and reform implementation.
Such is the just-presented budget's ratings coming from the New York-based outfit Fitch Ratings.
Finance and Planning Minister Amir Khosru Mahmud Chowdhury last Thursday rolled out his maiden budget in parliament for next fiscal year beginning July 01. The budget size is Tk 9.38 trillion and the revenue target set at highest-ever Tk 6.95 trillion
The revenue-to-GDP ratio is 10.2 per cent, up from around 8.0 per cent in the outgoing financial year (FY2025-26), also the highest level since 1993.
"Revenue collection will be the main test of fiscal performance, as the budget projects nominal revenue growth of 18 per cent year on year alongside a 19-percent increase in public spending," says Fitch in its latest analysis on Bangladesh budget.
It mentions that to boost revenue, the government has proposed simplified tax procedures, a reduction in tax exemptions, easier VAT compliance for small and midsize enterprises (SMEs), and higher non-tax income from state investments in state-owned enterprises, corporations and banks.
While these measures could gradually broaden the tax base, Fitch says, weak implementation has limited the effectiveness of past reform efforts.
The global ratings agency notes that higher spending commitments make successful revenue mobilisation even more important. Social protection-and welfare programmes account for 29.7 per cent of total expenditure, while physical infrastructure receives 18.7 per cent, reflecting the new government's election pledges.
However, as a saving grace, Bangladesh's longstanding tendency to underspend budget allocations could help contain the fiscal deficit if implementation again falls short of targets.
Fitch says energy-sector initiatives outlined in the budget could support medium-term economic growth if effectively implemented.
More than 40 per cent of the country's power-generation capacity is gas-based, and the budget prioritises domestic gas exploration, efficiency improvements in generation, transmission and distribution, and enhanced infrastructure for liquefied natural gas (LNG) imports.
The agency also says that Bangladesh has sought a new programme from the International Monetary Fund (IMF), while completion of the final review under the current arrangement, which expires in January 2027, appears increasingly unlikely. Any agreement on a new reform agenda could take time, leaving the budget's credit implications largely dependent on the government's ability to improve revenue mobilisation and investment execution.
Fitch also questions the government-set growth assumptions.
The authorities expect real GDP growth of 6.5 per cent in FY27, compared with Fitch's forecast of 3.5 per cent.
The agency cites a still-fragile banking sector, weak private-sector credit growth, policy shortcomings and an uncertain external environment as key factors continuing to weigh on investment and economic activity.
jasimharoon@yahoo.com