On June 11, 2026, the finance minister presented Bangladesh's FY2026-27 national budget, a record BDT 9.38 trillion, or about USD 77 billion. The expansionary budget targets 6.5 per cent GDP growth, aims to reduce inflation to 7.5 per cent, and supports the country's ambition to become a trillion-dollar economy. It also seeks to raise BDT 6.95 trillion in revenue, increasing the revenue-to-GDP ratio from 8 per cent to 10.2 per cent. This target is ambitious, given Bangladesh's persistently weak revenue collection, which remains among the lowest globally at about 8 to 10 per cent of GDP. Widespread tax evasion and avoidance continue to widen the gap between public spending needs and actual revenue.
The budget maintains a zero-tax threshold for general taxpayers at BDT 450,000 with specific thresholds that apply to women and senior citizens, persons with disabilities & third-gender taxpayers and freedom fighters. With total outlay of BDT 9.38 trillion, reflecting a 19 per cent increase in overall spending. Development expenditure (ADP) surges by 47 per cent to BDT 3.16 trillion.
Bangladesh's FY27 budget targets 18 per cent year-on-year nominal revenue growth to raise the revenue-to-GDP ratio to 10.2%, up from about 8% in FY26 and the highest target since 1993. The record BDT 9.38 trillion, or USD 76.4 billion, budget is designed to finance a 19 per cent increase in spending. However, achieving these ambitious revenue goals will require heavy reliance on taxation and both domestic and foreign borrowing.
The newly elected government proposed this record budget to stimulate economic growth, stabilise the economy following a period of political turmoil, and support a roadmap to build a $1 trillion economy by 2034. However, such a growth projection comes at a time when major multilateral institutions such as the IMF, WB, OECD, and UN project global economic growth to hover between 2.5 per cent and 3.3 per cent for 2026, with slight improvements expected in 2027. Projections have been adjusted downward compared to earlier forecasts due to escalating geopolitical tensions and Middle East energy shocks.
Bangladesh's FY2026-27 national budget projects a fiscal deficit of BDT 2.43 trillion, which is equivalent to 3.6 per cent of the country's GDP. This marks an increase from the revised FY26 deficit target of BDT 2 trillion (3.3 per cent of GDP).The total outlay for the FY27 budget is BDT 9.38 trillion, with a revenue target set at BDT 6.95 trillion. Of the total borrowing, the budget envisages BDT 1.27 trillion borrowing from the domestic sources and BDT 1.16 trillion from foreign sources.
Fiscal deficits add to government debt, which may require higher future taxes to service and repay. According to the Ricardian Equivalence Proposition, households respond by increasing current savings in anticipation of those future tax burdens. As a result, consumption does not rise, and economic activity receives little or no stimulus.
More importantly, budget deficits can crowd out private borrowing, manipulate capital structure and interest rates and decrease net exports. The demand for loanable funds rises when the government seeks fund for borrowing to finance its fiscal deficit. This not only reduces the availability of funds but also increases the real interest rate and deters private sector investment.
Overall, the global economy in 2026-2027 can broadly be characterised by a period of slowing growth alongside lingering inflationary pressures rather than an outright global recession. Instead of structural stagflation, major institutions point to a "geopolitical inflation shock" and uneven growth due to recent Middle East conflicts.
Cost-push shocks from rising energy, fertiliser, and agricultural input prices have disrupted global supply chains, lifted headline inflation, and prompted central banks to keep interest rates higher for longer instead of cutting them as expected. For energy-importing countries such as Bangladesh, higher retail prices combined with weak wage growth have intensified concerns about localised stagflation.
Stagflation refers to the combination of stagnant economic growth, rising inflation, and high unemployment. It is concerning in any economy, but it is especially damaging for developing countries such as Bangladesh, which depend heavily on exports to wealthier markets, including the United States, the United Kingdom, and the European Union. A slowdown in these economies would therefore hit Bangladesh hard. Like many developing countries, Bangladesh is also vulnerable to the spillover effects of macroeconomic policy decisions made in advanced economies.
The budget has drawn mixed reactions. While the administration frames it as a much-needed push for economic revitalisation and electoral pledges, opposition groups have criticised the ambitious borrowing and revenue frameworks. Fitch Ratings views Bangladesh's FY27 budget as overly ambitious, warning that execution is threatened by historically weak tax mobilisation and structural challenges. The agency flagged major risks regarding the government's ability to achieve its fiscal goals without deeper, systemic economic reforms.
Fitch considers the budget target to increase the revenue-to-GDP ratio from about 8 per cent to 10.2 per cent -the highest since 1993-- as highly challenging due to the country's weak track record of tax reform. While the government projects a 6.5 per cent GDP growth rate, Fitch forecasts growth to reach only 3.5 per cent. This disparity is attributed to ongoing fragility in the banking sector, slow private-sector credit growth, and global economic uncertainty. Despite the revenue shortfalls, Fitch expects lower-than-budgeted expenditures to keep the fiscal deficit close to the government's target of 3.6 per cent of GDP.
Because domestic revenue falls far short of development and administrative needs, the government relies heavily on domestic borrowings (such as National Savings Certificates) and foreign loans to fund the fiscal deficit. Put more simply, Bangladesh finances its budget deficit through domestic and external borrowing, foreign grants, and bonds. However, the country lacks deep and liquid bond markets, limiting their effectiveness as a financing tool. If the government turns to Bangladesh Bank to print money and maintain liquidity, it risks further fuelling inflation, which is already rising.
Bangladesh's proposed national budget for FY26-27 is BDT9.38 trillion (approximately USD 77 billion). This represents an increase of 19 per cent compared to the revised FY2025-26 budget, setting the overall budget expenditure at approximately 13.7 per cent of the nation's GDP. In that sense the budget appears to be expansionary and there is a sense that the government seems to think that the budget bottom line does not really matter because the budget would be in deficit anyway. It indicates the budget has a structural deficit problem rather than cyclical.
Bangladesh's structural deficit stems from chronically low government revenue, a narrow export base, and weaknesses in the banking sector. These problems force the government to rely heavily on debt to fund basic spending, leaving fewer resources for infrastructure and adding to inflationary pressures. The economy remains highly dependent on the Ready-Made Garments (RMG) sector and worker remittances, making the current account vulnerable to global supply shocks and currency fluctuations. This lack of diversification contributes to cost-push inflation. In addition, high levels of non-performing loans (NPLs) constrain private-sector credit growth, limiting the government's ability to finance development sustainably without increasing systemic financial risks.
The budget comes as Bangladesh faces a current account deficit. In a trade-dependent economy, fiscal deficits can intensify inflation, widen the current account gap, and push interest rates higher. A stronger US dollar would make debt repayments and commodity imports more expensive, adding pressure through the BDT/USD exchange rate. If the US Federal Reserve keeps monetary policy tight to curb inflation, the dollar could strengthen further and increase Bangladesh's external financing pressures.According to an Economic Relations Division report released on June23, the country's total debt-service payments have exceeded USD 4 billion in FY26.
Fiscal deficits are often used to finance popular policies, such as welfare programmes and public works, without immediately raising taxes or cutting spending elsewhere. However, if interest payments become unsustainable through normal tax revenue or further borrowing, the government has limited options: reduce spending and sell assets, print money to cover the shortfall, or default on its debt obligations, as Mexico did in 1982 and Sri Lanka in 2022. If economic growth slows while US interest rates rise, dollar-denominated debt will become harder to service. The implication is clear: the government must identify credible spending cuts and revenue measures.
The government faces difficult policy choices as it seeks to protect people from record food prices and soaring energy costs, both intensified by Trump's war on Iran. Domestic constraints are also contributing to rising prices in Bangladesh. As a result, the country's main fiscal challenge must be understood in the context of high and rising inflation, investment slowdown and the ability to effectively solving the cost-of-living crisis. The budget will, therefore, have a significant impact on inflation outcomes, stimulating investment and radically redistributing wealth away from the elites towards those groups that have been left behind. In this context, policies based on inaccurate data on GDP, inflation, and other key macroeconomic indicators are unlikely to succeed.
muhammad.mahmood47@gmail.com
© 2026 - All Rights with The Financial Express
