Weak implementation capacity, unrealistic assumptions could undermine budget objectives: CPD

The Centre for Policy Dialogue has described the macroeconomic targets set in the proposed national budget for fiscal 2026-27 as overly optimistic, warning that weak implementation capacity and unrealistic assumptions could undermine the government's economic objectives.

Highlights: TBS

Presenting the think tank's analysis of the proposed budget at a dialogue organised by CPD at a hotel in Dhaka today (21 June), Executive Director Fahmida Khatun said the budget's underlying philosophy sought to support economic recovery through human development and social protection, but its success would depend largely on effective implementation and stronger institutions.

CPD questioned the government's projection of 6.5% gross domestic product (GDP) growth for FY27, arguing that the target does not reflect current economic realities. According to provisional estimates by the Bangladesh Bureau of Statistics (BBS), economic growth is expected to reach only 4.14% in FY26.

The think tank also expressed doubts about the government's ability to reduce inflation to 7.5% in FY27. 

Fahmida noted that the 12-month moving average inflation rate stood at about 8.63% towards the end of FY26.

She said achieving the target would be difficult without structural reforms in food supply chains, prudent monetary management and improvements in energy supply.

Revenue and fiscal concerns

CPD raised concerns over the proposed fiscal framework, particularly the revenue targets. The budget envisages an 18.2% increase in overall revenue collection, while National Board of Revenue receipts are projected to grow by 55.4%.

The think tank described the NBR target as statistically improbable when measured against historical performance trends.

To finance a projected budget deficit of Tk2.43 lakh crore, the government plans to rely heavily on domestic bank borrowing and external financing. CPD warned that borrowing Tk1.12 lakh crore from the banking sector could further restrict credit availability for private businesses.

Fahmida noted that private sector credit growth fell to a historic low of 4.75% in April 2026, adding that increased government borrowing could crowd out private investment at a time when business activity remains subdued.

Tax burden and social spending

CPD also criticised the decision to keep the tax-free income threshold unchanged at Tk3.75 lakh, arguing that it would provide little relief to lower-income earners amid persistently high inflation.

According to its analysis, inflation-adjusted calculations indicate that the threshold should have been raised to at least Tk3.80 lakh. As a result, lower-income taxpayers could face a proportionately higher tax burden than wealthier groups.

The think tank noted that the budget contains several supportive measures, including stable corporate tax rates and value-added tax exemptions for locally produced information and communication technology products, electric vehicles and metro rail services.

While welcoming increased allocations for human capital development, CPD cautioned that longstanding implementation weaknesses could limit the effectiveness of higher spending. The proposed budget raises health sector allocations by 124% and education spending by 42.7%.

However, Fahmida said development expenditure utilisation in the health sector reached only 30% in FY25, raising concerns about the sector's capacity to absorb and effectively use additional resources.

Development projects and employment

CPD also highlighted implementation challenges in the proposed Tk3 lakh crore Annual Development Programme (ADP), citing low absorptive capacity and persistent project delays.

According to the think tank, only 35.4% of the ADP was implemented during the first 10 months of the previous fiscal year. Development projects had an average duration of 5.7 years and continued to experience cost overruns.

On employment, CPD said there was a disconnect between the government's pledge to create 1 crore jobs within 18 months and the budgetary allocations provided to ministries responsible for employment generation.

The think tank noted that allocations for key ministries, including the labour and commerce ministries, had either remained unchanged or declined, describing the situation as a structural weakness that could hamper export competitiveness and trade-led job creation.

CPD also criticised the absence of a comprehensive medium-term strategy to address challenges arising from Bangladesh's graduation from least developed country status. It urged the government to expedite pending trade agreements before preferential trade benefits begin to erode.

Fiscal pressures and financing reforms

Present at the event, Finance Minister Amir Khosru Mahmud Chowdhury said Bangladesh could no longer depend on traditional financing models amid a low tax-to-GDP ratio, mounting debt obligations and declining external support.

He noted that debt servicing costs in FY27 are projected to reach around Tk1.25 lakh crore, placing additional pressure on public finances. "We have to look at the whole public finance architecture in a new way."

The minister said the government was exploring alternative financing mechanisms and market-based funding sources to reduce dependence on multilateral lenders and domestic bank borrowing.

He argued that excessive government borrowing from the banking sector had historically crowded out private investment by raising borrowing costs for businesses.

According to Khosru, the proposed FY27 budget seeks to gradually reverse that trend by reducing reliance on bank borrowing and increasing the use of comparatively cheaper financing instruments, including bonds and concessional funding packages.

Deregulation and trade facilitation

Alongside fiscal and institutional reforms, the government is pursuing deregulation measures to improve the business environment and support emerging industries, the minister said.

He urged businesses to report any obstacles or inconsistencies encountered in the implementation of deregulation measures.

"If there is a violation anywhere in the deregulation that has been announced, you let us know. We will take care of that," he said.

Addressing concerns over block allocations in the proposed budget, Khosru said such allocations had been earmarked exclusively for development programmes rather than recurrent expenditure.

"The block allocation is not for our recurring expenses at all. Whatever block allocation exists, it is all allocation for development programmes. We have not kept any block allocation here for operating expenditure," he said.

The minister also said the government would not make letters of credit mandatory for exporters, arguing that the requirement increases business costs.

"Everything has been made open, absolutely. We will not even make LC compulsory. We want direct remittance through TT instead of LC. Isn't that happening all over the world? LC is a cost. It is a cost to the businessman," he said.