Budget FY27: Growth aspirations outpace implementation readiness

The budget for FY2026–27 puts forward a long and ambitious to-do list but is supported by a weak implementation architecture. From an institutional perspective, ambitious targets can be announced quickly, but institutional capacity and administrative behaviour usually change gradually.

If the same government machinery, procedures, incentives, and accountability systems remain largely unchanged, expecting dramatically different outcomes within a year may be overly optimistic.

The budget projects GDP growth of 6.5%, which would require a significant acceleration in economic activity compared to recent performance. However, almost all major economic activities, including investment, remain sluggish at this stage. Inflation has remained elevated for a prolonged period, and continued monetary tightening has contributed to a deep economic slowdown. The budget aspires to accelerate real GDP growth to 8.5%, reduce inflation to 5%, increase foreign direct investment (FDI) to 2.7% of GDP, and substantially raise total investment to 40% of GDP by FY2030–31.

Achieving these targets will require a substantial increase in private investment, higher productivity in manufacturing and agriculture, faster infrastructure delivery, greater export diversification beyond garments, and a more reliable energy supply and logistics network. At present, Bangladesh's investment-to-GDP ratio has declined to 27.93% in FY2025–26 from 28.54% in FY2024–25. 

Similarly, export performance during the first half of FY2025–26 was below the previous year's level, with total exports declining by about 2.2% year-on-year despite some monthly recovery. Recent statistics also show a declining trend in Bangladesh's exports to the EU. Given the prevailing economic conditions, maintaining the current level of performance is itself a significant challenge. Accelerating growth beyond the present level will require substantial policy, institutional, and investment reforms, as well as sustained political commitment.

A detailed account of these deregulation initiatives is presented in Chapter Eight of the budget. However, from a practical standpoint, implementing these proposals will require considerable time, financial resources, and extensive structural reforms. Past experience suggests that, despite the adoption of several large-scale reform projects, Bangladesh has not been able to achieve the level of structural and institutional transformation necessary to ensure full automation and faceless service delivery. In other words, institutionalised exclusion continues to persist.

Raising the investment-to-GDP ratio to 40% would require investment of around Tk24.93 lakh crore, implying an additional investment requirement of Tk5.61 lakh crore. The budget provides little indication of where this additional financing will come from.

Banks typically finance the manufacturing sector due to the absence of a sufficiently developed capital market. The budget's growth strategy assumes a significant increase in private investment, yet the financial sector—the primary source of investment financing—remains fragile. With banks struggling with liquidity constraints, non-performing loans, and governance weaknesses, expecting a sharp rise in credit to manufacturing and other productive sectors may be unrealistic without substantial financial-sector reforms and greater autonomy for Bangladesh Bank.

Chapter Eight elaborates on several deregulation measures across eight key areas aimed at improving the business environment. Among these, initiatives such as "license in a day," online support services, and faceless services appear highly ambitious. Whether digitalisation is an adequate response to bureaucratic inefficiency remains an open question. The concepts of online support services and faceless services assume that digitisation automatically removes administrative friction. In reality, digitisation often adds a digital layer on top of existing bureaucracy. Physical verification, informal follow-ups, and manual approvals may continue behind the scenes, while system downtime and administrative backdoors can reintroduce discretion and delay.

These deregulation measures represent a positive policy direction toward modernisation and enhanced investor confidence. However, their credibility depends on whether Bangladesh can move from "digitised promises" to institutional enforcement and measurable service delivery. Otherwise, initiatives such as "license in a day" and "faceless services" risk becoming attractive slogans constrained by limited institutional readiness rather than genuine governance reforms.

A complete tax exemption for startups under the "Startup Sandbox" initiative has been introduced through Schedule 8-5, providing eligible enterprises with nine years of tax relief. This measure could help encourage entrepreneurship and innovation. Bangladesh Bank has also introduced a number of policy and financing initiatives. However, startups require a comprehensive and dedicated policy framework that nurtures them in a non-traditional and innovation-friendly manner.

The finance minister has acknowledged that the economy needs time to recover and regain momentum. This is one reason why the budget includes projections extending over a three-year period. The statement reflects a realistic recognition that Bangladesh's economy is currently in a recovery and stabilisation phase rather than a period of rapid expansion. However, it also raises questions about the consistency between this diagnosis and the ambitious targets set out in the budget.

The sustainability of the government's development agenda depends critically on whether business activity expands fast enough to generate the required tax revenue. Without stronger private sector growth, fiscal pressure will increase, making it difficult to finance and implement the announced projects effectively. Therefore, the central challenge is not only project planning, but ensuring a parallel expansion of the productive economy that can support it.

The establishment of Creative Hubs at the national and regional levels is important for developing the creative economy. The budget has announced several time-bound initiatives that will require continuity and sustained commitment. To attract foreign direct investment (FDI), the government has published an investment heat map highlighting 19 promising sectors.

The proposals to establish Creative Hubs and promote an investment heat map covering 19 priority sectors reflect a forward-looking vision for economic diversification. However, the success of these initiatives will depend less on their announcement and more on their continuity, effective implementation, and institutional support.

The development of a creative economy is inherently a long-term undertaking, requiring sustained investments in skills development, innovation ecosystems, technology infrastructure, financing mechanisms, intellectual property (IP) protection, and market linkages. Its impact cannot be fully realised within a single fiscal year. Frequent policy shifts, changing priorities, or interruptions in funding could undermine the effectiveness of these initiatives before they begin generating meaningful economic returns. Adequate IP protection and investment in research and development (R&D) are also essential in this regard. Bangladesh has secured Geographical Indication (GI) recognition for around 60 products; however, it has yet to effectively commercialise these GI-tagged products.

Similarly, the publication of an investment heat map is a useful signalling tool for potential investors. It identifies sectors where Bangladesh sees comparative advantages and future growth opportunities. However, investors do not invest in maps; they invest in confidence. Foreign Direct Investment (FDI) decisions are ultimately influenced by regulatory certainty, policy consistency, contract enforcement, infrastructure quality, access to finance, and the ease of doing business.

Therefore, the key challenge is not identifying promising sectors but ensuring that investors encounter a predictable, transparent, and supportive investment environment when they seek to enter those sectors.

The budget has demonstrated vision by identifying future growth drivers. However, vision alone is insufficient. Both the Creative Hub initiative and the Investment Heat Map represent multi-year agendas that require unwavering policy commitment, institutional continuity, and effective implementation across successive budget cycles.

Creative economies are built over decades, not budget cycles, and FDI is attracted by policy certainty, institutional credibility, and a conducive business environment—not by sector identification alone. The real test is whether the country can maintain the policy consistency, institutional commitment, and implementation discipline necessary to translate these initiatives into tangible outcomes. Investors are persuaded not by plans, but by sustained execution.

Several provisions have been incorporated into the Customs Act to facilitate the establishment of Free Trade Zones, similar to those operating in many countries around the world, where goods can be imported duty-free for storage, grading, packing, manufacturing, and processing for export. Additionally, goods may be supplied to the domestic market from within these zones upon payment of the applicable duties and taxes.

This initiative could significantly reduce supply-chain lead times for domestic enterprises, including SMEs and MSMEs, while also easing pressure on their working capital. As a policy measure, it is highly promising. However, protecting domestic industries and preventing the leakage of duty-free raw materials into the domestic market will require strong administrative oversight. Enhanced technological support and monitoring systems could prove particularly valuable in this regard.

A key determinant of foreign investors' confidence is clarity regarding the rules governing the lawful repatriation of profits and capital, as well as timely decision-making by the authorities. To this end, the government has proposed a thirty-day timeline for processing applications for the repatriation of profits from lawful foreign investments. Coordination among banking verification procedures, tax documentation requirements, and approval processes is also expected to be strengthened.

These have long been concerns for foreign investors. The government's intention is clearly positive. However, investors are likely to judge the initiative not by the announcement itself, but by how effectively it is implemented in practice.

The sustainability of the government's development agenda depends critically on whether business activity expands fast enough to generate the required tax revenue. Without stronger private sector growth, fiscal pressure will increase, making it difficult to finance and implement the announced projects effectively. Therefore, the central challenge is not only project planning, but ensuring a parallel expansion of the productive economy that can support it.

Sketch: TBS

Ferdaus Ara Begum is the Chief Executive Officer of BUILD, a public-private dialogue platform that works for private sector development.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.