On June 2, 2025, Finance Adviser Salehuddin Ahmed presented the national budget for FY2025–26, totaling BDT 7,900 billion. This marks a rare instance in recent memory where the overall budget has contracted down by 1% from the original FY2024–25 budget. Reflecting a more cautious and disciplined fiscal approach, the government has brought down the fiscal deficit to 3.6% of GDP from 4.6% in the previous year.
A key driver behind this downsizing is the Annual Development Programme (ADP), which has been reduced by 13.2% from last year’s original allocation. This adjustment signals the interim government’s focus on austerity, with notable cuts to lower-priority projects in an effort to streamline public spending.
This write-up takes a closer look at the key changes proposed in the budget and aims to reflect on their possible impacts—in the medium to long term—on businesses and the wider economy.
To What Extent Is The Budget In Sync with the Country’s Development Realities?
The interim government took charge of an economy grappling with high inflation, a fragile banking system, and rising public debt. Although remittance inflows and foreign reserves have shown some improvement over the past 10 months, the broader economic outlook remains uncertain. Alongside these domestic hurdles, the FY 2026 budget also had to contend with external pressures. In response, the government presented a contractionary, deficit-focused budget—prioritizing stability over bold reforms.
| Category | Factors | Description |
| External | Global Commodity Prices Fluctuation | Commodity prices showed mixed trends, with fertilizer like urea increasing sharply from $338/MT in Jan-Mar’24 to $403.8/MT over the same period in 2025. In contrast, crude oil prices declined from an average of $80.6/barrel to $74.2/barrel, easing some inflationary pressure. |
| LDC Graduation | Bangladesh’s overall exports to the EU could decline by 21%, primarily due to the loss of duty-free access following LDC graduationCash subsidy on exports to be slashed by BDT 10 Bn | |
| Global Trade Barriers | Tariff on Bangladeshi products in the US has been increased from 15% to 35%India’s trade barriers on Bangladesh may impact imports worth $770 Mn | |
| Internal | Political Uncertainty | Post-uprising political uncertainty affecting investor confidence and implementation of reforms. |
| Moderately High Inflation & Currency Depreciation | Inflation, which remained over 9% for around 2 years, is showing a downward trend, reaching 9.05% in May 2025. | |
| Stressed Banking Sector | NPLs have more than doubled in just one year (24% in Mar’25 vs. 11.1% in Mar’24)Alarmingly thin CRAR at 3% (Dec’25) far below the regulatory requirement of 10%Weakened private sector credit growth at 7.5% (April’25) |
Development allocations for key public sectors like education, health, and agriculture have not seen meaningful increases—raising concern as Bangladesh approaches LDC graduation, when it will lose critical preferential benefits. For instance, the TRIPS waiver loss may raise medicine prices by nearly 20%, while the phase-out of export subsidies and tax exemptions could significantly hurt the agriculture sector. Meanwhile, the budget’s social protection provisions may turn out to be insufficient against the backdrop of current inflation.
| GDP growth target of 5.5% in FY26 vs. to 5.25% in RBFY25 |
| Projected inflation: 6.5% in FY26 (same as FY25) |
| Revenue target: 9% of GDP in FY26 vs. 9.35% of GDP in RBFY25 |
| Private sector credit growth: 11% in FY26 vs. to 9.8% in RBFY25 |
Regarding the private sector, the lack of significant improvement in the overall economic environment has led businesses to adopt a wait-and-see approach. According to LightCastle’s Business Confidence Index (2025) report, almost half of industry leaders identified the high cost of credit as a key obstacle to business operations. In this context, the projected rise in private sector credit growth may be overly optimistic, given the elevated lending rates of 14% to 16% and the government’s growing dependence on bank borrowing.
Fiscal Realities: Behind the Projections
For the disbursement of the fourth and 5th tranche of the IMF lending program, one of the major conditions was increasing the tax-to-GDP ratio. This is because in Bangladesh, tax-to-GDP has remained around 7% to 8% for several years, ranking among the lowest in South Asia.
This limited revenue base underpins many of the country’s fiscal issues, including ongoing budget deficits and increasing external debt.
In FY24, Value Added Tax (VAT) and Supplementary Duty (SD) contributed 3.86% to the country’s GDP, whereas income taxes accounted for only 2.26% of GDP.
