Budget bereft of regenerative structural reforms

Kick-starting structural reforms is imperative to spur economic growth, rebuild investor confidence and reverse the ongoing economic slowdown, but the new budget falls short on this account, experts and economists said.

Such conclusion was drawn at a meet Thursday after doing a last-minute anatomy of the interim government-crafted budget for the fiscal year 2025-2026 that goes into effect in few days now.

They said although the government set a 5.5-percent GDP-growth target for the next fiscal year, the projection appears overly ambitious in the context of persistent inflation, weak private investment, and a sharp fall in capital-machinery imports.

The remarks were made during a post-budget analysis event organised by the Policy Research Institute (PRI), which also marked the launch of its Monthly Macroeconomic Insights (MMI) under the Centre for Macroeconomic Analysis (CMEA).

Dr Sheik Moinuddin, special assistant to the chief adviser of the interim government for the Ministry of Road Transport and Bridges, attended the event as chief guest, while Clinton Pobke, Deputy Head of Mission, the Australian High Commission in Dhaka, attended as special guest.

Dr Zaidi Sattar, Chairman of PRI, and Dr Ashikur Rahman, Principal Economist, delivered the keynote speeches at the event arranged in partnership with the Department of Foreign Affairs and Trade (DFAT) of the Australian Government.

The keynotes reveal that the provisional GDP growth for the outgoing fiscal year has been estimated below 4.0 per cent, the lowest rate since the COVID-19 shock in FY20, with private investment dropping to just 22.48 per cent of the GDP.

This investment decline -- along with falling FDI and weak capital-goods imports -- signals diminished investor confidence, driven by high interest rates, inflation risks, and worsening governance challenges, the meet highlighted.

Inflation remains elevated, with a 12-month average of 10.21 per cent in April, while the central bank has kept its policy rate unchanged at 10 per cent for the seventh consecutive month to curb inflation.

Dr Sheik Moinuddin said Bangladesh lacks a coordinated infrastructure plan aligned with economic development due to absence of a unified vision connecting transport investments to economic growth.

He deplored the fragmentation across ministries -- road, rail, and waterways -- all operating with separate priorities and little coordination. "We need an integrated authority overseeing all transport sectors, as seen in many developed countries."

Dr Moinuddin also pointed to Bangladesh's lengthy procurement process, where some projects take over five years for approval, inflating costs significantly.

Dr Zaidi Sattar cautions that financing the revenue deficit will be a major challenge for the government, with significant risks of inflation and private-sector credit constraints.

He notes that borrowing from the central bank would effectively mean money printing, which could fuel inflation, while increased reliance on commercial banks may crowd out private investment. The high interest cost of savings certificates and treasury bills also adds pressure on public finances.

Commenting on the government's sights set on 5.5-percent growth target for the next fiscal, Dr Sattar views that the figure is not ambitious but remains essential for job creation, income growth, and reducing inequality. "Without growth, we cannot create employment or reduce poverty," he told the meet.

Dr Ashikur Rahman thinks the fiscal position remains fragile, with the NBR collecting only 69.5 per cent of its revised target by May, leaving a potential shortfall of over Tk 1.0 trillion by fiscal year-end.

The persistent revenue shortfall has begun to erode the fiscal foundation of the economy, said Dr Ashikur Rahman, adding that Bangladesh's operating expenditures were managed within the scope of government revenue historically.

However, for the first time, the government is now compelled to borrow from domestic banks at interest rates as high as 12-13 per cent to meet routine expenses.

"This marks a worrying shift in fiscal management, as interest payments are increasingly consuming a larger share of public resources."

He warns that unless this trend is reversed through stronger revenue mobilisation and spending discipline, the rising cost of debt servicing will severely constrain government's ability to invest in growth-enhancing sectors.

Rizwan Rahman, former President of Dhaka Chamber of Commerce and Industries (DCCI), expressed serious concerns over the framing of the new budget, highlighting the average inflation above 10 per cent and NPLs set to exceed Tk 6.0 trillion.

He notes private-sector-credit growth is at a 21-year low, with two million jobs lost between July and December.

Rahman also told his audience that many decent businesses are struggling due to soaring interest rates. "I borrowed at 9 per cent, now paying 15 per cent. Why should I bear this extra cost when I've done nothing wrong?" he questioned.

He urges the government to share responsibility for the crisis with the businesses.

The paper mentions two pressing trade challenges-LDC graduation in November 2026 and the risk of USTR's 37-percent reciprocal tariffs, paused only until July as no meaningful trade-policy reform has been undertaken.

The National Tariff Policy 2023 remains unimplemented, and the new budget offered only marginal reductions in para-tariffs, leaving core duties unchanged, it is noted.

The PRI also identified some deepening stresses in the macro-economy while inflation remaining stubbornly high and the banking sector under strain from rising NPLs and provisioning gaps.

Revenue mobilisation continues to fall short, narrowing fiscal space and driving reliance on costly borrowing. Rising poverty, unemployment, and inequality further underscore the need for urgent structural and policy adjustments, the think-tank suggests.

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