Budget FY26 misses visionary reform

The finance advisor of the interim government, Dr Saleuddin Ahmad, presented the national budget for fiscal year 2025-26 (FY26) when the country is going through a crucial moment after the fall of the Hasina's autocratic regime. Given the fact that a lot of institutional reforms are under way and that Saleuddin is an economist and the ex-governor of Bangladesh Bank, it is astonishing that the budget does not indicate a visionary reform. It is rather a disappointing continuity of the past rather than a bold leap into the future. The budget, approved by the advisory council on June 22, neither reflects any coherent economic theory nor offers a transformative development strategy.  

For example, Harvard Professor, Joseph Schumpeter in his early career became the Finance Minister of the Austrian government in 1919. During his tenure he made the national budget applying the concept of fiscal sociology, a prominent theory of another Austrian sociologist, Rudolf Goldscheid. But Saleuddin's budget is a conservative fiscal arrangement proposing no actual socio-economic transformative strategies.

Expectation was there that the FY26 budget would be guided by a clear and coherent economic theory. It is neither Keynesian in spirit, nor developmentalist in its commitment to structural transformations. It doesn't embrace neoclassical supply-side strategies to spur private sector dynamism either. Instead, it reflects superficial technocratic calculations of numbers and lacks future vision.

The target of Tk 5.64 trillion in Revenue may appear to be achievable, but given the poor tax collecting mechanism, persistent inefficiencies in tax administration, continued reliance on indirect taxation, political unwillingness to reform VAT exemptions and high-level corruption, it is too ambitious indeed. Without structural tax reforms, this figure is unlikely to be realised in practice. In order for it to be realised there must be deep, systemic reforms in how the government collects taxes. Some measures need to be taken such as expanding the tax base i.e., bringing more people and businesses into the tax net, reducing tax evasion and corruption, strengthening enforcement and digitisation, shifting from over-reliance on indirect taxes to more equitable direct taxation like income and corporate tax. Without such measures, the ambitious revenue target will remain just a number on paper, not a feasible or collectible amount.

Secondly, the level of borrowing proposed in the current of budget is quite reasonable considering the level of borrowing of many other successful economies. Japan with total public debt is over 260 per cent of its gross domestic product (GDP) is the highest among advanced economies. It might sound alarming, but unlike countries like Bangladesh or Pakistan, most of Japan's borrowing is from domestic sources. Government bonds are owned by its citizens and institutions. As a result, cost of borrowing for Japan is low.  Debt-to-GDP ratios of USA, France, Germany, Italy, UK and Canada are?123-124 per cent, 110 per cent,?63 per cent, 135 per cent, 101 per cent,?and 107 per cent respectively. Despite high Debt-to-GDP ratios their economies are performing well maybe because they maintain access to stable financing due to deep domestic markets.

Having called the level of borrowing proposed in Bangladesh's budget in the current fiscal year reasonable, a note of warning must be posed: productive investments, rather than current expenditures, have to be ensured. Maintaining high growth, strengthening revenue mobilisation (through an effective revenue collection mechanism with a broad tax base, minimal evasion, robust enforcement, etc.), and institutional stability (including political stability, rule of law, efficient bureaucracy, and a credible, independent central bank)- are also imperative for long-term fiscal health. If domestic interest rates rise or any external shocks take place, borrowing will create additional strain. Therefore, precautionary measures must be taken.

It's widely accepted that health and education are the foundations of human capital. Yet, despite repeated warnings from experts and development agencies, spending on education remains a meagre 2.1 per cent of GDP, while health receives less than 1 per cent. These figures are well below the UNESCO-recommended 4-6 per cent, and the averages for low-income countries and South Asia. In contrast to Bangladesh's 2.1 per cent, education allocations in Nepal, Bhutan, and the Maldives stand at 4.3 per cent, 8 per cent, and 4.7 per cent respectively-even though Nepal's per capita income is just half that of Bangladesh.

Such attitudes reflect the moral bankruptcy of policymakers in a country where millions face educational disparities and inadequate access to healthcare. The budget falls short of the minimum thresholds recommended by UNESCO and the WHO. What is more alarming is that historical trends reveal that a significant portion of even these limited allocations is likely to remain unspent due to bureaucratic inefficiencies and weak institutional capacity.

The budget claims to support private sector growth, but there is little real effort behind the rhetoric.  New taxes on turnover and digital payments could hurt small businesses and startups. There is no clear roadmap for easing regulations, boosting exports, or attracting foreign investment.

Bangladesh must align university education with market needs, focusing on technology, healthcare, and green industries. Expanding vocational and technical training will give youth practical skills. The government should promote entrepreneurship through funding and mentorship, support digital jobs and freelancing, improve infrastructure, foster public-private partnerships to create internships and apprenticeships, and decentralise opportunities beyond major cities to fully leverage youth potential. Effective policies can transform the youth into a source of innovation and growth.

The FY26 budget reflects a continuation of a fiscal austerity mindset, not bold reforms. It has failed to adopt a coherent economic strategy or respond to the country's changing development needs-making it a symbol of a wasted opportunity. Bangladesh is in desperate need of a visionary budget. But what it has delivered is a traditional bureaucratic exercise-one that can balance books but not redress social injustice and inequality.

To break away from this traditionalism, the government needs to adopt a development strategy based on Keynesian and structuralist principles, reform tax administration to increase direct tax collection, invest in education, health, and digital infrastructure, develop an industrial policy to improve competitiveness and employment, and ensure transparency and accountability in budget implementation.

Dr N N Tarun Chakravorty is a Visiting Professor of Economics at Siberian Federal University, Russia. Editor-At-Large, South Asia Journal.  
nntarun@gmail.com