Redeploying the Tk 600 Billion Stimulus Under Severe Fiscal and Financial Stress

Situation

Bangladesh’s economy is decelerating sharply. Real GDP growth in FY2026 is projected at 3.9 percent, private-sector credit growth has collapsed to a historic low of approximately 4.7 percent, and the National Board of Revenue faces a Tk 1.04 trillion shortfall in the first ten months of the fiscal year. The Finance Minister has acknowledged that many banks are in a serious capital deficit, and the Bangladesh Bank Governor has disclosed that Tk 5 trillion has been stolen from the country. In response, the central bank has announced a Tk 600 billion support fund aiming to create over 2.5 million jobs. The package combines refinancing schemes, central bank programmes, and a small grant for the creative economy. Unless sequenced with institutional safeguards and fiscal realism, this injection risks being neutralised by weak bank balance sheets, revenue erosion, and confidence deficits. The moment demands a targeted deployment that marries stimulus with immediate remedial action on tax policy, external financing, and governance.

Evidence

The following figures frame the current constraints and instruments:

• Real GDP growth for FY2026 is projected at 3.9 percent [The Daily Star, 23 May 2026].
• Private-sector credit growth stands at a historic low of approximately 4.7 percent [The Daily Star, 23 May 2026].
• The National Board of Revenue collected Tk 3.27 trillion in the first 10 months of FY2025-26, falling Tk 1.04 trillion short of the target [The Daily Star, 23 May 2026].
• Many banks are in a serious capital deficit [The Daily Star, 20 May 2026].
• The Governor of Bangladesh Bank noted that Tk 5 trillion has been stolen from the country [The Daily Star, 23 May 2026].
• A Tk 600 billion support fund was announced to revive the economy, aiming to create employment for more than 2.5 million people [The Daily Star, 23 May 2026].
• Of this, Tk 410 billion will flow through refinancing schemes, and Tk 190 billion through various central bank-owned support programmes [The Daily Star, 23 May 2026].
• Customers will receive loans at a 7 percent interest rate [The Daily Star, 23 May 2026].
• A separate Tk 5 billion grant for the creative economy will come from the Corporate Social Responsibility fund [The Daily Star, 23 May 2026].
• Bangladesh expects to receive up to $1.835 billion in World Bank financing before the end of the current fiscal year [The Daily Star, 23 May 2026].
• The government is considering reducing the Advance Income Tax on primary and intermediary industrial raw materials from 5 percent to 4 percent [The Daily Star, 23 May 2026].

Prescription

1. NBR to immediately reduce AIT on raw materials. Within 15 days, the National Board of Revenue must issue a statutory regulatory order lowering the Advance Income Tax on primary and intermediary industrial raw materials from 5 percent to 4 percent. This will release working capital for manufacturers at a time of acute credit squeeze. The cost in foregone revenue is manageable relative to the Tk 1.04 trillion shortfall only if it is paired with aggressive enforcement against high-net-worth tax evaders; NBR should concurrently publish a list of top 500 defaulters and attach their bank accounts.
2. Ministry of Finance to frontload World Bank budget support. The Ministry of Finance must formalise the expected $1.835 billion in World Bank financing before the fiscal year closes and allocate it entirely to offset the NBR shortfall. This injection will prevent disorderly cuts in development spending that would otherwise counteract the stimulus. The ministry should issue a cash-flow statement within 30 days showing how the external funds are mapped to unpaid bills in the Annual Development Programme.
3. Bangladesh Bank to tie refinancing to employment verification. The central bank must release the Tk 410 billion refinancing window only through a simplified digital portal that requires borrowers to submit monthly employment and wage data verified by a third-party auditor. The 7 percent interest rate must be fixed for the loan tenor, with no hidden fees. Bangladesh Bank should withhold disbursement from any bank that fails to meet capital adequacy thresholds, thus preventing public funds from being absorbed by capital-deficit institutions. The Tk 190 billion in central bank support programmes should be consolidated into a single revolving fund for small and medium enterprises, with a hard cap on per-party exposure.
4. Bangladesh Bank to commission an independent forensic audit of stolen funds. Before the stimulus reaches full scale, the central bank should appoint a special auditor to trace the Tk 5 trillion reportedly stolen. The audit’s interim report, due in 90 days, must name the channels and complicit institutions. This is not a pre-condition for all lending but a parallel track that signals to investors and multilateral partners that the regulatory architecture is being repaired. Findings must feed into revised bank governance rules within six months.
5. Disburse the creative economy grant competitively. The Ministry of Cultural Affairs, in coordination with the ICT Division, should launch a time-bound call for proposals for the Tk 5 billion CSR-funded grant. Allocation must be merit-based, with awards capped at Tk 50 million per project, and disbursed in milestone-linked tranches. A public dashboard should track grantees and outcomes to build trust that this component is not patronage.

Risks and tradeoffs

The binding constraint is the health of the banking system. Banks in capital deficit may not be able to on-lend the refinancing funds, or they may channel them to impaired borrowers, creating new non-performing loans. The stimulus could inadvertently subsidise the very entities responsible for the Tk 5 trillion theft if governance is not fixed concurrently. The AIT reduction, while easing business cash flows, will further narrow the tax base at a time of large revenue shortfall; its success depends wholly on compensatory enforcement, which NBR has historically failed to deliver. Private-sector credit growth may remain moribund despite cheaper loans if business confidence does not recover, meaning the employment target of over 2.5 million jobs might be missed. Government’s reliance on World Bank financing to plug the budget hole exposes the stimulus to any delay in loan effectiveness. Finally, without a credible roadmap to restore stolen assets, the overall package may be perceived as a liquidity injection without a clean-up, limiting its impact on investment.

Bottom line

The Tk 600 billion stimulus can only arrest the decline if it is executed alongside immediate tax simplification, external financing frontloading, and hard governance conditionality. Without these sequenced steps, the package risks flowing into broken balance sheets and reinforcing the very governance failures that caused the capital deficit and revenue shortfall.