Stabilising Public Finances After a Record Revenue Shortfall
Situation
The fiscal position of Bangladesh has deteriorated sharply because tax collection is running far behind target while bank borrowing has almost exhausted its annual ceiling. The National Board of Revenue (NBR) recorded a shortfall that cannot be closed in the few months remaining, pushing the government toward financing mechanisms that are already stoking inflation. The Annual Development Programme (ADP) is executing well below its historical pace, and consumer prices are accelerating. The government is nevertheless preparing a budget for the next fiscal year anchored on a revenue target that current performance cannot support. Without coordinated action by the NBR, the Ministry of Finance, and Bangladesh Bank, the economy faces a compound risk: higher inflation, further crowding out of private credit, and a deeper loss of fiscal credibility.
Evidence
The NBR recorded a tax collection shortfall of Tk 1,04,533 crore for the July to April period of the 2025-26 fiscal year [The Business Standard, June 4, 2026]. During those ten months, tax collection grew by only 10.6%, leaving a large gap against the revised target of Tk 4,31,461 crore [The Business Standard, June 4, 2026]. Total revenue collection expanded by 6.9% in the July to March period of FY26, a decline from the 7.9% growth recorded in the same period of the previous fiscal year [The Business Standard, June 4, 2026]. The annual NBR growth target is 34.5%, and meeting it would require an expansion of 128.6% in the final two months, a scenario the Centre for Policy Dialogue describes as “almost impossible” [Centre for Policy Dialogue, June 4, 2026].
Fiscal pressure has driven heavy reliance on bank borrowing. By March 2026, net borrowing from the banking sector reached Tk 1,02,442 crore, which is 98.5% of the full-year target [The Business Standard, June 4, 2026]. This represents a 20% increase compared with the same period in FY25 [The Business Standard, June 4, 2026]. The real economy is feeling the strain: ADP implementation stood at 35.4% for July to April, significantly below the FY17 to FY24 average of 49.8% [The Business Standard, June 4, 2026]. Meanwhile, headline inflation rose to 9.04% in April 2026 from 8.71% in March, with non-food inflation reaching 9.57% [The Business Standard, June 4, 2026]. The government’s draft budget for FY2026-27 sets a total revenue collection target of Tk 6,95,000 crore [The Business Standard, June 4, 2026], a figure that must be reassessed against the current collection momentum.
Prescription
- NBR: Launch an immediate enforcement drive on large taxpayers and customs compliance.
The NBR should establish a central taskforce within one week to audit large corporate and individual taxpayers, concentrating on sectors where discrepancies between reported income and visible consumption are widest. Simultaneously, the NBR must accelerate the full automation of customs clearance at Chattogram and Benapole, integrating the ASYCUDA system with real-time bank payment gateways to curtail under-invoicing. All new compliance actions must raise revenue without introducing new tax rates, which would weaken demand further in an environment where headline inflation is already 9.04% [The Business Standard, June 4, 2026].
- Ministry of Finance: Freeze new ADP approvals and reallocate spending toward the most efficient projects.
With ADP implementation at 35.4% [The Business Standard, June 4, 2026], the Ministry of Finance, through the Planning Commission, should immediately halt approvals for any new projects in the remaining weeks of FY2025-26. Released funds must be redirected to projects demonstrating the highest expenditure rates and the strongest near-term supply-chain impact, maximising the multiplier on the limited fiscal space. A fast-track review should identify slow-moving projects and suspend a meaningful portion of their allocations, transferring resources to infrastructure that can directly address the supply-side constraints reflected in non-food inflation of 9.57% [The Business Standard, June 4, 2026].
- Bangladesh Bank: Enforce a binding stop on further government bank borrowing and absorb excess liquidity.
With net bank borrowing already at Tk 1,02,442 crore, or 98.5% of the full-year ceiling [The Business Standard, June 4, 2026], Bangladesh Bank must announce that no additional government borrowing beyond the residual 1.5% will be monetised through the banking system. Any further financing gap must be met solely through non-bank instruments. The central bank should coordinate with the Ministry of Finance to issue sharia-compliant sukuk and a new tranche of inflation-protected family savings certificates within 30 days. Concurrently, Bangladesh Bank must use repo auctions and reverse-repo operations to absorb the excess liquidity generated by the borrowing that has already occurred, keeping the call money rate aligned with the policy rate to break the inflation pass-through of 9.04% [The Business Standard, June 4, 2026].
- Ministry of Finance: Anchor the FY2026-27 budget in stress-tested, transparent revenue assumptions.
Before tabling the budget in parliament, the Ministry of Finance must reassess the total revenue target of Tk 6,95,000 crore [The Business Standard, June 4, 2026]. A stress test should model revenue buoyancy against an updated GDP deflator that incorporates the current inflation trajectory, not an earlier estimate. The ministry should publish a revised medium-term fiscal framework that separately identifies the policy measures expected to deliver any incremental revenue above the likely FY26 outturn, with quarterly public reporting benchmarks. Projecting a target that cannot be met would only force another cycle of heavy bank borrowing, further compromising ADP execution and renewing inflation pressure.
Risks and tradeoffs
Enforcing a hard bank borrowing ceiling could force the government to delay salary or subsidy payments, creating immediate political friction. Suspending slow-moving ADP projects, while fiscally necessary, may provoke local implementation pushback and legal challenges. The emergency revenue drive carries a risk of confrontation with politically connected businesses; the NBR will need explicit cabinet backing to resist pressure. A sterilisation operation by Bangladesh Bank may push up short-term interest rates, slowing private investment further. Across all these measures, weak institutional capacity is the binding constraint: the NBR’s digital infrastructure and the Planning Commission’s monitoring frameworks cannot be fully upgraded in the time remaining. If global commodity prices rise while these adjustments are underway, inflation persistence at 9.04% [The Business Standard, June 4, 2026] will be harder to reverse without tipping the economy into a shallow recession.
Bottom line
A tax shortfall of Tk 1,04,533 crore has forced bank borrowing to the ceiling, suppressed development spending, and pushed inflation to 9.04%, making the current fiscal stance unsustainable. The Ministry of Finance must coordinate an immediate correction: the NBR must maximise collections from large taxpayers without new rate increases, Bangladesh Bank must halt further government credit and sterilise excess liquidity, and the FY2026-27 budget must be rebuilt around revenue assumptions that are credible, not aspirational.