Fiscal Consolidation and Equitable Growth: Recasting the FY2026-27 Budget Framework

Situation

The FY2026-27 budget arrives at a moment of fiscal strain and macroeconomic divergence. The government has laid out a total outlay of Tk 9.38 lakh crore [Bangladesh Parliament, June 11, 2026] with a revenue collection target of Tk 6.95 lakh crore [Bangladesh Parliament, June 11, 2026], producing a projected deficit of Tk 2.43 lakh crore [Bangladesh Parliament, June 11, 2026]. While the budget targets a GDP growth of 6.5% [Bangladesh Parliament, June 11, 2026] and an inflation rate of 7.5% [Bangladesh Parliament, June 11, 2026], these ambitions confront a reality of slower economic momentum and significant pre-existing liabilities. The government must service nearly Tk 1.25 lakh crore in debt repayments in the current fiscal year [Finance Minister Amir Khosru Mahmud Chowdhury, June 11, 2026] and simultaneously address Tk 50,000 crore in inherited power sector liabilities [Finance Minister Amir Khosru Mahmud Chowdhury, June 15–21, 2026]. Without immediate revenue-side and expenditure-side adjustments, the budget risks rapid debt accumulation, cuts to development spending, and erosion of public trust.

Evidence

The provisional estimate for actual GDP growth in FY26 is 4.14% [Bangladesh Bureau of Statistics (BBS), June 15–21, 2026], well below the government’s new target. The Centre for Policy Dialogue has calculated that achieving the revenue target requires a revenue growth of 54.4% [Centre for Policy Dialogue (CPD), June 15–21, 2026], a rate far above recent collections trends. The Annual Development Programme commitment of Tk 3 lakh crore [Bangladesh Parliament, June 11, 2026] creates additional pressure, particularly when a large share of recurrent revenue will be absorbed by debt service. The CPD further finds the proposed personal income tax structure to be highly discriminatory, noting that it disproportionately increases the tax burden on individuals earning between Tk 600,000 and Tk 1.5 million relative to those earning over Tk 3 million [Centre for Policy Dialogue (CPD), June 21, 2026]. Together, these data points signal a budget that is over-reliant on optimistic growth assumptions and an inequitable revenue base, exposing the economy to severe fiscal risk if implementation falls short.

Prescription

1. The National Board of Revenue (NBR) must urgently redesign the personal income tax brackets. The top slab threshold should be lowered and the progression between slabs smoothed, specifically reducing the effective rate spike for earners between Tk 600,000 and Tk 1.5 million while raising marginal rates on incomes above Tk 3 million to correct the regressivity documented by the CPD [Centre for Policy Dialogue (CPD), June 21, 2026]. A time-bound, mandatory filing expansion for high-net-worth individuals and urban professionals should accompany this change, using third-party data from banks and utility providers to widen the tax base without raising rates on lower brackets.
2. The Ministry of Finance, jointly with Bangladesh Bank, must publish a medium-term debt management strategy within 90 days. The strategy should map the nearly Tk 1.25 lakh crore repayment obligation [Finance Minister Amir Khosru Mahmud Chowdhury, June 11, 2026] against realistic revenue and financing projections, and set a ceiling for short-term domestic borrowing. Lengthening maturities through buybacks and shifts to longer-tenor instruments can soften the refinancing wall and reduce crowding-out of private credit.
3. The Power Division, under the supervision of the Ministry of Finance, must table a securitization and settlement plan for the Tk 50,000 crore outstanding power sector liabilities [Finance Minister Amir Khosru Mahmud Chowdhury, June 15–21, 2026]. The plan should channel a portion of fuel price adjustments and budgetary transfers into an escrow mechanism, gradually retiring arrears over three fiscal years. This would restore commercial bank liquidity and credit availability to the private sector, partially offsetting the deficit’s impact.
4. The Planning Commission must conduct a zero-based review of the Tk 3 lakh crore ADP [Bangladesh Parliament, June 11, 2026] to rank projects by completion status, economic return, and alignment with the 6.5% growth target [Bangladesh Parliament, June 11, 2026]. Projects with below 50% physical progress and no strategic multiplier should be frozen, reallocating the fiscal space to high-return infrastructure and human capital priorities. Line ministries must co-sign performance milestones with the Finance Division to unlock subsequent quarterly releases.
5. The NBR and the Ministry of Finance should immediately integrate BBS, bank transaction, and trade data into a unified compliance dashboard. Platform-based data-sharing will identify registration gaps, suppress invoice matching errors, and provide near-real-time revenue performance tracking against the Tk 6.95 lakh crore target [Bangladesh Parliament, June 11, 2026]. A quarterly public report on compliance yields will enhance accountability and donor confidence.

Risks and tradeoffs

The inflation target of 7.5% [Bangladesh Parliament, June 11, 2026] may be breached if domestic borrowing accelerates to cover the Tk 2.43 lakh crore deficit [Bangladesh Parliament, June 11, 2026], especially given the tight liquidity created by debt service obligations. Revenue-side reforms risk execution delays and political pushback from higher-income groups, and a moderate shortfall in collections could force an ADP squeeze, threatening the official growth projection of 6.5% [Bangladesh Parliament, June 11, 2026]. Resolving power sector liabilities through fiscal transfers may crowd out other priority spending if the liability stock is not matched by efficiency gains in the power distribution chain. Finally, a global slowdown would further undermine the 54.4% required revenue growth [Centre for Policy Dialogue (CPD), June 15–21, 2026], making the budget framework highly susceptible to external shocks.

Bottom line

The FY2026-27 budget’s credibility depends on immediate correction of the personal income tax structure and a transparent, time-bound debt and arrears management strategy; without these, the deficit of Tk 2.43 lakh crore [Bangladesh Parliament, June 11, 2026] will translate into unsustainable borrowing costs and stalled development. A sequenced set of NBR-led tax reforms, Planning Commission-led ADP rationalization, and Power Division-led liability settlement offers the narrow path to preserving macroeconomic stability while pursuing the 6.5% growth ambition [Bangladesh Parliament, June 11, 2026].