Stabilisation Strategy: Anchoring Fiscal Credibility Amid High Inflation and Debt Pressures

Situation

The government must meet a debt repayment obligation of nearly Tk 1.25 lakh crore for the current fiscal year [Bangladesh Post, June 21, 2026] while inflation persists at 9.42% as of May 2026 [OpIndia, June 23, 2026]. Concurrently, Tk 50,000 crore in outstanding power sector liabilities inherited by the current administration remain unresolved [Bangladesh Post, June 21, 2026]. At the same time, the proposed FY2026-27 budget allocates nearly Tk 7,800 crore to SME incentive and support programs [BSS, June 24, 2026], and Bangladesh Bank has earmarked an additional Tk 5,000 crore for CMSMEs from a Tk 60,000 crore stimulus package [BSS, June 24, 2026]. These simultaneous claims on limited fiscal and monetary space create a risk that uncoordinated expansion will deepen inflation and undermine the sovereign’s repayment capacity.

Evidence

• Debt repayment obligation: nearly Tk 1.25 lakh crore for the current fiscal year [Bangladesh Post, June 21, 2026].
• Inflation rate: 9.42% in May 2026 [OpIndia, June 23, 2026].
• Outstanding power sector liabilities: Tk 50,000 crore inherited by the current administration [Bangladesh Post, June 21, 2026].
• Proposed SME support: nearly Tk 7,800 crore in the FY2026-27 budget [BSS, June 24, 2026].
• CMSME allocation: Tk 5,000 crore from a Tk 60,000 crore Bangladesh Bank stimulus package [BSS, June 24, 2026].

Prescription

1. The Monetary Policy Committee of Bangladesh Bank must announce, at its next review, a clear and decisive monetary tightening stance. With inflation at 9.42% [OpIndia, June 23, 2026], the central bank should explicitly signal a trajectory toward positive real policy rates, using repo rate adjustments and open market operations, and communicate that it accepts a temporary rise in market interest rates to re-anchor expectations. This step is a prerequisite for any subsequent fiscal action.
2. The Ministry of Finance should immediately restructure the nearly Tk 7,800 crore SME support program [BSS, June 24, 2026]. Instead of broad-based direct disbursements, the Ministry should convert the larger part of the allocation into a credit guarantee facility administered through scheduled banks, covering the first-loss tranche on new working capital loans extended exclusively to firms that document verified export orders or domestic value addition. The remainder should finance a partial interest rate buy-down on a reimbursable basis, compressing the immediate fiscal cash outflow while dampening demand-pull effects.
3. Bangladesh Bank must disburse the Tk 5,000 crore CMSME allocation [BSS, June 24, 2026] solely through a refinancing window that links access to measurable reductions in energy intensity or to verifiable job retention confirmed via electronic payroll data. Tying the facility to efficiency rather than general credit expansion will direct funds to supply-side improvements and limit additional inflation pressure.
4. The Power Division, under Ministry oversight, must publish an independently audited arrears clearance schedule for the Tk 50,000 crore in outstanding liabilities [Bangladesh Post, June 21, 2026] without delay. The schedule should combine three elements: an immediate payment of verified small-amount arrears to independent power producers through a dedicated government bond issued by the Ministry of Finance, a medium-term securitisation of receivables with a partial government guarantee, and a binding commitment to adjust future power tariffs to halt fresh accumulation. Removing this contingent liability will ease the cloud over bank balance sheets and strengthen monetary transmission.
5. The National Board of Revenue (NBR) must launch an automated data-matching system for withholding tax deductions on all government procurement contracts and large corporate payments. By closing compliance gaps without altering tax rates, the system will directly generate additional revenue to service the Tk 1.25 lakh crore debt repayment [Bangladesh Post, June 21, 2026] without crowding out private sector credit. The Ministry of Finance should simultaneously begin publishing a monthly dashboard of debt service payments and revenue collections to reinforce market confidence.

Risks and tradeoffs

Monetary tightening will raise borrowing costs for the very SMEs the budget aims to support (the Tk 7,800 crore [BSS, June 24, 2026] and Tk 5,000 crore [BSS, June 24, 2026] allocations), potentially slowing employment growth. The credit guarantee facility may not fully offset higher interest rates. The CMSME efficiency-linked refinancing could see weak uptake if firms lack upfront capital for energy-saving investments. Delaying or underfunding the power sector arrears clearance could trigger litigation and disrupt electricity supply, given the Tk 50,000 crore in outstanding liabilities [Bangladesh Post, June 21, 2026] weighing on supplier confidence. The NBR data-matching system requires substantial inter-agency coordination and may face bureaucratic friction. The binding constraint remains the simultaneous pressure of 9.42% inflation [OpIndia, June 23, 2026] and a large debt rollover need: any premature fiscal loosening risks even sharper monetary correction later, endangering banking sector asset quality.

Bottom line

The government must sequence stabilisation ahead of stimulus: monetary restraint to address 9.42% inflation [OpIndia, June 23, 2026], and fiscal re-engineering to service the Tk 1.25 lakh crore debt obligation [Bangladesh Post, June 21, 2026] while preserving targeted support channels. Transparency in arrears clearance and revenue enforcement will reduce the elevated risk premium faster than any new spending program.