Fiscal Policy and Budget Implementation: Reversing Execution Collapse and Containing Inflation

Situation

The government has proposed a national budget of Tk 9.38 trillion for the 2026-27 fiscal year [Research, June 26, 2026]. This comes at a moment of acute execution failure and accelerating price pressures. The July to May implementation rate for the outgoing FY2025-26 fell to a historic low of 48.23 percent [IMED, June 25, 2026], while headline inflation rose to 9.42 percent in May 2026 from 9.04 percent in April 2026 [BBS, June 26, 2026]. The budget targets a GDP growth rebound to 6.5 percent from a provisional 4.14 percent in the year just ending [Research, June 26, 2026], but without immediate corrective action on spending discipline and inflation management, the growth ambition will not materialize. Private-sector credit growth of 4.75 percent [Research, June 26, 2026] signals weak investment appetite, making public expenditure execution even more critical for aggregate demand.

Evidence

Key figures define the policy space. The Tk 9.38 trillion budget equals 13.7 percent of GDP, below the Tk 14 trillion, or 20 percent of GDP, that former Bangladesh Bank governor Mohammed Farashuddin argued was needed [Research, June 26, 2026]. The revenue side is ambitious: total revenue mobilization is set at Tk 6.95 trillion, with the National Board of Revenue responsible for collecting Tk 6.04 trillion [Research, June 26, 2026]. The NBR projects a revenue-to-GDP ratio of 10.2 percent in FY2026-27, aiming to reach 10.7 percent by FY2028-29 [Research, June 26, 2026]. On execution, the historic underspend is broad based. The Health Services Division utilized only 25.87 percent of its Tk 31.28 billion allocation; the Ministry of Primary and Mass Education utilized 35.18 percent of its Tk 80.54 billion allocation [Research, June 26, 2026]. Persistent inflation, now at 9.42 percent [BBS, June 26, 2026], erodes the real value of these budgetary outlays and household purchasing power alike.

Prescription

1. The Finance Division must immediately institute a binding quarterly expenditure floor for every ministry, calibrated to reverse the 48.23 percent execution rate of FY2025-26 [IMED, June 25, 2026]. Ministries failing to disburse at least 60 percent of their annual allocation by the close of the second quarter of FY2026-27 will see unspent balances automatically reallocated to high-absorption infrastructure projects. This replaces annual release patterns with near-term accountability.
2. The NBR should launch a monthly public revenue dashboard starting with FY2026-27, comparing actual collections directly against the Tk 6.04 trillion target [Research, June 26, 2026]. The dashboard must be accompanied by intensified tax audits of high-turnover sectors and a quarterly progress report to the Finance Minister, explicitly tracking advancement toward the projected 10.2 percent revenue-to-GDP ratio for the fiscal year [Research, June 26, 2026].
3. Bangladesh Bank must tighten monetary policy without delay to anchor inflation expectations that have driven the headline rate to 9.42 percent [BBS, June 26, 2026]. In parallel, it should open targeted refinancing windows for export and manufacturing credit, directly countering the tepid 4.75 percent private-sector credit growth [Research, June 26, 2026] and preventing a monetary squeeze from starving productive sectors.
4. The Health Services Division and the Ministry of Primary and Mass Education, given their respective 25.87 percent and 35.18 percent utilization in FY2025-26 [Research, June 26, 2026], must submit pre-vetted procurement plans for all major contracts before the start of FY2026-27. The Implementation Monitoring and Evaluation Division should publish monthly variance reports for these two ministries, naming officials responsible for delays.

Risks and tradeoffs

Quarterly spending floors risk frontloading expenditure on low-quality projects simply to meet disbursement targets, weakening value for money. A monetary tightening, while necessary to address 9.42 percent inflation [BBS, June 26, 2026], could push private-sector credit growth even below the current 4.75 percent [Research, June 26, 2026] and delay the recovery in private investment. An aggressive NBR revenue push may provoke business pushback or increase informality, complicating the path to a 10.7 percent revenue-to-GDP ratio by FY2028-29 [Research, June 26, 2026]. Moreover, the budget’s size, at 13.7 percent of GDP rather than the recommended 20 percent [Research, June 26, 2026], may not generate sufficient fiscal impulse to crowd in private activity, constraining the 6.5 percent growth target [Research, June 26, 2026].

Bottom line

The FY2026-27 budget cannot deliver 6.5 percent GDP growth [Research, June 26, 2026] unless the Finance Division immediately breaks the 48.23 percent execution pattern [IMED, June 25, 2026] and Bangladesh Bank confronts 9.42 percent inflation [BBS, June 26, 2026] through decisive monetary action. Without sequenced expenditure enforcement and inflation control, social sectors will remain trapped at utilization rates as low as 25.87 percent [Research, June 26, 2026] and the revenue-to-GDP trajectory toward 10.2 percent this year will stall.