Stability takes priority over bold reforms

Economists described the proposed FY26 budget as cautious and structurally conservative, with some commendable steps in taxation but lacking bold reforms or a clear roadmap for future development.

While acknowledging the budget's efforts to preserve macroeconomic stability, analysts warned that limited incentives and reliance on outdated frameworks may deter private investment and hinder economic transformation.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, called the budget "a mixture of courage in the taxation measures and business as usual in the expenditure side".

Asked whether he found any element that aligned with Finance Adviser Salehuddin Ahmed's pledge to leave a mark through this budget, Hussain said, "Certainly, on the taxation side."

Hussain identified two major tax reforms that stand out, although whether they will stick remains to be seen. The first of these reforms is the removal of several exemptions in corporate tax and VAT, particularly those set to expire in June that are not being renewed in a break from past practice.

Secondly, supplementary and customs duties on hundreds of items have been reduced, significantly lowering import protection, while the exact fiscal impact depends on detailed calculations.

Hussain noted a lack of concrete direction for structural reform, particularly in banking or fiscal policy.

"There are references to work that has begun. For example, it mentions the enactment of the Bank Resolution Act, completion of asset quality reviews for several banks, a revision of NPL definitions, and the establishment of a single business window to reduce the cost of doing business.

"However, these are mostly existing reform initiatives. There is no specific roadmap -- nothing that says: 'As an interim government, here's what we'll complete before leaving office, and here's what the next government should carry forward.' Since this is an interim government, it should offer a roadmap," he said.

When asked about initiatives targeting youth, he pointed to allocations including a Tk 100 crore self-employment programme, Tk 405 crore for start-up support, and Tk 100 crore for a "Youth Festival".

"The idea seems to be: if a young entrepreneur comes forward with a business idea -- say, starting an e-commerce platform, opening a small shop, or driving for a ride-sharing service -- the government will support the financing."

On social safety net measures, Hussain noted that the major programmes like allowances for elderly women and employment generation for the poor have seen some expansion. Allowances are increased by an average of Tk 50, and coverage is expected to grow. There is also Tk 4,166 crore allocated for free healthcare services and Tk 1,000 crore for vaccination programmes.

Minimum wage growth has also been raised from 5 percent annually to 9 percent. "All of these measures benefit the poor," the economist said.

He also observed that growth and inflation projections in this year's budget are more realistic, while there was a significant disconnect between macroeconomic projections and ground reality in the past.

Birupaksha Paul, economics professor at the State University of New York, also said the "brief and restrained" budget's brevity marks a departure from the verbose and often overly ambitious targets of previous years.

"This budget is economical in its outlook, which is a positive shift," he noted. "It avoids unnecessary verbosity and presents a more grounded fiscal plan."

A notable milestone, he said, is that Bangladesh's GDP is projected to cross the $500 billion mark for the first time.

However, he expressed concern over the narrow fiscal deficit target of 3.6 percent of GDP, the lowest in recent years, arguing it could be misleading given weak revenue performance. "When revenue collection is already weak, using the fiscal deficit as a share of GDP to assess fiscal stance becomes problematic," he cautioned.

He was also critical of the outgoing fiscal year's budget execution, noting that despite ample time, the government failed to deliver efficient spending. "The government had nearly the entire fiscal year to demonstrate performance, yet it failed to show extraordinary efficiency," he said.

"What's troubling is that operational expenditures did not decrease accordingly. This reflects inefficiency on the part of the government," he added.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, told a briefing at its Dhaka office yesterday that the most concerning issue is the reduction in allocation for three crucial sectors in the Annual Development Programme: education, health, and agriculture.

The reduction in agriculture is especially critical due to its direct link to food security, she said.

The CPD official also said lower-middle-income people will have to pay higher tax rates, while high-income groups will not see an increase due to changes in the tax slabs, which reflects a form of discrimination.

A surprising issue is that the revenue-GDP ratio target was set at just 10.5 percent in the medium-term macroeconomic policy statement—for the year 2035. For the upcoming fiscal year, the target is 9 percent, the CPD official said.

"This reflects a weakening of ambition. How can we ensure development with such low expectations?"

The budget retains a provision for legalising undisclosed income, although the tax rate on such declarations has been increased.

"This provision undermines transparent and honest, regular taxpayers. It demoralises them," Khatun said.

Ashikur Rahman, principal economist at the Policy Research Institute (PRI), said the budget demonstrates accounting precision but lacks economic ambition.

"It underscores the government's intent to maintain macroeconomic stability through fiscal restraint, rather than pursue a bold developmental or counter-cyclical agenda," he said.

Given the current weakness of the fiscal framework, characterised by low revenue mobilisation, rising debt servicing liabilities, and declining foreign aid disbursements, the budget takes a cautious posture.

"The emphasis is clearly on austerity and consolidation, signalling that the government is prioritising stabilisation over stimulus," Ashikur said.

Selim Raihan, executive director of the South Asian Network on Economic Modeling, said the budget shows a genuine attempt to address discrimination and investment gaps, but remains confined by structural limitations.

"I thought something new would be offered, but the effort to introduce change was made within the confines of an old structure," he said.

He warned that the flaws of the existing structure will continue to haunt this budget, while the incentives are not sufficient to revive stagnant private sector investment.