Salehuddin defends budget, says 'a highway is born out of an old road’

Finance Adviser Salehuddin Ahmed has defended the interim government's conservative budget strategy, pushing back against economists' criticism that it follows an "old road".

"A highway is born out of the old road. Every new highway begins as a rural path," Ahmed said today, after the advisory council approved the Tk 790,000 crore budget for fiscal year 2025-26.

Ahmed acknowledged the criticisms that the budget did not offer bold departures. "Many economists have said, 'This could have been done better,' or 'That would've been a better choice.' But we made our decisions based on what is implementable. This isn't a dream budget. We're not serving pulao with ghee. We're focusing on what's real and achievable."

A key feature of the budget is the government's decision to avoid launching any new large-scale infrastructure projects in the coming year. "We're not taking up any new megaprojects worth $12 billion or $13 billion," Ahmed said. "Some medium-scale efforts, like metro extensions or the Bay Terminal, may proceed, but the days of announcing big-ticket projects without delivery discipline are over."

Several dormant or underperforming projects have also been scrapped to rationalise the Annual Development Programme. "We've cleaned up the project pipeline. The development budget is now aligned with actual capacity to execute," he added.

Although the overall size of the budget remains unchanged from the original proposal tabled on June 2, three significant changes were introduced during its final approval.

First, the government increased social protection spending by Tk 10,000 crore, raising the total allocation to Tk 91,297 crore.

Second, it postponed the third phase of export subsidy withdrawal, required under World Trade Organization rules, by six months — moving the implementation from July 2025 to January 2026 — to give the private sector more time to adjust.

Third, the government scrapped all provisions for legalising undisclosed income, including the previously available flat-rate scheme that allowed investments in real estate at a 15 percent tax.

"This is the first time we've had the courage to shut it down entirely," Ahmed said. "Not all undisclosed income is illicit, but we felt it was time to end this legalisation mechanism."

While acknowledging this could dampen activity in sectors like real estate, where undeclared money has historically circulated, Ahmed defended the decision on principled grounds. "If you lose three takas to collect one, that's not value for money."

The government also raised the minimum monthly special incentive for its employees from Tk 1,000 to Tk 1,500, and increased the minimum pension for retirees from Tk 500 to Tk 750.

Cautious targets

The government is projecting 5.5 percent GDP growth for the next fiscal year, with average inflation expected to ease to around 6.5 percent by June 2026. The budget deficit is forecast at 3.6 percent of GDP — its lowest level in over a decade.

Ahmed framed the numbers as part of a broader effort to preserve macroeconomic stability during a period of domestic and global uncertainty. "We're very mindful of debt sustainability. Bangladesh has never defaulted on an external loan, and we don't intend to start now," he said.

The adviser also said Bangladesh secured fresh commitments totalling $7.4 billion, including $2.3 billion in direct budget support from multilateral partners. "This kind of support doesn't materialise unless there's confidence in your fiscal management," he said.

Responding to criticism that the budget was drafted without consultation, Ahmed said the process was extensive but deliberately kept low-profile. "We sat with economists, the FBCCI, business groups — even someone like Rehman Sobhan participated," he said. "In most countries, budget consultations aren't public spectacles."

He also cautioned against unrealistic expectations. "Some people want a magical budget where tariffs fall, VAT disappears, incomes rise, and investment floods in overnight. But that's not a budget — that's a fantasy."

Finance Secretary Md Khairuzzaman Mozumder said the government had made key adjustments to the budget in response to extensive public feedback, much of which focused on expanding social protection and revisiting eligibility for certain state privileges.

"We received nearly 400 responses during the consultation process," Mozumder said. "When we analysed them, we found that the majority of suggestions centred on increasing social safety net allowances and revisiting special entitlements."

Mozumder said several of these concerns were addressed in the final version of the budget. Under the special privilege provisions, the government has now included not just regular government employees but also members of the Armed Forces, Supreme Court judges, and teachers under the Monthly Pay Order (MPO) system.

"These inclusions were based on specific recommendations from various individuals, and we felt they were justified under the circumstances," Mozumder added.

Deposits in Swiss banks

The finance adviser addressed growing concerns over the sharp rise in Bangladesh-linked deposits held in Swiss banks, saying the government was taking the matter seriously amid signs of illicit fund outflows.

"Yes, we are concerned. Why did this happen?" he said. "Some of the money might be legal. Many of our people abroad don't remit funds through legal channels. They send it over there instead."

Ahmed said the surge occurred primarily in early 2024, following the national election, during what he described as a "very fluid" economic period. "This spike happened around January. They must have realised something was coming and rushed to move funds. We don't know why. But the volumes surged."

Bangladeshi-linked funds parked in Swiss banks surged to 589.5 million Swiss francs, or about Tk 8,800 crore, in 2024 — their highest level in three years, according to data released by the Swiss National Bank.

Ahmed said both the central bank and the Anti-Corruption Commission would investigate the trend. "We're thinking this through. It's a cause for concern. The money is moving, and we have to understand why," he added.