The government is facing mounting financial pressure as revenue collection continues to fall short of expectations, widening the budget deficit.
Instalments of loans from the International Monetary Fund (IMF) are also being delayed due to unmet conditions, leaving the state with limited fiscal space for expenditure.
As a result, the government is increasingly relying on borrowing. It has already taken a record amount of loans from the banking sector and has sought more than $3.25 billion in fresh loans from development partners. Meanwhile, soaring global fuel prices have reduced the government’s ability to sell fuel domestically at subsidised rates, forcing it to raise prices in the local market.
Despite weak revenue inflows, the government is preparing an ambitious budget for the upcoming fiscal year. Expenditure, however, remains unavoidable, with debt servicing obligations—both domestic and foreign—continuing to rise. Data suggests the government is now operating under constraints comparable to a financially stretched middle-income household.
According to the National Board of Revenue (NBR), the revenue shortfall for the first eight months of the current fiscal year stood at Tk71,472 crore. Against a target of Tk325,802 crore, only Tk254,330 crore has been collected—around 22 per cent below target. Although nearly Tk300,000 crore needs to be collected in the remaining four months to meet the goal, the reality appears far from achievable. Monthly collections have not exceeded Tk40,000 crore so far, while more than Tk75,000 crore per month would be required to meet the target.
All three major revenue heads—income tax, VAT and import duties—have underperformed, with a particularly large gap in income tax collection. A significant number of taxpayers remain outside the tax net. Of approximately 12.8 million Taxpayer Identification Number (TIN) holders, only 4.6 million have filed returns, highlighting structural weaknesses in the tax system. Lower import duty collection and sluggish business and development activities have also contributed to reduced VAT receipts.
Despite declining income, government expenditure remains high, covering salaries and allowances for public employees, infrastructure development and other sectors—even after austerity measures. With revenue underperforming, the government has been compelled to borrow heavily from the banking system.
Data from Bangladesh Bank shows that government borrowing from banks has surged to nearly Tk109,000 crore in just nine months of the fiscal year, already exceeding the annual target. Around Tk56,000 crore was borrowed between January and March alone. Analysts warn that continued reliance on bank borrowing could crowd out private sector credit, dampening investment and employment, and ultimately slowing GDP growth.
External borrowing is also on the rise. According to the Economic Relations Division (ERD), Bangladesh’s total foreign debt now exceeds Tk23,00000 crore. Even so, the government has sought an additional $3 billion from development partners.
Repayment obligations remain pressing. Sources indicate that Bangladesh will need to repay around $26 billion in external debt over the next five years—significantly higher than in previous periods.
Although the government secured a $4.75 billion loan from the IMF, further disbursements are uncertain due to unmet conditions. During recent talks in Washington, the IMF did not guarantee the release of the next tranche, increasing risks to budget implementation.
In this context, the government has moved to adjust fuel prices. While it has repeatedly stated that prices would not be increased for now, rising global costs have made it difficult to continue selling fuel at lower domestic rates without incurring substantial losses. Pressure from the IMF to reduce such subsidies has also played a role. The price hike may offer some fiscal relief but could also fuel inflation, economists warn, creating further economic challenges.
The government is now planning a budget exceeding Tk925,000 crore for the 2026–27 fiscal year. The larger outlay reflects commitments to election pledges, expansion of social safety net programmes, a new pay structure and increased subsidies. However, with revenue growth lagging, the budget deficit could approach 5 per cent of GDP—raising concerns about macroeconomic stability.
A growing share of expenditure is being absorbed by interest payments and subsidies. Around Tk122,000 crore has been allocated for interest payments in the current fiscal year, a figure expected to rise further. Subsidy requirements, particularly in the energy sector, are also increasing due to global price trends, alongside rising development expenditure.
Business leaders and economists caution that without appropriate policy measures, Bangladesh risks falling into a debt trap. They stress the need to boost revenue collection, modernise the tax system, curb tax evasion and create a more investment-friendly environment. They also emphasise careful selection of development projects and prioritisation of spending.
President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), Mohammad Hatem, warned that excessive bank borrowing could ultimately harm the economy, adding that repaying such large debts could become a major challenge for the government.
Distinguished Fellow of the Centre for Policy Dialogue (CPD), Dr Mustafizur Rahman, said avoiding a debt trap should be the government’s primary objective. “While borrowing may be necessary under current circumstances, the focus must be on resource mobilisation and increasing revenue,” he noted.
Former Lead Economist of the World Bank’s Dhaka office, Dr Zahid Hussain, observed that although demand for long-term, low-interest loans is rising, borrowing alone cannot resolve the situation. He stressed the need for a clear assessment of macroeconomic pressures, including the balance of payments. Rising import costs, declining export earnings and risks to remittance inflows are adding to the strain, alongside growing fiscal deficits and subsidy burdens. Addressing these challenges, he said, will require coordinated crisis management, continued reforms and strong support from development partners.
Source: Kaler Kantho
