The national budget for FY 2025-26 presents a conservative fiscal path that lacks the ambition and depth needed to address Bangladesh’s evolving challenges, leaving critical priorities underfunded and long-term development goals uncertain.
The FY 2025-26 national budget arrives during a period of political transition and macroeconomic distress. With the post-July 2024 government aiming to signal fiscal discipline and renewed confidence, the budget was expected to present a credible plan to stabilise the economy and protect the most vulnerable. Instead, the document largely maintains the status quo, with several regressive trends, underwhelming sectoral priorities, and a mixed record on inclusivity and accountability.
MACROECONOMIC PROJECTIONS AND FISCAL STRATEGY
The budget has set a GDP growth target of 5.5% and aims to reduce inflation to 6.5%. While these targets reflect a desire for macroeconomic recovery, the assumptions appear optimistic considering that the Bangladesh Bureau of Statistics (BBS) has already revised FY25 growth to 4.0%. The projected investment-GDP ratio remains static at 30.7%, with private investment expected to rise by 12% in nominal terms. However, realisation may be difficult given that private sector credit growth was just 7.5% in April 2025.
The budget projects the exchange rate to depreciate further from BDT 121.9/USD in FY25 to BDT 128.2/USD in FY26, implying continued pressure on the external sector. The inflation target appears particularly ambitious in this context.
On the revenue side, the government expects an 8.9% increase over the revised FY25 figure. However, CPD estimates a potential shortfall of over BDT 128,000 crore if current revenue mobilisation patterns persist. In FY24, the NBR fell short of its revised target by nearly BDT 45,000 crore. Non-NBR and non-tax revenues are projected to rise by 25.7% and 20.5%, respectively, but without clear institutional or policy shifts to substantiate this.
Expenditure is projected to grow by 6.2%, with 68.1% of the incremental rise concentrated in equity investments, loans to autonomous bodies, and reserves. These opaque categories limit budget transparency and reduce fiscal space for development expenditure. The overall deficit is projected at 3.6% of GDP, with BDT 104,000 crore to be borrowed from the banking system, potentially worsening the liquidity crunch.
ANNUAL DEVELOPMENT PROGRAMME (ADP): SHRINKING AND SKEWED
The ADP for FY26 is set at BDT 230,000 crore, or 3.7% of GDP. This is a notable reduction from both the budgeted (4.7%) and revised (3.9%) shares in FY25. This is the lowest share since FY 2013-14. Implementation performance remains poor, with only 32.8% of the FY25 ADP spent in the first 10 months.
Notably, 14 out of 15 sectors have experienced budget cuts in the FY26 ADP. The largest cuts have been in education (BDT 2,971 crore), health (BDT 2,535 crore), and agriculture (BDT 2,424 crore). Meanwhile, allocations continue to be concentrated in megaprojects. The top 20 projects account for 18.8% of the ADP, and two megaprojects, Rooppur Nuclear Power Plant and Dhaka MRT Line 1, consume 19.7% of the total project aid.
Eight megaprojects were originally targeted for completion by FY26, but none are on track. Over 34% of ongoing investment projects are 6 to 10 years old, and 48% have been revised at least once, indicating inefficiency. Symbolic allocations (BDT 1 lakh or less) have been given to 45 projects, questioning their seriousness.
SECTORAL PRIORITISATION
Education
The education sector budget for FY26 is BDT 95,644 crore, a 1% increase over FY25. However, its share in total budget has declined to 12.0%, and its GDP share fell to 1.53%, far below the 8FYP target of 3.5%. Development expenditure in education rose by only 1%, and actual development spending in FY24 was just 27% of the revised allocation.
Health
The health budget saw a marginal increase to BDT 41,908 crore, but development spending fell by 13%. Development now constitutes just 42% of the health budget, down from 49% in FY25. Low-priority and slow-moving projects continue to be funded despite implementation challenges. Capital investment in health is decreasing while the number of development projects grows, indicating inefficiency.
Agriculture
Agriculture’s ADP allocation was cut by BDT 2,424 crore, reducing its share to 4.7%. This comes amid high food inflation and climate vulnerability. While subsidy allocation increased, the lack of climate-resilient infrastructure and sustainable input support remains a concern. Agricultural development projects suffer from low implementation capacity and budget credibility.
Social Safety Net Programmes (SSNPs)
The total allocation for Social Safety Net Programmes (SSNPs) in the FY 2025-26 budget stands at BDT 140,253 crore. While this represents a nominal increase, its share of GDP has declined to 2.24%, down from 2.53% in FY 2024-25, signalling a reduced fiscal commitment in real terms. Furthermore, CPD’s analysis highlights that the effectiveness and focus of SSNPs remain compromised by structural issues in programme design and classification.
A critical concern is that the SSNP budget includes several large items that should not fall under the conventional definition of social protection. For example, pensions for government employees, while contractually obligatory, consume a substantial portion of SSNP resources but do not serve the vulnerable or economically excluded. These are entitlements for formal sector retirees, not targeted safety nets, and they distort the apparent size and progressiveness of the SSNP budget. Including such items inflates the SSNP budget and masks the actual fiscal space available for programmes aimed at reducing poverty, inequality, or enhancing resilience.
Additionally, the number of beneficiaries in 12 of the 21 major SSNP schemes has remained unchanged from FY25, despite rising inflation and population needs. Climate-focused SSNPs have also seen a drastic 58.2% reduction in allocation, falling from BDT 17,392 crore to BDT 7,274 crore. This weakens the adaptability of the safety net system at a time when climate vulnerability is increasing, especially among marginalised groups.
Energy and Power
The power and energy sector maintains its dominance in ADP allocations, with BDT 32,447 crore allocated for FY26, making it the second-highest recipient. However, the share of renewable energy remains minimal. Government guarantees continue to heavily favour the power sector (44.6% of total guarantees), increasing fiscal risks. The sector still suffers from low utilisation of project aid and inefficiencies due to overcapacity. Despite ongoing reforms in energy pricing and subsidies, the budget lacks a roadmap for a transition to a greener energy mix or for reducing dependence on expensive LNG and capacity payments.
Gender Budgeting
The gender budget fell by 4% in absolute terms to BDT 260,766 crore. Its share in the total budget declined to 33.01% and in GDP to 4.18%. Only 35% of the gender budget is allocated for development, and implementation remains low.
Among thematic priorities, economic participation grew to 30.4%, while access to public services fell to 29.5%. Major programme cuts include a 46.8% decline in the coastal women adaptation programme and the discontinuation of Tottho Apa and Her Power. ProGRESS and adolescent-friendly services also saw steep reductions.
The tax system includes exemptions on sanitary napkins but fails to revise import duties on menstrual products. The changes in social safety nets and fiscal incentives lack a coherent gender-sensitive framework.
Climate
The climate budget stands at BDT 41,209 crore, a 1.94% decline from FY25. As a share of GDP, it fell from 0.83% to 0.66%. The MoEFCC’s (Ministry of Environment, Forest and Climate Change) allocation remained below 0.5% of GDP, and climate-focused social protection shrank by 58.2%. The share of climate-relevant ADP allocations has stagnated since FY21.
Environmental budget tagging is yet to be adopted. Disaster resilience and renewable energy receive limited attention. At the same time, incentives for LNG and reductions in supplementary duties on plastic products contradict climate objectives. The climate budget remains input-based and dispersed across ministries without robust results tracking.
Defence
The defence budget for FY26 is BDT 45,105 crore, constituting 6.9% of total allocation – marking a 5.8% increase over FY25. Despite being the sixth-highest recipient, defence remains outside the ADP, highlighting limited scrutiny over capital and recurrent expenditures. The military pension system is managed separately, and budget transparency in defence spending remains low. Compared to critical sectors like health and education, the higher proportional increase in defence allocation raises concerns about alignment with national development priorities during a period of fiscal constraint and pressing social needs.
The total allocation for Social Safety Net Programmes (SSNPs) in the FY 2025-26 budget stands at BDT 140,253 crore. While this represents a nominal increase, its share of GDP has declined to 2.24%, down from 2.53% in FY 2024-25, signalling a reduced fiscal commitment in real terms.
TAXATION AND FISCAL MEASURES
The new PIT (Personal Income Tax) structure increased tax burdens on low and middle-income earners. The tax-free threshold was raised by just BDT 25,000 to BDT 3.75 lakh, despite cumulative inflation exceeding 27% since FY23. Tax liabilities increased by 12.5% to 16.7% for the middle bracket, compared to only 7.6% for high-income groups.
Corporate tax differentiation widened between listed (20%) and non-listed (27.5%) companies. Merchant banks received a 10% tax cut, with little explanation. Meanwhile, tax relief was extended to some environmentally harmful products, including plastic bags and diesel-powered machinery.
VAT measures were expanded, raising rates on construction, paper, and e-commerce, likely increasing costs for consumers. Although some measures align with LDC graduation needs, overall, the tax system remains regressive.
The FY 2025-26 budget reflects a conservative, continuity-focused fiscal plan that falls short in addressing Bangladesh’s pressing development needs. While it aims to stabilise public finances, it does so at the cost of equity, efficiency, and climate resilience. Sectoral allocations signal misplaced priorities, and the decline in gender and climate-relevant budgets undermines commitments to inclusivity and sustainability. The budget, despite its stabilisation narrative, lacks strategic redirection. The continued dominance of megaprojects, poor project implementation, stagnating social protection, and regressive tax measures suggest that the fiscal structure remains resistant to reform.
Preeti Huq is a Programme Associate (Research) at the Centre for Policy Dialogue (CPD).
