The government is facing pressure to finance the budget at the start of the current fiscal year. Against a record budget of BDT 9.38 trillion, the government has set an ambitious revenue collection target of nearly BDT 7 trillion. Revenue is falling short of expectations amid sluggish economic activity. Pressure is also mounting on the balance of payments. Rising fuel import costs and subsidies, higher salaries and allowances for government employees, and the government’s financing obligations for major projects are also increasing expenditure. Budget financing has consequently come under strain in the first quarter of the fiscal year.

The agency collected BDT 518.92 billion in revenue in the first two months of the current fiscal year, July and August, against a target of BDT 810.53 billion for the period, according to data from the National Board of Revenue (NBR). The shortfall was therefore around BDT 291.61 billion. More concerningly, the collection was not only below the target but also lower than the BDT 547.68 billion collected during the same period of the 2025-26 fiscal year, meaning revenue collection has already entered negative territory at the beginning of the fiscal year.

The government has set a revenue collection target of BDT 6.95 trillion for the current fiscal year. Of this, the NBR’s target has been set at BDT 6.04 trillion. The NBR has not yet officially released the revenue collection figures for the first two months of the current fiscal year.

Former National Board of Revenue (NBR) Chairman Dr Nasiruddin Ahmed told Bonik Barta, “Revenue collection is directly linked to economic activity. If people’s incomes increase, income tax will rise; if business profits increase, corporate tax will rise; and if imports increase, customs and other revenues will rise. The more dynamic the economy and business and trade become, the greater the scope for revenue collection. Much will depend on how much support the government provides to businesses and trade in the coming days and how it addresses global challenges.”

Stagnation in private-sector lending and investment is also putting pressure on the budget financing situation. Business and trade activity has slowed due to high interest rates, the energy crisis and weak market demand. This is affecting industrial production, employment and business profits. As the economy loses momentum, the government’s tax base is also shrinking. Private-sector credit growth is currently at its lowest level, and it has remained below 5 percent for five consecutive months. Experts believe that if this trend continues, the government will not be able to collect revenue from business, trade and industry at the desired rate, increasing its reliance on borrowing to meet expenditure.

The investment picture in the public sector is also not encouraging. As a large share of the budget is being spent on the operating side, expenditure on development has fallen behind. In the outgoing 2025–26 fiscal year, only BDT 1.41 trillion was spent against an allocation of around BDT 2.09 trillion under the Annual Development Programme (ADP), or 67.52 percent of the total allocation, the lowest implementation rate in 50 years. The downward trend has continued into the current fiscal year. ADP implementation stood at only 1.85 percent in July and August combined. Revenue expenditure is consequently increasing while implementation of capital expenditure is falling behind.

Anwar-ul Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries (BCI), told Bonik Barta, “Private-sector credit flows have been declining steadily, while government spending has been relatively high. ADP implementation was also at its lowest level last year. There has been no significant positive change in the first two months of the current fiscal year either. Investment in both the public and private sectors is consequently declining. This is affecting economic growth and revenue collection.”

The business leader also said: “Many small, cottage and micro businesses in rural areas are shutting down due to high interest rates and the energy crisis. Large industries are also under pressure. When businesses shut down, it doesn’t only reduce production; employment and people’s incomes also decline. This affects government revenue as well. New investment is also falling due to high inflation, electricity and energy costs, and high interest rates on bank loans. Many industrial establishments are unable to operate at full capacity as market demand has declined. It’ll be difficult to increase revenue unless the economy regains momentum.”

The energy sector is one of the major sources of expenditure pressure. Geopolitical tensions arising from the conflict between Iran and the United States in the Middle East have disrupted energy supplies and triggered an abnormal rise in prices. The government has consequently had to spend more on fuel imports. The government claims that the Bangladesh Petroleum Corporation (BPC) incurred losses of BDT 228.75 billion over the past six and a half months since it took office. During this period, spot-market LNG prices tripled.

In the first two and a half months of the current fiscal year, the government has had to provide BDT 103 billion in subsidies for the LNG sector. The allocation for LNG subsidies for the entire fiscal year, however, was BDT 60 billion. If current prices persist, LNG import costs could exceed BDT 900 billion in the current fiscal year. Losses in the power sector could also reach BDT 600 billion. The government is already trying to manage the additional costs by raising electricity and energy prices.

Analysts, however, say higher energy and electricity prices will push up the prices of goods and services, further fuelling inflation. This will increase pressure on consumers while reducing household consumption expenditure, potentially prolonging the slowdown in the economy.

Alongside higher expenditure in the energy and power sectors, increased salaries and allowances for government employees are also creating fresh pressure on government spending. Although the government has decided to pay the increased salaries and allowances in several phases, the financial burden will begin in the current fiscal year. Once the full increase is implemented, government expenditure will rise by more than BDT 1 trillion. The government will also have to incur additional expenditure on the basic salaries of employees of state-owned entities and institutions, as well as teachers and staff under the Monthly Pay Order (MPO) scheme.

Export growth has also been declining amid stagnation in the industrial sector and the energy crisis. Import costs, in contrast, are rising due to higher prices of energy and consumer goods in the global market. Import expenditure on services has also increased along the same lines. This trend of expenditure rising faster than foreign currency earnings is having an adverse impact on the country’s balance of payments (BoP).

Bangladesh exported goods worth $4.42 billion in July of the 2025–26 fiscal year, according to central bank data, while the figure fell to $4.35 billion in the same month of the 2026–27 fiscal year, meaning exports declined by 1.6 percent year-on-year.

Meanwhile, goods worth $6.44 billion were imported in July of the current fiscal year, compared with imports worth $5.93 billion in the same month of the previous fiscal year, reflecting an increase in import expenditure by 8.6 percent. If this divergent trend of falling export earnings and rising import expenditure persists, the BoP deficit could widen further by the end of the fiscal year, while the country’s foreign exchange reserves could also come under pressure.

These additional expenditure pressures are compounded by the government’s obligations to repay various loans taken by the previous government. In the first two months of the current 2026–27 fiscal year, July and August, the government repaid more than twice as much in foreign loans as it received in disbursements of foreign assistance. Foreign loan disbursements during the two months amounted to $294.56 million, while the government had to repay $698.9 million. The amount of debt repayment will increase further by the end of the fiscal year. A substantial amount will also have to be paid in interest on these loans during the same period.

To meet the budget deficit, the government borrowed nearly BDT 200 billion from domestic sources in July, the first month of the fiscal year, according to central bank data. The government’s demand for such borrowing increased further in August and the current month, according to sources. The figures, however, have not yet been released.

To increase revenue collection, the NBR is taking various measures, including resolving revenue disputes pending in court. But it remains uncertain how quickly and to what extent these measures will generate additional revenue. At the same time, unless new investment and business expansion take place in the economy, there will be limited scope to strengthen the base of regular revenue collection.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, told Bonik Barta, “Various signs indicate that the government is facing a financial crunch at the very beginning of the fiscal year. Although raising fuel and electricity prices may help ease the expenditure pressure to some extent, the overall pressure isn’t declining. The government will have to spend additional funds on higher salaries for government employees, as well as salaries and allowances for employees of state-owned institutions and agencies and MPO-listed teachers. The government’s funding obligations for major projects will also add to this. As expenditure is rising, the sources of financing are still unclear.”

He said the expenditure pressure has not arisen solely from conditions in international markets; policy decisions taken by the government are also a major factor. “The big question now is how the government will finance the major spending commitments already made. It won’t be possible to manage this pressure simply by raising taxes or cutting development expenditure. The situation will have to be managed by coordinating all sources, including domestic and foreign borrowing, revenue collection and expenditure rationalisation.”

He further said, “Although the government is considering raising funds by issuing bonds in international markets, the cost won’t be low given current global interest rates. Bond financing will also create repayment pressure when the bonds mature. So if spending decisions are made in anticipation of receiving funds, the government’s financial pressure could increase further in the future.”

The government is increasingly likely to rely on borrowing to finance the budget deficit. If it borrows more from domestic sources, demand for government borrowing in the banking sector will increase, potentially putting pressure on private-sector access to credit. There will also be a risk of higher interest rates. Consequently, efforts to address the budget financing shortfall could further constrain private investment.

Alongside conventional foreign lenders such as the World Bank, IMF and ADB, the government is also considering raising funds by issuing bonds in international markets. But the country’s macroeconomic conditions pose a risk of higher bond yields, creating doubts over whether raising funds through bonds at high interest rates would be financially beneficial in the long run.

Mohammad Muslim Chowdhury, former finance secretary and former comptroller and auditor general (CAG), told Bonik Barta, “A form of macroeconomic imbalance is emerging within the budget deficit target itself. Even after fuel prices have been increased, the pressure from subsidies remains. Revenue collection is also weakening as private-sector credit and investment decline. Despite increasing revenue expenditure, capital expenditure has yet to reach the desired level. Consequently, there’s a risk that the deficit will exceed the target.”

He added: “If the government relies more heavily on domestic borrowing, access to credit for the private sector could shrink and interest rates could rise. If spending approvals continue without restoring the balance between revenue and expenditure, additional risks could emerge in the future for both the value of the currency and the country’s international credit rating.”