¶¶Òõ¾«Æ·

The interim government, which assumed power following the collapse of the Awami League’s one-and-a-half-decade-long autocratic rule—widely blamed for devastating the country’s economy—is set to commence a new financial year amid high public expectations. However, the general population is increasingly facing hardship due to declining incomes and soaring prices of essential goods.

The forthcoming national budget is anticipated to differ significantly from the fiscal measures adopted in recent years by the Awami League, which was ousted in the wake of a mass uprising in August 2024.

Unlike the previous three national budgets, including the most recent, which were criticised for being unrealistic and unimplementable, the present environment appears relatively favourable for the interim government to introduce pragmatic and achievable fiscal policies. Signs of improvement in the macroeconomic situation offer a window of opportunity for meaningful reform.

Nonetheless, several deep-rooted challenges persist, including a chronic revenue shortfall, a scandal-ridden banking sector, and structural economic weaknesses exacerbated by shifting geopolitical dynamics.

These pose considerable obstacles for Finance Adviser Salehuddin Ahmed in steering the economy towards a full recovery ahead of Bangladesh’s scheduled graduation from the Least Developed Countries (LDC) group in November 2026.

The finance adviser serves in a government that emerged from the July–August mass uprising, initially sparked by a student-led movement against discrimination.

This movement, spearheaded by anti-quota protestors demanding reform of the public service recruitment system, began at the start of the 2024–25 financial year—roughly six months after the Awami League embarked on its fourth consecutive five-year term, following yet another disputed election in January 2024.

The Awami League resorted to severe crackdowns, resulting in the deaths of approximately 1,500 people.

However, it failed to quell the movement, which soon evolved into a mass uprising demanding an end to systemic discrimination. Sheikh Hasina, who had ruled the country since 2009, was eventually forced to flee to India on 5 August.

The majority of the population supported the uprising, as discrimination had become entrenched in all layers of society due to the absence of good governance.

This was exacerbated by three controversial elections—in 2014, 2018, and 2024—in which citizens were effectively denied the opportunity to elect their preferred representatives, not only at the parliamentary level but also in local government polls.

Moreover, the Awami League faced intense criticism for failing to translate an average GDP growth rate of six per cent over the past decade into sufficient employment opportunities. The manufacturing sector, in particular, was unable to absorb the approximately 2.5 million new entrants to the job market each year.

The economic crisis was further aggravated by the Russian invasion of Ukraine in early 2022, which followed closely on the heels of the COVID-19 pandemic. This led to a significant economic slowdown, compounded by a severe shortage of foreign exchange reserves, largely driven by trade-based capital flight through a banking system dominated by oligarchs with ties to the Awami League.

To address capital shortages in banks controlled by oligarchs, Bangladesh Bank was compelled to print money, thereby fuelling inflation and driving vulnerable populations further into poverty.

Economists have stressed that disadvantaged and vulnerable groups deserve special attention in the forthcoming budget, particularly in terms of both revenue measures and public expenditure.

Given the average double-digit inflation recorded over the twelve months from May 2024 to April 2025, there is a strong case for expanding and strengthening the food distribution programme.

A substantial increase in investment in social safety net schemes, specifically targeting marginalised groups such as women, young people, and individuals with disabilities, will be essential, according to Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD).

She also recommended raising the tax-free income threshold for personal earnings to Tk 400,000.

Economists argue that the Finance Adviser should use his budget speech to highlight existing inequalities—not only in terms of income and expenditure, but also in access to opportunities, such as bank credit, healthcare, education, and social safety net programmes.

Given that these disparities have evolved over time, they cannot be fully addressed in a single budget.

Moreover, the current interim government is only expected to implement a portion of the proposed budget, as the next general election is scheduled for June 2026.

There have been strong indications that the new national budget will place emphasis on the reform initiatives introduced by the interim government. These reforms are aimed at promoting good governance, reducing poverty, and eliminating discrimination in order to foster inclusive economic growth.

Officials, referring to a directive issued by Finance Secretary Khairuzzaman Mozumder in April, stated that all ministries and divisions were instructed to submit information regarding reform programmes undertaken since the interim government assumed office on 8 August 2024, following the ousting of the autocratic Awami League regime.

The Finance Adviser is expected to announce on June 2 the national budget for the next financial year, which will begin in July. In his address, he is likely to provide updates on reforms concerning governance, inclusive growth, and poverty alleviation.

Economists noted that it will be particularly revealing to learn about the reform initiatives implemented by various ministries and divisions, as this national budget will be the first major government document to reflect the spirit of the mass uprising.

Ìý

‘The public is still in the dark about the priority reform agendas of different ministries and divisions,’ said Dr Zahid Hussain, former Chief Economist of the World Bank’s Dhaka Office.

Expectations are also high that every taka spent in the upcoming financial year will be closely scrutinised. ‘Accountability must be ensured so that value for money is maintained,’ Dr Hussain added.

Over time, the size of the national budget has expanded nearly sevenfold—from Tk 1,105 billion in 2009–10, the first year of the Awami League’s 15-year rule, to Tk 7,144 billion in 2023–24.

This incremental approach to budgeting, pursued consistently by the Awami League regardless of implementation capacity or accountability, has made limited contributions to job creation, poverty reduction, and curbing the widening gap between income and expenditure.

Furthermore, the persistent shortfall in revenue collection has compelled the Finance Division to rely heavily on borrowing — both domestic and foreign — to bridge the budget deficit.

In the 2023–24 fiscal year, the government’s external debt repayment doubled to $6.07 billion, compared to $3.0 billion in 2013–14, according to the Economic Relations Division’s annual report, Flow of External Resources into Bangladesh.

The total domestic debt stood at Tk 10,20,205 crore as of June 2024, up from Tk 1,56,625 crore in 2013–14, according to the Finance Division’s latest debt bulletin.

The non-development portion of the budget, most of which is allocated to administrative expenses and debt servicing, has grown to Tk 5,06,900 crore in the 2024–25 financial year, compared to Tk 1,56,621 crore in 2013–14.

Within the non-development budget, interest payments have steadily risen and are projected to account for 22 per cent of expenditure in the outgoing fiscal year.

As such, the Finance Adviser will have limited room to manoeuvre in curbing the rising non-development budget, which includes allocations for interest payments, pensions for retired civil servants, salaries for public sector employees, subsidies for the power and energy sectors, and law enforcement.

Nevertheless, there remains scope to streamline existing austerity measures and reconfigure the Annual Development Programme (ADP), particularly by suspending non-essential and politically motivated projects to create fiscal space.

The Planning Ministry appears to be moving in that direction. On 6 May, the Planning Commission, during an extended meeting, proposed setting the size of the ADP for the 2025–26 fiscal year at Tk 2,30,000 crore—smaller than the Tk 2,65,000 crore ADP approved by the ousted Awami League government for 2024–25.

The interim government, which has already decided to eliminate politically motivated projects from the ADP and to halt implementation of certain mega projects, must now prioritise large-scale employment generation across the country.

Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), recommended significantly increasing allocations in the upcoming financial year for the Ministry of Labour and Employment, Ministry of Youth and Sports, Ministry of Expatriates’ Welfare and Overseas Employment, and Ministry of Social Welfare.

The higher allocation is intended to expand social safety net coverage and introduce an unemployment insurance scheme, said the Executive Director of the Centre for Policy Dialogue (CPD).

She also called for easing access to credit for small and medium-sized enterprises (SMEs), which employ approximately 85 per cent of the informal workforce.

The Finance Adviser has already stated that the government will not resort to printing money or rely heavily on bank borrowing to meet the budget deficit, which is expected to remain below 4 per cent of GDP.

He is also expected to outline detailed plans for increasing revenue collection, given Bangladesh’s ignominious position as one of the countries with the lowest tax-to-GDP ratios in the world.

Amid widespread protests by officers and employees, initial steps have already been taken with the promulgation of an ordinance dissolving the National Board of Revenue (NBR) and replacing it with two new divisions under the Ministry of Finance. These are:

The Revenue Policy Division, responsible for drafting tax laws, setting tax rates, and managing international tax treaties.

The Revenue Management Division, tasked with tax enforcement, audits, and compliance oversight.

There is a growing consensus among economists and policymakers that tax policy design and enforcement should be handled by separate institutions to prevent conflicts of interest and inefficiencies. The NBR had long been criticised for its inability to meet revenue targets consistently over the past five decades.

Bangladesh’s current tax-to-GDP ratio stands at approximately 7.4 per cent—one of the lowest in Asia—compared to the global average of 16.6 per cent. To realise the country’s development aspirations, experts argue that the ratio must be raised to at least 10 per cent.

The Finance Adviser is expected to present a roadmap in the upcoming budget to operationalise the newly formed revenue divisions.

The restructuring of the NBR, alongside greater exchange rate flexibility, has already enabled the Finance Adviser to unlock $1.3 billion from the International Monetary Fund (IMF) under the ongoing $4.7 billion loan programme originally signed by the ousted Awami League government in 2023 as part of efforts to navigate mounting economic challenges.

The IMF, the Washington-based multilateral lender, has disbursed $2.3 billion in three instalments up to June 2024. The fourth tranche, originally due in February, was delayed until June due to disagreements over the IMF’s conditions—particularly regarding the requirement for greater exchange rate flexibility. The review for the fifth tranche is currently pending.

The release of joint tranches is also expected to facilitate additional budget support amounting to $2 billion from other development partners, including the Asian Development Bank (ADB), the World Bank, and the Japan International Cooperation Agency (JICA).

This funding will not only help bridge the budget deficit for the outgoing fiscal year 2024–25 but also create much-needed fiscal space and bolster foreign exchange reserves, which have been under sustained pressure since August 2022.

In the past nine months, importers have received little support from foreign exchange reserves, which currently hover around $22 billion—barely meeting international standards. However, strong performance in remittance inflows—up 28 per cent in the first ten months of FY25—and a 9.83 per cent increase in exports during the same period have helped stabilise the situation.