The government is preparing to reduce spending on public welfare programs in its proposed FY2026-27 budget, scaling back subsidies that have long been used to cushion households from rising living costs. At the same time, it plans to expand incentives for exporters and remittance earners while relying on increased borrowing and a heavier tax burden to manage a widening fiscal deficit.
The move comes as the BNP government led by Tarique Rahman struggles to accelerate economic activity and improve revenue collection. Critics argue that the proposed budget shifts the burden of fiscal adjustment onto ordinary citizens while continuing to provide generous support to business-oriented sectors.
Officials familiar with the budget process say allocations for subsidies will be significantly reduced in the coming fiscal year, even as incentives for exports and remittance inflows are set to increase. The result could be less direct government support for consumers alongside greater benefits for exporters and businesses.
According to preliminary Finance Ministry estimates, subsidy allocations may fall to Tk 89,538 crore in FY2026-27, down from Tk 95,031 crore in the revised budget for the current fiscal year. Compared with the actual subsidy expenditure of Tk 108,673 crore in FY2024-25, the proposed allocation represents a reduction of nearly Tk 19,000 crore.
Government officials say the decision is based largely on expectations that global prices of fuel, fertilizer and other commodities will stabilize in the coming months. Policymakers are also considering further adjustments to gas and electricity prices as part of a broader effort to reduce subsidy costs.
Many economists, however, caution against building budget assumptions around uncertain developments in international markets. They warn that any renewed geopolitical crisis or supply disruption could quickly push energy and fertilizer prices higher again, increasing pressure on both consumers and government finances.
Export and Remittance Incentives Set to Rise
While subsidy spending is expected to decline, allocations for export and remittance incentives are likely to increase.
The government is considering a combined allocation of Tk 16,025 crore for export incentives, jute export support and remittance incentives in FY2026-27. The figure is higher than the Tk 15,225 crore allocated for the same programs in the current fiscal year.
Officials argue that stronger incentives are needed to support foreign exchange earnings at a time of economic uncertainty. Yet critics question whether reducing support for consumers while increasing benefits for exporters creates an imbalance in budget priorities.
A Tk 243,000 Crore Deficit
The proposed national budget is expected to total Tk 938,000 crore, with revenue collection targeted at Tk 695,000 crore.
That leaves a projected deficit of Tk 243,000 crore.
To bridge the gap, the government plans to borrow Tk 112,000 crore from the banking sector, Tk 15,000 crore from non-bank sources and Tk 116,000 crore from foreign lenders. It is also expected to spend roughly Tk 46,000 crore on servicing foreign debt during the fiscal year.
Economists say such heavy dependence on borrowing could create long-term vulnerabilities, particularly when revenue collection remains weak and private-sector investment is already under pressure.
Private Sector Could Face a Credit Squeeze
Dr. A.K.M. Waresul Karim, Dean of the School of Business and Economics at North South University, warned that implementing such a large budget would be challenging.
“Implementing a budget of this size will be difficult for the government,” he told The Voice.
He said excessive reliance on borrowing sends a troubling signal to investors.
“When the government borrows heavily from banks, access to credit for businesses declines. That can discourage investment and slow job creation rather than support economic expansion,” he said.
Karim also stressed the importance of improving revenue collection and controlling expenditures.
“If the government continues to increase debt without addressing longstanding weaknesses in revenue collection and spending efficiency, it could ultimately harm the economy,” he added.
Government Borrowing Already Exceeds Target
The government’s borrowing trend has already raised concerns.
For FY2025-26, authorities had set a target of borrowing Tk 104,000 crore from the banking system. However, between July and May 10 alone, net borrowing had already reached Tk 109,568 crore, exceeding the annual target before the fiscal year ended.
Bangladesh Bank data show that outstanding government borrowing from banks rose from Tk 550,905 crore at the start of the fiscal year to Tk 660,473 crore within ten months.
Revenue Shortfall Reaches Record Levels
At the same time, revenue collection continues to lag behind expectations.
According to National Board of Revenue (NBR) figures, the revenue shortfall during the first ten months of the fiscal year reached Tk 104,533 crore.
Against a target of Tk 431,461 crore, the government collected only Tk 326,928 crore. Revenue growth stood at just 10.6 percent.
Officials attribute the weak performance to sluggish business activity, lower imports and slower-than-expected economic expansion.
Private Credit Growth Falls to Historic Low
Bangladesh Bank’s latest data show private-sector credit growth has fallen to just 4.7 percent, one of the lowest levels in recent history.
Economists view the decline as a clear sign of weak investment demand.
They warn that continued government borrowing from banks could make financing even harder to obtain for businesses, potentially slowing investment, industrial expansion and employment generation.
Finance Minister Points to Middle East Tensions
Finance Minister Amir Khasru Mahmud Chowdhury says external factors have significantly increased the government’s subsidy burden.
Responding to a question from Dhaka-18 lawmaker S.M. Jahangir Hossain during a parliamentary session on Tuesday, the minister said instability in the Middle East, particularly involving Iran, has pushed up costs in several key sectors.
“Recent conflicts involving Iran and broader instability in the Middle East have created additional pressure on government subsidy expenditures in the oil, gas, electricity and fertilizer sectors,” he told Parliament.
According to the minister, the government may require an additional Tk 42,600 crore in subsidies by June 2026 for those four sectors alone.
The projected additional requirement includes Tk 10,258 crore for fuel, Tk 11,170 crore for gas, Tk 19,821 crore for electricity and nearly Tk 1,350 crore for fertilizer support.
The finance minister also warned that continued instability in the region poses both immediate and long-term risks to Bangladesh’s economy.
“The impact is already visible in energy prices, fertilizer costs, import expenses, transportation costs, inflation, foreign exchange management, remittance flows and overseas employment,” he said.
What Does It Mean for Ordinary Citizens?
The government argues that reducing subsidies, boosting export and remittance incentives and controlling the budget deficit are necessary steps to maintain economic stability.
But economists question whether cutting welfare-related spending is the right approach at a time when revenue collection is falling short, private investment remains sluggish and public debt continues to rise.
They warn that a combination of higher utility prices, new taxes or expanded taxation measures, and reduced subsidies could further increase the cost of living for millions of households.
As debate over the FY2026-27 budget intensifies, one question is likely to dominate public discussion: how much of the burden of fiscal adjustment will ultimately be carried by ordinary citizens.
