New budget must balance risks, reforms and pledges

Economists have urged the government to adopt a conservative approach in preparing the upcoming budget for the next fiscal year, taking into consideration the impact of the US-Israel war on Iran, implementing electoral pledges, and boosting investment.

The call came at the first pre-budget meeting with Finance Minister Amir Khosru Mahmud Chowdhury and senior officials of other relevant government agencies at the state guest house Padma on Saturday night.

Among the economists, Salehuddin Ahmed, former finance adviser to the interim government, Debapriya Bhattacharya, distinguished fellow of Centre for Policy Dialogue (CPD), Fahmida Khatun, executive director of CPD, Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem), and Zakir Ahmed Khan, former finance secretary, were present.

Speaking to The Daily Star, they noted that the first budget of the new government is crucial, as it will set the trajectory for how the economy will be managed over the next five years.

While Bangladesh’s budget preparation process typically begins in August-September, they said this budget should not be a routine exercise. Instead, it must reflect electoral commitments, prevailing global and domestic challenges, and long-term economic goals.

The economist pointed out that ongoing geopolitical tensions in the Middle East could exert multifaceted pressure on Bangladesh’s economy.

Volatility in global oil markets may drive up import costs, while the risk of supply disruptions remains. This could increase the burden of fuel subsidies, posing a significant challenge to budget implementation.

At the same time, remittance inflows may face headwinds if employment opportunities shrink or incomes decline for migrant workers in the region.

Against this backdrop, several economists underscored that there is little room for overly optimistic assumptions in budget planning. Instead, expenditure frameworks must reflect realistic revenue mobilisation capacity, pressures on foreign exchange reserves and inflation risks.

According to meeting sources, the finance minister brought up long-standing concerns over lack of transparency, cost overrun, and project selection and implementation during the meeting.

He sought suggestions regarding these concerns from the economists.

Economists, in response, suggested including a low number of projects in the budget to ensure smooth implementation.

They also stressed the need to strengthen, streamline and ensure accountability in the formulation of the Annual Development Programme (ADP).

Without addressing these weaknesses, they cautioned, the effectiveness of public investment will remain limited.

No move should be taken to reduce the policy rate at this stage, most economists suggested, as inflation remains high and could intensify further with rising energy and import costs.

Sharing his experience as adviser of the previous interim government, Salehuddin Ahmed stressed that balancing political commitments with economic realities remains a key challenge. He suggested continuing the reform initiatives.

Referring to family cards and expanded safety net schemes, economists suggested streamlining the existing social safety net programmes alongside those electoral promises.

They also called for prioritising restoring confidence in the private sector, stressing the need for improving the investment climate, ensuring policy continuity and reducing administrative bottlenecks.

In the current uncertain environment, investors remain cautious, making it crucial for the government to provide clear and credible policy signals, they noted.

Tax reform featured prominently in the discussion. Structural weaknesses in the National Board of Revenue (NBR), limited tax collection capacity and persistent tax evasion were identified as major concerns.

Economists stressed that expanding the tax base and undertaking administrative reforms are essential for improving revenue mobilisation. They also called for modernisation, greater automation and enhanced accountability within the NBR.

Rashed Al Mahmud Titumir, economic adviser to the prime minister, Md Mostaqur Rahman, governor of Bangladesh Bank, and Md Khairuzzaman Mozumder, secretary of the Finance Division, Monzur Ahmed, member of the General Economic Division of the Planning Commission, Nazma Mobarek, secretary of the Financial Institutions Division, and AK Enamul Haque, director general of Bangladesh Institute of Development Studies (BIDS), were also present at the meeting.