Inflation and Revenue Shortfall Pose Budget Challenges: CPD

The forthcoming national budget for the 2026–27 fiscal year faces a complex array of challenges, according to the Centre for Policy Dialogue (CPD). Rising inflation, significant shortfalls in revenue collection, sluggish investment, and delays in development project implementation are expected to exert considerable pressure on the government’s fiscal and economic management. Experts emphasise that addressing these issues will require targeted measures to control inflation, reform revenue collection, stimulate investment and employment, and strengthen social protection programmes.

The observations were presented during a media briefing held on Tuesday at CPD’s Dhaka office. The briefing featured Dr Mostafizur Rahman, CPD’s Senior Fellow, and Dr Fahmida Khatun, Executive Director, who delivered the main policy paper.

Policy Reforms Urgently Needed

The policy paper notes that the government’s first budget is being formulated at a time when the economy is simultaneously experiencing high inflationary pressure and low revenue collection alongside investment bottlenecks. It recommends realistic measures to tackle these challenges, including:

Reforming policies to boost investment and employment

Reducing taxes on renewable energy

Increasing excise duties on tobacco products

Revenue Collection Under Strain

CPD’s analysis warns of a widening revenue shortfall. From July 2025 to January 2026, the National Board of Revenue (NBR) reported only a 12.9% growth in tax collection, far below the full-year target of 34.5%. This has resulted in an estimated deficit of nearly BDT 60,000 crore. To meet the annual target, tax collection in the remaining months would need to rise by nearly 59%, a highly challenging prospect.

Development Spending Lags

Implementation of the Annual Development Programme (ADP) has been slow. Between July 2025 and January 2026, only 20.3% of ADP allocations were utilised, the lowest rate in 15 years. CPD attributes this to weak project management, bureaucratic hurdles, and government decisions to limit spending on some major projects.

Meanwhile, government reliance on bank borrowing to cover the budget deficit has increased, with loans amounting to nearly BDT 59,655 crore from July to December 2025. Economists caution that excessive dependence on bank financing could crowd out private investment.

Inflationary Pressures Remain High

Consumer prices have remained between 8% and 9% during the first eight months of the fiscal year, driven largely by rising food prices. CPD warns that continued disruptions in fuel supply due to Middle East conflicts may exacerbate inflation.

External Sector Shows Mixed Trends

Exports contracted by 3.2% from July 2025 to February 2026. However, remittance inflows and overseas employment have helped stabilise foreign exchange reserves, which now stand at approximately USD 30.4 billion, with the BDT remaining relatively stable against the US dollar.

Key Recommendations

CPD recommends:

Reducing Taxes on Renewable Energy: Customs duties on solar panels, wind turbines, and battery storage should be capped at 5%, with VAT reduced from 15% to 10% to encourage investment.

Increasing Tobacco Taxes: Health-related surcharges on cigarettes, bidis, and chewing tobacco should rise from 1% to 5%, VAT from 15% to 20%, and a fixed excise duty of BDT 6 per gram imposed on zarda and gul.

Strengthening Agriculture and Social Safety Nets: Prioritising fertiliser supply, agricultural production, and canal excavation, alongside effective implementation of ‘Family Card’ and ‘Farmer Card’ schemes.

Enhancing Education and Research: Increasing allocations for education, providing more research support for universities, and expanding student scholarship programmes.

CPD concludes that a combination of effective revenue reform, investment-friendly policies, and reinforced social protection can stabilise the economy. Prioritising these measures in the upcoming budget could play a pivotal role in economic recovery.

Key Fiscal Indicators: July 2025–January 2026