When Finance Adviser Salehuddin Ahmed presents the national budget for the fiscal year (FY) 2025–26 tomorrow, he will have some encouraging indicators to highlight.
Exports and remittances are rising, foreign exchange reserves have stabilized, and the exchange rate is showing signs of steadiness. Imports are also beginning to recover.
After remaining above 9 percent for over two years, inflation has finally started to ease. These positive signs have led economists and businesses to cautiously suggest that the economy may be on the path to recovery.
However, the outgoing FY2025 brought little progress in job creation or the establishment of new production units. Bangladesh recorded its lowest GDP growth since the Covid-19 pandemic.
The fiscal year began with turmoil, as student-led protests culminated in the fall of the Awami League government in August. An interim government, led by Nobel Laureate Muhammad Yunus, subsequently took office.
The new administration inherited a fragile economy marked by high inflation, depleting reserves, and tight monetary policies. Additionally, worsening law and order, along with ongoing political uncertainty, further eroded investor confidence, slowing both domestic and foreign investment.
As a result, economic growth in FY2025 slumped to 3.97 percent, according to provisional data from the Bangladesh Bureau of Statistics. Youth unemployment rose significantly, and industrial activity remained sluggish.
The unemployment rate increased to 4.63 percent, with 2.7 million people out of work—up from 2.4 million the previous year. Labour force participation also declined, falling to 48.41 percent from 50.27 percent, as job creation failed to meet demand.
Against this backdrop, the upcoming budget will aim to address deep-rooted economic challenges while advancing a broader reform agenda.
The FY2026 budget is expected to be slightly smaller and shaped by Bangladesh’s upcoming graduation from the UN’s Least Developed Countries (LDC) category in December 2026. It will also reflect concerns over high U.S. tariffs introduced under Donald Trump and the conditions tied to the ongoing $4.7 billion loan programme from the International Monetary Fund (IMF).
Economists are calling the current moment “unprecedented” and are urging bold, immediate, and long-term reforms to restore robust economic growth.
“This year’s budget should be more than just a statement of spending and revenue. It must provide clear policy direction on stabilizing the economy and ensuring effective coordination between monetary and fiscal policies,” said Dr. Muhammad Abdur Razzaque, Chairman of the think tank Research and Policy Integration for Development (RAPID).
He noted that industrial growth, employment, and investment were all impacted during the post-uprising period. “It was truly a challenging time for Bangladesh,” Razzaque said.
“After the uprising, our top priority was to control inflation and stabilize the balance of payments. However, contractionary monetary policies and import control measures did not support investment, job creation, or economic expansion,” he added.
Dr. Sadiq Ahmed, Vice Chairman of the Policy Research Institute of Bangladesh, stated that fiscal policy in FY2025 was constrained by weak domestic revenue collection.
“As a result, it failed to support growth, investment, or employment,” he said.
“Much of the fiscal focus was on stabilisation—cutting the deficit by reducing development spending. This led to deferral of large infrastructure projects under the Annual Development Programme,” he added.
Dr. Selim Raihan, Professor of Economics at Dhaka University and Executive Director of the South Asian Network on Economic Modeling (SANEM), said that despite various incentives such as tax holidays in special economic zones and concessional rates for selected sectors, private investment growth remained lacklustre.
He pointed out contradictions in the tax structure as a major hindrance.
“The tax-to-GDP ratio remains among the lowest in the world, limiting the government’s ability to invest in public services. At the same time, businesses face a high and uneven tax burden, inconsistent enforcement, and high compliance costs, all of which discourage investment,” Raihan said.
While the government continued to fund large infrastructure projects, offered subsidies to export-oriented industries, and promoted public-private partnerships, these efforts were hampered by implementation delays and weak institutional coordination.
“The broader industrial policy is still too dependent on the ready-made garments sector,” Raihan noted. “Progress in diversifying into higher value-added industries has been minimal.”
Although tax exemptions and reduced import duties provided temporary relief to certain sectors, policy inconsistency hurt investor confidence.
Ongoing inflationary pressures and exchange rate volatility also made businesses more cautious, slowing down capital investment.
“On employment, fiscal policy fell short in FY2025. While public rural development projects created short-term jobs, formal private sector hiring remained weak,” he added.
Dr. Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), said job creation requires more than just fiscal policy.
“It also requires support from monetary policy, institutional reform, and a consistent incentive structure,” Rahman said.
He emphasized that while efforts were made to control inflation, fiscal policy alone could not accomplish the task. The impact of monetary tightening takes time to materialize.
Due to these constraints, fiscal measures focused mainly on targeted incentives like tax cuts for selected sectors, reduced duties on imported raw materials, and high tariffs to protect domestic industries.
“However, these measures failed to significantly boost investment, industrial growth, or employment,” Rahman added. “One key reason was the sharp rise in interest rates driven by contractionary monetary policy.”
He also cited non-economic challenges. “Political instability and deteriorating law and order made investors hesitant, something that policy incentives alone could not overcome.”
Even initiatives such as the Bangladesh Investment Development Authority’s summit and efforts to improve economic zones were not enough to offset the broader negative environment.
“The results are evident,” Rahman said. “Imports of capital machinery and letters of credit declined significantly.”
“The level of job creation that industrialisation was expected to deliver simply did not materialize.”
Citing the latest Labour Force Survey based on the ICLS-19 definition, Rahman noted, “Total employment declined by 2.1 million in the first two quarters.”
“So, despite fiscal efforts, the broader economic environment—including inflation control and institutional efficiency—was not conducive to investment or job creation,” he concluded.
RAPID Chairman Razzaque warned that without improved revenue mobilisation, maintaining fiscal discipline will be difficult. “And without fiscal discipline, critical public investments in health and education will suffer,” he said.
“The government is increasingly relying on borrowing, which is driving up interest payments and further limiting fiscal space,” Razzaque added.
Dr. Sadiq Ahmed pointed out that protectionist trade policies also hurt export growth in FY2025.
“Export subsidies offered limited support, but were outweighed by an overall anti-export bias,” he said.
However, Ahmed praised the shift to a flexible, market-based exchange rate, which provided a much-needed boost to exports and remittances.
“That was the most important policy reform in FY2025,” he stated.
“Other tax incentives aimed at spurring private and foreign direct investment have not been effective in recent years, and FY2025 was no different,” he said.
Ahmed emphasized that these incentives, which come at the cost of lost government revenue, should be re-evaluated.
“Global experience shows that improving the overall investment climate is more effective than offering tax breaks,” he said.
 2025–26 tomorrow, he will have some encouraging indicators to highlight.){kind=link}