The government has scaled back its ambitious budget for the upcoming fiscal year due to lower-than-expected revenue collections and conditions tied to loans it is expected to receive from the International Monetary Fund (IMF).

Facing a significant fund shortage to bridge the budget deficit, foreign loan repayments on major infrastructure projects, such as the Padma Bridge, tunnel, metro rail, and Ruppur Nuclear Power Plant, are projected to increase by 40% in the next fiscal year. To manage these repayments, the government plans to raise approximately Tk 5,454 billion from domestic sources, a 9.8% increase over the current fiscal year’s target.

According to government projections, 68.43% of total budget expenditure will be sourced internally, with the remaining 31.57% coming from both domestic and foreign loans.

Revenue collection is expected to be a significant challenge for the National Board of Revenue (NBR) amid runaway inflation, declining exports, and dwindling investments. The country’s tax-to-GDP ratio remains stagnant at around 7%, far below the IMF-recommended increase of 0.05% of GDP. This year’s revenue deficit is estimated to exceed Tk 1000 billion.

“The economy must be kept on the right track to increase revenue," said Mirza Azizul Islam, a reputed macroeconomist and former finance adviser to the caretaker government. "Improving the investment climate is unlikely due to factors like the banking sector's disarray and international issues. The revenue collection target should be adjusted accordingly. How can people pay taxes without money? Revenue will increase if production and employment rise."

The budget deficit is projected to exceed Tk 2516 billion, or 4.5% of GDP, compared to Tk 2578 billion, or 5.2% of GDP, in the current fiscal year. This represents a 2.44% reduction in the deficit compared to the previous year.

The finance division estimates Bangladesh’s GDP will reach nearly Tk 55,974 billion in the next financial year, an 11.80% increase from the current fiscal year.

To address the shortfall, the government aims to secure over Tk 1,375 billion from foreign loans and grants in the next budget, up from Tk 1,272 billion in the current year. Consequently, foreign debt is expected to rise by 8.11% to Tk 103.1 billion.

Budget analysts predict that the government’s expenses will double in the next fiscal year due to increased interest and installment payments on foreign debt. Foreign loan repayments are projected to be Tk 365 billion, a 48% increase from the current fiscal year’s estimate of Tk 247 billion.

The government plans to borrow Tk 1,375 billion from the banking sector, 3.85% higher than the outgoing fiscal year. Long-term loans are estimated at Tk 726.72 billion, up from Tk 957.43 billion, and Tk 234 billion from savings certificates, up from Tk 230 billion.

The national budget for the next fiscal year, totalling Tk 7,970 billion, reflects a significant gap of Tk 2,510 billion between income and expenditure, equating to a 4.5% GDP deficit.

To mitigate the fiscal deficit, the government has sought $800 million in budget assistance from Japan for the current fiscal year. Additionally, loans from the IMF, World Bank, Asian Development Bank (ADB), French-based AFD, and Asian Infrastructure Investment Bank (AIIB) have been requested.

However, sources indicate that Bangladesh's largest bilateral development partner has yet to confirm financial assistance.

Government plans indicate that domestic borrowing, including Tk 1.55 trillion from the banking system, will be the primary source of financing the deficit.

Finance Department officials acknowledge the serious challenges facing Bangladesh’s economy due to internal and external shocks. "We are trying hard to secure budgetary funds to meet the deficit," said a senior official at the department.

Policy Research Institute Executive Director Ahsan H Mansoor emphasised on the necessity of foreign aid to address the country’s dollar deficit. "To implement the budget, foreign funds are essential. Therefore, government officials must continue negotiations with international organizations," he stated.

Economist Dr. Reza Kibria told The Mirror Asia, "The government has no choice but to borrow from banks to mitigate the reduction in foreign exchange reserves. Given the current economic situation, no one is willing to lend to Bangladesh."