The financial sector, with the scams-hit banking sector at its core, has been identified as one of the major fiscal risks in the forthcoming 2006-27 financial year beginning July 1.
Other risks are: oil price shocks, inflation, revenue shortfall, debt and contingent liabilities of the State Owned Enterprises and Autonomous Bodies, and the natural calamities.
The risks have potential to constrain financial intermediation, weaken monetary policy transmission, and increase the likelihood of contingent public sector support, according to the Medium-Term Macroeconomic Policy Statement for 2026-29 prepared by the Finance Division as a budget document.
Economists said that the fiscal risk statement highlighted sustained reform, stronger institutional discipline, and proactive management of emerging issues as imperative for the newly elected government in supporting its long-term objective of achieving a trillion-dollar economy by 2034,
The policy statement said that the banking sector had been characterised by a Capital Adequacy Ratio of -2.64 per cent, around 30 per cent non-performing loans, -4.81 per cent return on assets, and -243.9 per cent return on equity, alongside a 91 per cent expenditure-to-income ratio.
Bangladesh Bank governor Mostaqur Rahman has recently revealed that the one-third of all deposits in the country’s banking sector had been stolen and siphoned off abroad through deep-rooted systemic irregularities and bad lending practices over the past one and half decade.
M Masrur Reaz, chairman and chief executive officer of the Policy Exchange Bangladesh, said that the banking sector indicators pointed to an acute balance sheet stress, weak profitability, and constrained operational efficiency.
Overburdened with the problems, he said, many banks have to maintain elevated lending spreads and reduce their credit flow to productive sectors, adding that they had also very limited capacity to absorb further shocks.
Referring to an analysis of the past five financial years, the MTMPS said that revenue collection had fallen below budget targets on average by 16 per cent, and the trend indicated that this gap had been widening in recent years -- from 13.05 per cent in FY20-21 to 19.41 per cent in FY24-25.
A sustained revenue shortfall of this magnitude is likely to cause a shortage in capital spending worth Tk 96,000 crore in FY29 alone, said the MTMPS, adding that the compression of the Annual Development Programme might impose severe limitations on critical infrastructure development, human capital investment, and undermine the government’s medium-term development agenda.
Highlighting the crowding-out effect on private investment as one of the most economically consequential transmission channels of a revenue shortfall, the policy statement said that the government relied heavily on domestic borrowing, which competed with private sector credit demand in domestic financial markets.
This upward pressure on borrowing costs reduces the availability and affordability of credit for the private investors, said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development.
The National Board of Revenue -- accounting for over 85 per cent of the government incomes -- has been given an annual revenue target of Tk 6.04 lakh crore in FY27 although it is trailing the target of Tk 5.03 lakh crore in the outgoing FY26 by around Tk 1 lakh crore.
Economists have already called the FY27 revenue target ambitious and feared a big shortfall.
In a post-budget press briefing on Friday, finance minister Amir Khosru Mahmud Chowdhury dismissed revenue shortfall, saying that the proposed fiscal measures and the planned automation of the NBR would help to attain the target.
The MTMPS identified the significant escalation of geopolitical conflict in the Middle East as a major new risk, causing the fuel oil price hikes.
Referring to the World Bank forecast that energy prices could rise by 24 per cent on average in 2026, the policy paper simulated that a 30 per cent increase in oil prices from the existing prices in FY27 would significantly disrupt the downward trend of inflation in Bangladesh, shifting the rate from a baseline of 7.5 per cent to 9.1 per cent.
Noting the absence of sustained corrective measures, the MTMPS observed that the structural weaknesses of the banking sector could adversely affect private investment, economic growth, and fiscal sustainability in the medium term.
The MTMPS also said that the financial statement analysis of 122 SOEs and ABs for FY2023–24 indicated that five entities or 4 per cent were categorized as very low risk, 18 entities or 15 per cent as low risk, 50 entities or 41 per cent as moderate risk, 30 entities or 25 per cent as high risk and 19 entities or 15 per cent as very-high risk.
