Bangladesh’s revenue mobilisation targets for the upcoming financial year of 2026-27 might be difficult to achieve, given the country’s weak record on tax collection and reform implementation, said the Fitch Ratings.
While the government expects real GDP growth of 6.5 per cent in FY27, Fitch forecasts only 3.5 per cent, citing a fragile banking sector, weak private-sector credit growth, policy framework shortcomings and an uncertain external environment.
The Hong Kong-based agency revealed this in a report published on Tuesday that assesses the proposed budget for FY27, the first to be framed by the newly elected government.
The government aimed to raise the revenue-to-GDP ratio to 10.2 per cent — the highest since 1993 — from about 8 per cent in the outgoing fiscal year, the agency said.
However, the revenue execution would be the main fiscal test, as the budget targets 18 per cent nominal revenue growth year-on-year alongside a 19 per cent rise in spending, it added.
Finance minister Amir Khosru Mahmud Chowdhury placed the Tk 9.38 lakh crore national budget for FY27 in parliament on June 11.
He set an overall revenue mobilisation target of Tk 6.95 lakh crore, of which the National Board of Revenue has been tasked with collecting Tk 6.04 lakh crore, non-NBR tax sources Tk 25,000 crore, and non-tax revenue a further Tk 66,000 crore.
Fitch said measures planned to lift collection — including simpler tax procedures, fewer exemptions, easier value-added tax compliance for small and medium enterprises, and higher non-tax revenue from state-owned enterprises, corporations and banks — could broaden the tax base over time, but cautioned that weak implementation has constrained the impact of previous reform efforts.
Fitch Ratings also stated that energy measures could support medium-term growth if implementation improves.
More than 40 per cent of Bangladesh’s electricity generation capacity is gas-based, and the budget prioritises domestic gas exploration; efficiency gains in generation, transmission and distribution; and stronger infrastructure for liquefied natural gas supply.
Higher spending commitments underscore the importance of meeting revenue targets, the agency said, with social spending accounting for 29.7 per cent of total expenditure and physical infrastructure for 18.7 per cent, in line with the government’s election pledges.
Bangladesh’s history of expenditure undershooting, it added, may still help contain the deficit if budget execution lags again.
The agency kept its FY27 fiscal deficit forecast unchanged at 3.6 per cent of GDP — in line with the government’s own target — but said this reflected its expectation of both lower revenue and lower expenditure than budgeted.
The revised FY26 deficit estimate was lowered to 3.3 per cent of GDP from the original 3.6 per cent, helped by lower-than-expected disbursements, while revised revenue estimates were slightly above the budget target, Fitch stated.
This would reduce the risk of near-term slippage on the headline deficit, but also underlines how difficult it may be to implement the FY27 budget in full.
Fitch also stated that the medium-term revenue and growth gains would depend on whether the government could implement its reform agenda more effectively than in the past.
The authorities aimed to raise the revenue-to-GDP ratio to 11 per cent by FY30-FY31 and lift total investment to 40 per cent of GDP, while raising foreign direct investment to 2.7 per cent of GDP.
Over the medium term, this was intended to help lift real GDP growth to 8.5 per cent and reduce inflation to 5 per cent, Fitch added.
‘Investment measures in the budget support that direction, but their credit relevance would depend on execution,’ said the agency.
The authorities lowered withholding tax on machinery rental payments to non-residents to 7.5 per cent from 15 per cent, highlighted bridge and expressway development, and continued to promote projects under public-private partnership arrangements.
‘The budget also maintains the 2.5 per cent cash incentive for remittances sent through formal channels, and extends duty-free import facilities and bank guarantees for raw materials and intermediate goods to support export diversification beyond ready-made garments,’ Fitch Ratings added.
