Why FY2026–27 is a budget that thinks bigger than the next election
A 56% rise in education spending, a near doubling of health funding, climate-relevant allocations of Tk51,746 crore and major business reforms suggest this is a budget written not only for one fiscal year, but for the next decade
Finance Minister Amir Khosru Mahmud Chowdhury placed before the Jatiya Sangsad on Thursday a budget that is unusually broad in scope, coherent in design and ambitious in several technically important areas.
At Tk9.38 lakh crore, equal to 13.7% of GDP and 19% higher than the current revised budget, the FY2026–27 budget is the largest in Bangladesh's history. But this time, the headline number is not the most important part.
The deficit is projected at Tk2.43 lakh crore, or 3.6% of GDP. The revenue target has been set at Tk6.95 lakh crore, of which Tk6.04 lakh crore is expected to come from the National Board of Revenue. Together, these figures show the government's attempt to expand public spending while keeping fiscal discipline intact.
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The deficit remains below 5% of GDP, a level generally considered manageable. At the same time, the government is trying to raise tax collection and move Bangladesh's tax-to-GDP ratio closer to 10%, a benchmark the IMF considers important for sustainable development financing. Bangladesh's tax-to-GDP ratio, hovering around 7–8%, has remained among the lowest in South Asia for a decade. This budget finally tries to shift that position.
Human capital gets a serious push
Education receives Tk1,36,606 crore, equivalent to 2% of GDP, up from Tk87,206 crore and 1.39% of GDP in the current year. This is a 56% nominal increase and the sharpest single-year jump in education allocation in at least a decade.
The figure still falls short of Unesco's recommended benchmark of 4–6% of GDP. But Bangladesh's earlier level of 1.39% was not merely inadequate; it was structurally inconsistent with the human capital transition required for least developed country graduation. The ADB's education diagnostics for Bangladesh have repeatedly pointed to high secondary dropout, primary absenteeism and the skills gap as consequences of chronic underinvestment.
The FY2027 allocation does not close the gap in one year. But it does begin the path towards the BNP's electoral commitment to allocate 5% of GDP each to education and health.
Health receives an even more dramatic boost. The Ministry of Health and Family Welfare gets Tk69,409 crore, almost double the revised FY2026 allocation of Tk35,477 crore. Health spending rises to 1.01% of GDP from 0.58%.
Bangladesh's public health spending has long remained below 1% of GDP, compared with a South Asian average of around 2.5% and a lower-middle-income country average of 3.2%, according to World Bank health expenditure data. The finance minister's framing also matters: the budget shifts emphasis from treatment-centred care to prevention, primary healthcare, immunisation, maternal and child health services and early disease detection.
This is not only a welfare issue. After Bangladesh graduates from LDC status, the country will eventually lose its TRIPS waiver, reducing flexibility in producing and importing affordable medicines. UNCTAD estimates that medicine prices could rise by as much as 20%. That makes stronger public health investment not only desirable, but urgent.
Climate and environment enter the development frame
The budget also gives climate and environmental spending a more defined development role. For FY2027, the proposed climate-relevant allocation across 25 climate ministries and divisions stands at Tk51,746 crore, accounting for 11.03% of the total proposed budget. This represents a 35.73% increase from the revised FY2026 allocation of Tk38,125 crore, according to the Ministry of Finance.
This matters because climate spending is no longer only about disaster response. It is increasingly tied to water security, agriculture, transport, energy efficiency, urban management, coastal resilience and long-term development planning. In that sense, the climate allocation strengthens the budget's decade-long logic.
Transport keeps the connectivity focus
Transport and communication receive the highest Annual Development Programme allocation at Tk50,092.53 crore, or 16.70% of the total ADP. This compares with the FY2026 ADP, where the sector also received the highest allocation at Tk58,973 crore, but within a smaller total ADP of Tk2.30 lakh crore.
The FY2027 allocation remains broadly consistent with previous years as a share of the ADP. It will support 1,277 new projects, including 80 public-private partnership projects. This signals a move away from infrastructure financed only by the government towards greater private capital mobilisation.
The logic is clear. The World Bank has identified transport and logistics constraints as major barriers to Bangladesh's supply-chain competitiveness. The reform package covering free trade zones, off-docks, inland container depots, air cargo and port management gives the transport allocation a direct investment-facilitation role.
Energy subsidies and fiscal discipline
Energy and power allocations are being rebalanced. The power division faces a reduced allocation, while the energy division, focused on domestic gas supply expansion and higher LNG imports, receives more funding.
Total subsidies are proposed at Tk89,538 crore for FY2027, down from actual subsidy expenditure of Tk1,08,673 crore in FY2025 and the revised FY2026 allocation of Tk95,031 crore. This Tk19,000 crore reduction is not simply austerity. It is an attempt at rationalisation at a time when the Iran war has reportedly added around $3 billion to Bangladesh's energy import bill in four months.
Maintaining subsidy discipline under such external pressure is in line with IMF programme expectations. At the same time, full VAT and advance tax exemption on fertiliser and pesticide imports offers targeted relief to farmers without the regressive effects of blanket fuel subsidies.
Banking sector distress is finally being named
One of the most striking parts of the budget speech was the finance minister's acknowledgement of banking-sector weakness. He confirmed that Tk40,000 crore has already been committed this fiscal year to recapitalise weak banks.
He also laid out the scale of the problem: 20 banks carry a combined capital shortfall of Tk2.78 lakh crore, while the sector-wide capital-to-risk-weighted asset ratio stands at negative 2.64% against an international floor of 12.5%.
The budget also gives climate and environmental spending a more defined development role. For FY2027, the proposed climate-relevant allocation across 25 climate ministries and divisions stands at Tk51,746 crore, accounting for 11.03% of the total proposed budget. This represents a 35.73% increase from the revised FY2026 allocation of Tk38,125 crore, according to the Ministry of Finance.
Few budgets in recent memory have quantified banking-sector stress this directly from the parliamentary floor. The FY2027 budget continues recapitalisation commitments, introduces risk-based oversight and signals management restructuring where required, consistent with the Bank Resolution Ordinance 2025.
The proposal to raise the excise duty exemption threshold on bank deposits from Tk3 lakh to Tk4 lakh also supports financial inclusion. A broader deposit base is essential if healthy banks are to rebuild their funding structures.
BanglaBiz and the end of the multi-agency queue
Perhaps the most operationally important reform in the Finance Bill 2026 is BanglaBiz, a unified digital platform for processing all regulatory clearances concurrently.
For decades, investors trying to establish industrial facilities had to move separately through BIDA, the Department of Environment, Fire Service, municipal corporations and tax offices. Each had its own documents, timeline and informal expectations. BanglaBiz attempts to replace that fragmented system with a single master application.
Licences are to be issued within seven days. The entire process, from application to clearance, will be online, reducing direct face-to-face contact and the discretionary space that often enabled informal payments. This directly addresses one of the key FDI deterrents identified in the World Bank's 2025 Doing Business Update.
The Import Policy Order 2026–2029 is also being revised. Online import and export registration certificates are being issued within shorter timelines, while a published investment heat map identifies 19 sectors with quantified investment potential.
The FDI target has been set at 2.7% of GDP, six times the current 0.45%. Vietnam's FDI-to-GDP ratio has consistently remained above 5%. Bangladesh, at 0.45%, has underperformed its demographic and geographic potential for years. BanglaBiz, the seven-day licensing promise and the investment heat map are the institutional tools meant to change that.
Startups, AI and capital market reform
The Tk500 crore AI and startup development fund, with Tk200 crore from the government and Tk300 crore from Bangladesh Bank's CSR fund, targets startups, women entrepreneurs, youth-led ventures and AI-based innovation.
This is backed by a Tk2,049 crore ICT Division allocation, an explicit goal to raise ICT's contribution to GDP from 1–2% to 10% in five years, and expanded bank lending for freelancers through Smart ID verification. Together, these measures form a digital economy framework built on seed capital, institutional financing, easier regulation and a skills pipeline through LEDP and hi-tech park investments.
The capital market reforms are equally significant. The proposed phased reduction in settlement from T+2 to T+0 would be the most important Dhaka Stock Exchange reform since demutualisation. The United States moved to T+1 in 2024; the European Union is moving to T+1 across member states in 2027. Bangladesh remaining at T+2 has discouraged the foreign portfolio investment needed to deepen its retail-dominated capital market.
Treating TDS as advance tax, moving towards quarterly VAT returns and expanding the Business Identification Number system also strengthen the compliance architecture behind market integrity.
The honest assessment
The biggest risk is implementation. The ADP execution rate of 40.7% by April is not a minor detail; it is the central challenge. A Tk3 lakh crore ADP that produces only 40% physical output is, in economic reality, far smaller than it appears on paper.
The IMF programme remains under negotiation. The revenue target requires 23–42% growth from the National Board of Revenue, which missed its FY2026 target by more than Tk1 trillion. These are real risks.
But the strategic logic of FY2027 is clear. A budget that combines a 56% rise in education spending, a near doubling of health funding, Tk51,746 crore in climate-relevant allocation, a seven-day licensing guarantee, banking-sector capital disclosure, a startup fund, T+0 settlement reform and a six-fold FDI target within a deficit envelope of 3.6% of GDP is not written only for the next election cycle.
It is written for the next decade.
Whether it is executed as planned will depend on institutional capacity. But the fact that the budget has been designed this way is itself worth recognising.
Anonno Afroz is a writer and analyst at The Business Standard.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
