Fiscal management has emerged as one of the most critical challenges for Bangladesh's macroeconomic stability and long-term development. In an increasingly uncertain global environment marked by weak external demand, tighter financial conditions, and reduced access to concessional financing, maintaining economic stability has become more difficult.
At the same time, Bangladesh faces growing demands for investment in infrastructure, energy security, climate resilience, healthcare, education, and social protection. However, limited fiscal space significantly constrains the government's ability to respond effectively.
Key fiscal indicators highlight the urgency of reform:
Tax-to-GDP Ratio (FY25): 6.8%
Debt-to-GDP Ratio (FY25): 38.6%
Interest Payments (FY25): Tk 1.32 lakh crore
Structural weaknesses in revenue mobilization, inefficient public expenditure management, rising debt-servicing costs, and weak institutional capacity continue to undermine fiscal sustainability. Without comprehensive reforms, Bangladesh's ability to sustain growth and achieve an inclusive and resilient economy will remain constrained.
Bangladesh's revenue system remains one of the weakest in the region. The country's tax-to-GDP ratio has stagnated around 8 percent for years, far below regional peers such as Nepal and India.
Approximately two-thirds of government revenue comes from VAT and import duties. This places a disproportionate burden on lower-income households, while higher-income individuals and corporations often avoid direct taxation.
Actual revenue collections frequently fall short of budget targets due to overly optimistic projections, weak enforcement mechanisms, and limited analytical capacity. This weakens budget credibility and complicates expenditure planning.
Tax exemptions are often granted without strategic evaluation. Nearly 40 percent of corporate tax expenditures benefit a small number of firms, while the fiscal cost reached an estimated Tk 1.78 trillion in FY2024.
Frequent policy changes, complicated VAT regulations, excessive source taxes, and multiple overlapping levies create uncertainty for businesses and discourage investment.
Delays in tax assessments, lengthy appeals processes, bureaucratic hurdles, and limited expertise in auditing and research undermine effective tax administration.
Revenue systems remain fragmented and heavily dependent on manual processes. Limited interoperability and inadequate digital capacity hinder efficiency and transparency.
As a result, Bangladesh's tax system diverges significantly from internationally accepted principles of neutrality, efficiency, certainty, simplicity, and fairness.
Weaknesses in budget planning and expenditure management reduce the effectiveness of public spending.
Annual budgets, medium-term frameworks, and national development priorities often lack proper alignment. Incremental budgeting continues to dominate over needs-based approaches.
Overly optimistic assumptions and inadequate forecasting tools lead to frequent budget revisions and unpredictable expenditure patterns.
Budget allocations remain largely input-driven rather than performance-based. Service delivery outcomes rarely influence funding decisions.
Political considerations, insufficient appraisal mechanisms, cost overruns, implementation delays, and limited post-project evaluations reduce value for money.
Fragmented mandates, limited coordination, insufficient skilled personnel, and weak integration among public financial management systems impede effective oversight.
Restricted public access to budget information, weak audit follow-up mechanisms, and inadequate accountability undermine public trust.
Public debt is increasingly becoming a source of fiscal vulnerability.
Bangladesh's debt-to-GDP ratio rose from 26.6 percent in FY18 to 38.6 percent in FY25. Domestic debt now constitutes approximately 56 percent of total public debt, with more than half financed through the banking sector.
This trend creates several risks:
Crowding out private sector credit;
Strengthening the sovereign-bank nexus;
Increasing exposure to financial sector shocks;
Reducing fiscal flexibility.
Interest payments have risen sharply:
| Fiscal Year | Total Interest Payment (Crore Tk) |
|---|---|
| FY2023 | 92,538 |
| FY2024 | 113,219 |
| FY2025 | 132,460 |
In FY25 alone, Bangladesh spent approximately Tk 132,460 crore on interest payments, accounting for nearly one-fifth of total government expenditure.
Fragmented institutional responsibilities;
Lack of a unified debt database;
Weak risk assessment capacity;
Heavy reliance on bank financing;
Underdeveloped domestic debt markets;
Limited identification of contingent liabilities;
Outdated reporting systems.
Expand the tax base and promote progressive direct taxation.
Improve third-party information sharing and risk-based compliance.
Develop a medium-term Domestic Resource Mobilization (DRM) Strategy.
Rationalize tax expenditures through transparent, rules-based frameworks.
Introduce sunset clauses and periodic cost-benefit reviews for tax incentives.
Implement a five-year tax automation plan integrating VAT, income tax, withholding tax, customs, and banking systems.
Shift toward performance-oriented budgeting.
Link budget allocations to measurable outcomes and service delivery indicators.
Strengthen macro-fiscal forecasting capacity within the Ministry of Finance.
Integrate capital and recurrent budgets using lifecycle costing.
Develop a prioritized Public Investment Management (PIM) reform roadmap.
Establish a Central Debt Management Office (CDMO).
Develop a unified real-time debt database covering all liabilities.
Regularize Debt Sustainability Analyses and stress testing.
Formulate a credible medium-term debt strategy.
Deepen domestic bond markets and diversify the investor base beyond banks.
Strengthen oversight of state-owned enterprise liabilities.
Implement the Public Financial Management (PFM) Reform Strategy 2025–2030.
Improve transparency and public access to budget information.
Strengthen audit follow-up through Parliament and the Comptroller and Auditor General.
Ensure interoperability among treasury, procurement, HR, debt, pension, and revenue systems.
Invest in analytical, enforcement, and coordination capacities across the National Board of Revenue, Ministry of Finance, and Bangladesh Bank.
Bangladesh stands at a critical fiscal crossroads. The country's transition toward upper-middle-income status and post-LDC graduation will require stronger domestic resource mobilization, more efficient public spending, and prudent debt management. Fiscal reform is no longer optional—it is essential for sustaining economic growth, preserving macroeconomic stability, and building a more inclusive and resilient future.
