Bangladesh’s new government has inherited a fiscal situation that is tighter than headline numbers suggest. Growth has slowed, investment momentum is weak, banking sector vulnerabilities remain elevated, and household welfare is under strain - factors that reduce the government’s room to maneuver. The World Bank now projects Bangladesh’s growth at around 4.6% in FY26, reflecting continued moderation in private investment and persistent macroeconomic pressures. At the same time, they also warn that financial sector fragility remains a major concern, with the non-performing loan ratio reaching 24.1% by March 2025, highlighting deep vulnerabilities in the banking system. In this context, fiscal choices must prioritize predictability: a stable, credible revenue strategy that supports essential spending without repeatedly shocking consumers and compliant businesses.
That challenge is becoming more urgent because new development and social commitments are coming fast. The proposed Family Card initiative - a flagship pledge now being fast‑tracked - is providing credit of Tk2,000–Tk2,500 per month per family, with ambitions that could reach 40 million households. The Family Card initiative is not the only program expanding the government’s spending obligations. The FY26 budget proposal is aimed to allocate around Tk1.17 lakh crore (Tk1.17 trillion) to social protection programs across more than 140 schemes under 26 ministries, including old-age allowance, widow and vulnerable women allowance, mother and child support program and many more.
The direction is clear: Bangladesh is moving toward large recurring spending lines at a time when public finances need careful sequencing. That does not mean such initiatives are impossible; it means they must be paired with a revenue plan that is administratively feasible, politically credible, and economically efficient.
The uncomfortable truth is that Bangladesh’s revenue base is too small to carry rising aspirations with repeated “patch fixes.” IMF data show government revenue around 8.34% of GDP (2024), a level far below what a modernizing economy typically needs to fund infrastructure, social protection, and debt service. Recent Finance Ministry data indicate the ratio has even slipped below 8% in FY2024-25, underscoring how limited revenue mobilization constrains the state’s ability to fund infrastructure, expand social protection, and service rising public debt. Meanwhile, Tax-to-GDP targets have tightened. Recent IMF reporting indicates Bangladesh is expected to raise the tax-to-GDP ratio by around 0.6 percentage points in the current fiscal year, slightly above the originally agreed annual increase, to compensate for earlier revenue shortfalls. These pressures are not just external ‘conditionalities.’ They reflect real arithmetic: if the state cannot mobilize more domestic resources credibly, it will be forced into short‑term measures that damage trust and compliance.
Bangladesh has already seen what ‘short‑termism’ looks like. In January 2025, the interim government raised VAT and supplementary duties on 100+ products and services via ordinance, amid already high inflation - an approach that immediately triggered criticism from business and policy economists about inflation risks and overreliance on indirect taxation. Subsequent reporting indicates parts of those hikes were rolled back after protests, and that the overall measure drew more ire than revenues - exactly the type of policy volatility that undermines tax morale and investor confidence. The lesson is straightforward: Bangladesh needs revenue reform that is stable enough to survive politics, not episodic rate shocks.
This is where tax structure matters more than tax rates - especially in high‑yield sectors. One such sector is tobacco, which already contributes a significant share of domestic revenue. A recent dissemination report on a Policy Exchange Bangladesh (PEB) study notes tobacco revenues of roughly Tk 40,000 crore in the last fiscal year - around 9% of NBR revenue -underscoring its fiscal significance. But Bangladesh’s tobacco tax design - especially for cigarettes - remains complex ad valorem, creating administrative burdens and opportunities for down‑trading and loopholes.
A credible alternative is to modernize toward a specific excise structure - tax per stick (or per pack) rather than tax as a percentage of retail price. The PEB simulation finds that moving to a fully specific excise could generate approximately Tk 22,000 crore in additional revenue over the next 10 years compared with the current system, while also reducing consumption (reported as up to ~8%). Those outcomes matter because they align with what NBR should value: predictable revenue flows, fewer pricing games, and a tax base that is easier to monitor and enforce.
The deeper point is not that tobacco should be treated as the only solution. Rather, it illustrates a broader principle for Bangladesh’s fiscal strategy: simplify where revenue is big, and enforce where leakage is large. Predictability improves compliance; simplicity reduces administrative friction; enforcement protects the base. This should be the governing philosophy of a new government seeking to establish seriousness quickly - especially after a period of politically charged interim decision‑making, during which more than 100 ordinances were issued in a short span of time, many bypassing the usual legislative scrutiny that normally involves the President’s assent and parliamentary debate. A newly elected administration now can restore institutional confidence by shifting from emergency policymaking to structured reform.
That opportunity also aligns with policy commitments already outlined in the BNP’s election manifesto, which explicitly calls for modernizing tobacco taxation. If implemented with proper enforcement against illicit trade, such reforms could demonstrate how disciplined fiscal policy can simultaneously strengthen revenue mobilization, improve administrative transparency, and reinforce policy credibility
The new government also has a political opportunity to fix the credibility gap created by policy volatility. Consider the interim government’s multiple high‑stakes decisions - VAT hikes by ordinance, institutional restructuring that led to revenue‑collection disruption, and contested long‑term port leasing. Each episode suggests the costs of moving too fast without consultation and sequencing. Fiscal reform is hard enough without adding uncertainty. A predictable tax system is not merely an economic preference; it is a governing strategy that signals seriousness to citizens, investors, and international partners. The state’s ability to fund development and social stability depends on whether taxpayers, businesses, and markets believe the rules will be coherent and enforced. This is the moment for the new government to define its economic identity.
The writer is a journalist.