The implementation of the ambitious revenue collection target set in the proposed budget for FY2026-27 may face major challenges, international credit rating agency Fitch Ratings has warned.
The agency cited long-standing structural weaknesses in tax collection and slow implementation of reforms as the main reasons for this risk.
In an analysis report published on Tuesday (June 16), Fitch Ratings said that the target has been set to increase the revenue-GDP ratio to 10.2% in the new fiscal year budget, which is about 8% in the current FY26.
If the target is achieved, this will be the highest revenue-GDP ratio in Bangladesh's history after 1993.
According to Fitch, the government's biggest financial challenge in the next fiscal year will be the successful implementation of the revenue collection plan.
On one hand, the budget has increased total expenditure by about 19%, while on the other hand, a target of 18% growth in revenue income has been set. As a result, even a small deviation in revenue collection can create major pressure on budget implementation.
The report says that initiatives to simplify the tax process, reduce tax exemptions, make VAT compliance easier for small and medium enterprises (SMEs), and increase non-tax income from state-owned enterprises can yield positive results in the long run.
However, past experience has shown that many such reform initiatives have not yielded the desired results due to weak implementation.
The agency believes that Bangladesh's budget implementation has historically tended to be less than the target.
As a result, it may be relatively easy to control the fiscal deficit if the planned expenditure is not fully implemented.
For this reason, Fitch has forecast that Bangladesh's budget deficit will be 3.6% of GDP in FY27, which is close to the government's announced target.
The international rating agency is also seeing a big difference with the government's forecast in terms of economic growth.
Although the government expects a GDP growth of 6.5% in the next fiscal, Fitch's forecast is only 3.5%.
A fragile banking sector, weak credit growth in the private sector, policy constraints and global economic uncertainty have been cited as possible reasons for this low growth.
Fitch also commented on the IMF's loan program. According to them, even though Bangladesh has requested a new IMF program, the final review of the current program, which is due to end in January 2027, is now less likely to be successfully completed.
The report said that achieving the government's fiscal and economic goals in the next few years will largely depend on the pace and implementation of reform efforts.
In addition, Fitch sees initiatives in the budget such as reducing withholding tax on payments for equipment rental by non-residents, continuing infrastructure development, special incentives for PPP projects, and expanding duty-free benefits for export diversification as positive.
At the same time, the agency also mentioned the continuation of the 2.5% cash incentive to encourage expatriate income as supportive measures for the economy.