The inflation projection for FY26 seems ambitious, and it may have inflationary implications for Bangladesh due to the ongoing Middle Eastern conflict. The proposed budget also fails to address the ongoing economic challenges holistically, said the Centre for Policy Dialogue (CPD) on Sunday.
The think tank also forecast that the proposed changes in income tax will raise the tax burden on low- and middle-income people for the upcoming two fiscal years; however, higher-income taxpayers will face a relatively modest increase.
CPD Executive Director Dr Fahmida Khatun made the remarks while presenting the keynote presentation at a CPD Budget Dialogue 2025 titled “An Analysis of the National Budget for FY 2025-26” in the capital.
Inflation and tax burden
The Middle East crisis will increase fuel prices which will directly impact inflation. Transportation costs and other logistics expenses will rise. This will increase import costs and have a direct impact on inflation, Khatun explained in her presentation.
The budget speech acknowledged inflation as one of the biggest challenges. However, measures are not enough to rein in inflation, she also added.
“We appreciate initiatives like tax reliefs, sectoral allocations, and incentives, along with higher taxation on harmful activities. However, the budget falls short of offering a holistic response to the difficulties currently facing people and businesses. In addition, the economy is currently in a state of stagnation, and this will have an impact on private investment.”
“The interim government must take responsibility for implementing this budget in an efficient and transparent manner. A mid-year assessment with corrective measures will be key to preserving public trust and ensuring the budget delivers on its promises,” the CPD executive director stressed.
Regarding tax burden, she also said that the burden of inflation falls more heavily on low-income and fixed-income groups.
According to CPD estimates, tax liabilities for individuals earning Tk6 lakh, Tk10 lakh, and Tk15 lakh annually will rise by 12.5%, 16.7%, and 16.7%, respectively, over the next two fiscal years (FY27 and FY28). On the other hand, those earning Tk30 lakh a year or more will see their tax burden increase by only 7.6%.
However, in the proposed budget, the annual tax-free income threshold for general taxpayers has been raised to Tk3.75 lakh for FY27 and FY28.
She addresses it as a positive step.
But the concern is that it won't take effect until FY2026–27. That raises questions, especially since the previous threshold was set back in FY24, she added.
“This disparity stems from a minimal increase in the tax-free income threshold from Tk3.5 lakh to Tk3.75 lakh, representing just a 7% rise. In contrast, the cost of living is expected to surge by at least 27%–28% during the same period (assessment year 2026–27), relative to the base year of 2023–24,” she explains.
“Although the budget puts forward progressive themes—such as a focus on overall development rather than just growth and prioritizing people over physical infrastructure—these objectives are not sufficiently supported by the proposed fiscal measures.”
“The budget for FY26 is exceptional in terms of its size, being smaller than the previous fiscal year's, but this contraction has not been matched with a clearly articulated strategy to address ongoing economic challenges,” Fahmida added.
The event was moderated and chaired by CPD Distinguished Fellow Professor Mustafizur Rahman.
He said: “This budget could not show us any major changes.”
Kumbhakarna syndrome
Hossain Zillur Rahman, former adviser to a caretaker government and executive chairman of the Power and Participation Research Centre (PPRC), said: “It is time for us to get angry with the government. This is not irrational anger. The kind of anger through which society can be changed. Now is the moment to get angry. I can see a ‘peculiar syndrome’ in this government. I would say a new type of ‘Kumbhakarna syndrome’ by listening without responding.”
Regarding the FY26 budget, he said: “Many people are saying that there are four economists in the current Advisory Council. Then why is there a traditional budget? I think that even if all the Advisory Council members were economists, there would be no exception. Because the courage that needs to be shown to take a major decision requires political initiative. Political initiative is necessary for any major decision in the budget.”
Bangladesh Textile Mills Association (BTMA) President Showkat Aziz Russell said: “We are going through a very uncomfortable time. Currently, we are seeing a very beautiful model being created. One of these models is that if someone steals, Bangladesh Bank returns the looted money to the bank. The banks have looted, and we are compensating them with high interest rates. You (the government) will take extra money from me and subsidize this stolen money.”
“So far, not a single bank official has been jailed, not a single customer (guilty) has been jailed. Because, whoever has money, the bigger the thief, the more transparent he is—this is what we are seeing reflected,” he said.
Observations
According to CPD, in the FY26 budget, macroeconomic projections appear optimistic. The proposed fiscal framework is unlikely to hold, and inflation control measures are inadequate.
Reports key observations also stated that key social sectors continue to be underfunded, and revenue mobilization efforts reflect growing fiscal pressure.
Public expenditure priorities remain poorly aligned with strategic needs.
It also highlights that the Annual Development Program (ADP) largely follows previous patterns.
Domestic market-oriented and import-substituting industries will face fiscal disadvantages. Allocations for youth and employment generation mark a positive development, with limited emphasis on climate change and gender equality.
