Govt faces rising spending pressure amid limited revenue

The government's spending pressure has increased from several directions. The implementation of the new pay structure, repayment of domestic and foreign loans, and additional pressure from subsidies and fuel expenditure are being accompanied by new programmes and major purchases.

As a result, a large portion of the budget is being spent on sectors that generate no revenue for the government. At the same time, government revenue is not increasing at a rate sufficient to cope with these spending pressures.

Nearly 42 per cent of the Tk 9.38 trillion budget for fiscal year 2026–27 has been allocated to sectors such as salaries and allowances and pensions for government officials and employees, interest payments on loans, and subsidies and incentives.

The allocations for the three sectors total nearly Tk 4 trillion. Nearly half of the government's total annual expenditure will have to be spent on salaries and allowances, debt servicing and subsidies.

Once the new pay structure is fully implemented, the government will incur an additional annual expenditure of around Tk 1.06 trillion (105,580 crore) on this sector alone. Meanwhile, the government is managing the cost of importing fuel products and fertiliser with budget support from the World Bank.

The National Board of Revenue (NBR) has been tasked with collecting Tk 6.04 trillion in the current fiscal year. Achieving this target requires revenue growth of 45 per cent, which is much higher than the growth achieved in the past. As a result, spending obligations are increasing on one hand, while revenue is not growing at the desired rate on the other. Under pressure from both sides, the government's financial management now faces a major challenge.

Economists have advised the government to review its expenditure areas and reduce spending, as opportunities to increase revenue are limited.

Mustafizur Rahman, distinguished fellow at the private research organisation Centre for Policy Dialogue (CPD), told Prothom Alo that additional expenditure in the energy sector has been added to the government's regular spending. Spending has also increased on the new salaries and allowances and repayment of debt obligations.

The economy is now facing two-way pressure from the global trade situation and problems inherited from the past, including accumulated problems left by the previous government in various sectors. Macroeconomic management has come under pressure. The economy is in a more adverse situation than at any other time.

According to Mustafizur Rahman, spending priorities must be determined carefully. Otherwise, the debt burden will increase. He also said there is no alternative to increasing revenue collection to deal with the situation.

Under the new pay structure, salaries for government officials and employees have been increased by 100 to 142 per cent. However, the expenditure will be somewhat lower in the current fiscal year because the new pay structure will be implemented in four phases. In the current fiscal year, employees will receive 70–75 per cent of the new increased basic salary in two instalments, depending on their grade. The Finance Ministry is now determining how much the expenditure will increase this year.

According to the budget document, Tk 1.41 trillion (141,434 crore) has been allocated for salaries and allowances in the current fiscal year's budget, which is Tk 545.72 billion (54,572 crore) higher than the revised allocation of the previous fiscal year. Around Tk 280 billion has been allocated for pensions and gratuities. The new pay structure will also increase expenditure on pensions and gratuities.

The gas, electricity and energy sectors are facing multiple problems. Load-shedding is continuing across the country. Production at factories has been limited due to gas shortages. Meanwhile, fuel oil prices are rising for various reasons, including the crisis in the Middle East.

Higher prices and supply-side constraints in import sources have also put liquefied natural gas (LNG) imports at risk. Overall, the energy sector is experiencing a kind of instability. To maintain the supply of fuel oil and gas, the government has to import them at higher costs.

The government owes Tk 440 billion to private power-generating companies. A huge amount of subsidy is required for this sector. Meanwhile, LNG prices have increased and imports have declined. Fifteen LNG cargoes arrived in July and August. In the same period last year, 21 LNG cargoes arrived. The government plans to import 10 LNG cargoes in September this year. So far, eight have been confirmed.

LNG prices in the international market are continuously rising. A few days ago, the price of LNG was $22–24 per unit. It has now risen to $28. Before the Iran war, the price was half of this level.

The government provides subsidies to the energy sector. When prices rise in the international market, the government's expenditure increases. The Finance Ministry's budget policy statement for this year says, “Considering the risk of volatility in the energy sector in the global market, prices may increase by 30 per cent in fiscal year 2026–27.”

Before the Iran war began, the price of crude oil was $70–75 per barrel. It has now risen to $95.

The government provides subsidies in various sectors, including energy and fertiliser. In the current fiscal year, Tk 895.39 billion (89,539 crore) has been allocated for subsidies and incentives. However, oil and LNG prices are rising in the international market, further increasing expenditure.

The government provides subsidies on fertiliser in the interests of farmers. Annual demand for fertiliser stands at 6.7 million tonnes. Around 80–85 per cent has to be imported. Due to the crisis in the Middle East, some fertiliser factories in the region are closed, while others are operating at reduced capacity. Fertiliser prices have been rising for more than a year. As a result, the government has to spend more.

In June, the government received $300 million in emergency budget support from the World Bank to import fertiliser. With this money, Bangladesh will import 600,000 tonnes of fertiliser by April 2027.

Apart from fertiliser, the government has also received $710 million in budget support to import energy products, including oil and gas. The funds were disbursed in June.

A report by international research organisation Zero Carbon Analytics (ZCA) on 2 September said Bangladesh would have to spend an additional $2.8 billion due to the current increase in the prices of oil, gas and coal, which is equivalent to more than Tk 340 billion at current market rates.

The government has announced incentives worth Tk 600 billion to boost business and trade. Banks will provide loans to entrepreneurs, with the government bearing up to 6 per cent of the interest on those loans. The government will therefore need to make additional allocations for this purpose.

The current BNP government promised in its election manifesto to provide cards offering various benefits to people. Work has begun accordingly. The most discussed and popular initiative is the Family Card.

The distribution of Family Cards has already begun. The government has set a target of providing the cards to 4.1 million families in the current fiscal year. A total of 16 million families will receive the cards over four years. Around Tk 135 billion will be required for this purpose.

The government has also announced plans to introduce various other types of cards, including Farmer Cards. Agricultural loans of up to Tk 10,000 have been waived for 1.2–1.3 million small farmers. The Finance Ministry says this will cost the government around Tk 15 billion.

Bangladesh is buying 25 aircraft from US company Boeing. In April, an agreement was signed with Boeing to purchase 14 aircraft. Recently, Sergio Gor, the US special envoy for South and Central Asian affairs and US ambassador to India, announced the sale of another 11 aircraft to Bangladesh.

The 14 aircraft covered by the agreement with Boeing in April will cost $3.7 billion, or around Tk 450 billion. The aircraft will be delivered by 2037. The government will have to pay for the aircraft purchases until then. Separate allocations will have to be made every year. Now, the cost of purchasing another 11 aircraft has also been added.

The government borrows from domestic and foreign sources to finance the budget deficit. Pressure is also increasing in this area. Foreign debt repayments have risen significantly in recent years. Most recently, Bangladesh had to repay $4.5 billion in foreign loans in the last fiscal year, the highest ever. Foreign debt repayments are increasing by an average of $500 million every year.

According to sources at the Economic Relations Division (ERD), foreign debt repayments have quadrupled over the past 14 years.

Meanwhile, as the government fails to collect the desired amount of revenue, it borrows from domestic sources to meet its financing needs. Interest and principal on these loans have to be repaid every year. The government has to make a large allocation in the budget for interest payments.

The government has allocated a total of Tk 1.28 trillion (127,500 crore) for interest payments on domestic and foreign loans in the current fiscal year, which is Tk 50 billion more than the previous year.

One of the government's main sources of income to meet the additional expenditure is revenue collection. However, the actual situation regarding revenue collection is different. There is a large shortfall every year. Given the demand for additional spending this year, relevant officials believe there is no alternative to putting greater emphasis on revenue collection.

The National Board of Revenue (NBR) had a revenue shortfall of Tk 880 billion in the last fiscal year. To achieve the Tk 6.04 trillion (604,000 crore) collection target in the current fiscal year, the NBR will have to achieve 45 per cent growth. The NBR has never achieved such growth in revenue collection. The highest growth in the past five years was recorded in fiscal year 2021–22, at 12.5 per cent.

After a long time, an initiative to reform the NBR was taken during the tenure of the interim government. That initiative has also stalled. The BNP government has not passed the ordinance to abolish the NBR and create two separate departments—revenue policy and revenue management. On 28 April, a committee was formed to review reforms in the revenue sector, headed by Md Ismail Zabihullah, adviser to the Prime Minister's Ministry of Public Administration. The committee has yet to submit a report.

Meanwhile, the NBR made a presentation on its future plans at the Parliamentary Standing Committee on the Ministry of Finance on 23 August. It said various reform initiatives have been taken, including expanding the tax net to the upazila level and automating tax management. The tax-to-GDP ratio will be increased to 15 per cent by 2035. It is currently around 7 per cent, making Bangladesh one of the countries with the lowest tax-to-GDP ratios in the world.

Rashed Al Mahmud Titumir, adviser to the Prime Minister on Finance and Planning, told Prothom Alo that government expenditure is increasing due to both international and domestic factors. Despite having a long-term agreement with Qatar, fuel oil cannot be transported through the Strait of Hormuz. As a result, buying oil from the spot market is costing more. There are also various impacts of the Middle East war, including rising fertiliser prices. Domestic factors include the Family Card, the waiver of agricultural loans, and additional expenditure for government employees, among others.

Regarding sources of financing, the Prime Minister's adviser said extensive measures have been taken to increase revenue collection in the current fiscal year. Three task forces have been formed. The government has focused on tax evasion, tax fraud and tax exemptions. Alongside proper expenditure management, debt management is also being improved. Therefore, there is no reason for concern about financing for the time being.