The ‘budget’ is small, but not ‘beautiful’

British economist Ernst Friedrich Schumacher popularised the idea ‘small is beautiful’ in Economics. In his 1973 book titled “Small Is Beautiful: A Study of Economics as If People Mattered”, Schumacher questioned the notion that massive projects, huge expenditures, and large corporations are synonymous with development. He argued instead that true development lies in human well-being.

The budget for the 2025–26 fiscal, presented on Monday by Finance Adviser Salehuddin Ahmed, does not reflect a budget of grand expenditures or large-scale projects.

However, it raises the question as to how much relief this budget will offer to the people? At the same time, the budget fails to offer a roadmap to address increasing poverty, job losses, and declining incomes. In this sense, the new budget is “small” in every way—but whether it is “beautiful” remains a valid question.

The new budget speech is brief, the budget size is modest, the promises are few, and the ambitions are limited. It seems the finance adviser has perhaps assumed that under the current circumstances, he cannot do much.

He lacks the authority to remove barriers to private investment, resolve the employment crisis, or address political uncertainty. As a result, this new budget might help maintain the status quo for now, but it does not offer a pathway for substantial progress.

Although the finance adviser described the budget as somewhat “unconventional” at the beginning of his speech—highlighting that, for the first time in the country’s history, the proposed budget is smaller than the previous one—the shift in focus from growth-centric policies to more holistic development is emphasised. Rather than listing traditional physical infrastructure projects, the budget was said to focus on people.

However, despite these claims, the budget lacks meaningful reflection of such priorities in investment, employment, education, or healthcare allocations, proposals, or planning. The only notable exception is a special fund of Tk 1 billion proposed for the development of new entrepreneurs. Yet, without a boost in private investment, the sluggish momentum of the economy is unlikely to be reversed. It is also true that improving the investment climate, strengthening law and order, and resolving energy shortages are not solely the economic adviser's responsibilities—and perhaps he is well aware of this, which is why he remained within the bounds of a small budget, small speech, and small ambition.

Consequently, challenges such as the high level of non-performing loans (20.20 per cent) in the banking sector, capital shortages, and the lack of good governance in banking continue to undermine investor confidence. Even in public investment, the government is being extremely cautious. Moreover, a contractionary monetary and fiscal policy, the slow disbursement of development funds, and an overall austerity approach are expected to continue to limit investment and growth.

The national budget has been proposed once again outside the parliament after 17 years. The then finance adviser AB Mirza Md Azizul Islam presented the budget for the 2008-09 fiscal through radio and television, the last time outside the parliament.

This marks the 12th occasion on which the national budget has been presented outside the Parliament. The Finance Adviser has also broken another long-standing convention. Typically, budgets are presented at the end of the week, usually on a Thursday.

However, this time it was delivered on a Monday, a regular working day. However, this is not entirely unprecedented—this tradition has been broken six times before in Bangladesh, the last instance being in 1986.

Another notable exception has been made by Salehuddin Ahmed. He has slightly reduced the overall size of the budget compared to the previous year. In doing so, he has departed from the long-standing tradition among finance ministers of consistently increasing the budget size every fiscal year. 

The Finance Adviser has set a revenue target of Tk 5.64 trillion for the upcoming 2025–26 fiscal, which amounts to 9 per cent of the Gross Domestic Product (GDP). Of this, Tk 4.99 trillion is expected to be collected through the National Board of Revenue (NBR), with the remaining Tk 650 billion to come from other sources.

On the other hand, the proposed expenditure stands at Tk 7.9 trillion, equivalent to 12.7 per cent of GDP. This includes Tk 5.6 trillion in non-development expenditure and an Annual Development Programme (ADP) allocation of Tk 2.3 trillion.

In the new fiscal year, the budget deficit is projected to be Tk 2.26 trillion, which is equivalent to 3.6 per cent of GDP. To finance this deficit, Tk 1.25 trillion will be borrowed from domestic sources, including Tk 1.04 trillion from the banking system. An additional Tk 1.01 trillion is expected to come from external sources.

According to the finance adviser, interest payments in the upcoming fiscal year will amount to Tk 1.22 trillion.

The Finance Adviser has also revised the budget for the 2024–25 fiscal year. The revenue collection target has been reduced by Tk 230 billion from the original budget, bringing it down to Tk 5.18 trillion. Similarly, total expenditure has been revised down by Tk 530 billion, now set at Tk 7.44 trillion.

Under this revision, the Annual Development Programme (ADP) has been fixed at Tk 2.16 trillion—Tk 490 billion less than originally proposed. As a result, the overall budget deficit stands at Tk 2.26 trillion, which is 4.1 per cent of GDP.

The finance adviser has portrayed the containment of inflation as one of the major achievements. Inflation dropped from 10.89 per cent in December to 9.17 per cent in April. The commodity prices were under control even during Ramadan. The government hopes inflation will fall to 8 per cent by June.

Despite the optimism, the finance adviser did not try to facilitate any relief for individual taxpayers, by raising the tax-free income ceiling. The annual tax-free income threshold remains unchanged at Tk 350,000. He, however, announced a Tk 25,000 increase in the threshold for the next two fiscal. He argued that the previous government had already set the tax rate for FY2025–26.

While there was no relief for individual taxpayers, the adviser proposed increased benefits for government employees, offering them some comfort.

Due to lack of preparation, the finance ministry could not provide much information during the budget announcement. As the economic survey wasn't released, there was no data on the decline in public and private investment during the current fiscal year. The adviser also did not outline the investment target for the next fiscal year.

However, the ministry claimed in its medium-term macroeconomic policy statement that GDP growth would reach 5.5 per cent in the new fiscal year. With private investment continuing its downward trend, the budget does not explain how GDP growth will rise from 3.97 per cent to 5.5 per cent in just one year.

According to former British prime minister Winston Churchill, “There is no such thing as a good tax.” Adam Smith, the father of modern economics, suggested that every citizen should contribute to state expenditure based on their ability.

In Bangladesh, the government fails to collect taxes as per people’s capacities, putting more burden on regular taxpayers. Therefore, the proposed tax measures cannot be called “good tax” in Churchill’s words. Despite months of discussion on revenue collection and reform, the finance adviser followed a largely conventional path, and relied heavily on indirect taxes for revenue, once again.

Even after widespread criticism, the budget retains the scope for legalising undisclosed income (black money). To encourage deposits, the budget raises the exemption from excise duty on bank balances up to Tk 300,000, which was previously Tk 100,000. The requirement for having a TIN (Tax Identification Number) to purchase savings certificates has been lifted. These steps may ease the government’s efforts to borrow from domestic sources.

Other notable proposals include increasing the tax gap between listed and unlisted companies to 7.5 per cent. Besides, the government exempted agricultural income up to Tk 500,000 from taxes, while imposing taxes and penalties on laundered income of former citizens, reducing land registration costs, cutting advance tax on industrial raw materials to 2 per cent, and raising advance tax on commercial imports to 7.5 per cent.

On the flip side, raising the VAT rate on online sales commissions from 5 per cent to 15 per cent will create challenges for many startups. Similarly, a 10 per cent supplementary duty on OTT services could adversely affect local content creators and digital platforms.

In addition to forming a fund to foster new entrepreneurs, the finance has announced a separate fund of Tk 1 billion (Tk 100 crore) specifically for startups. Furthermore, another Tk 1 billion is being allocated to celebrate a "Festival of Youth" aimed at deeply engaging young people in the country’s development.

A sum of Tk 50.4 billion (Tk 5,040 crore) is being allocated to the Public-Private Partnership (PPP) fund. How transparently these initiatives are implemented remains to be seen. Additionally, Tk 4.052 billion (Tk 405.20 crore) has been earmarked for the families of martyrs and the injured from the July mass uprising.

The finance adviser also noted that by November 2026, Bangladesh is set to formally graduate from the list of Least Developed Countries (LDCs). Preparing for this transition in such a short time will be a major challenge.

The budget further reveals that, as part of preparations for trade dialogue with the United States, proposals include the complete withdrawal of import duties on 110 products, reduction of duties on 65 items, full withdrawal of supplementary duties on 9 items, and reduction of supplementary duties on 442 items. However, experts remain skeptical that these steps will fully satisfy the United States, as its expectations involve not just selective tariff cuts but a broad reform of the overall trade tariff structure.

In the concluding part of the budget speech, the finance adviser stated that there is still a long way to go before reaching the threshold of success. Although there have been signs of easing inflation in recent months, it remains not fully under control. The additional tariffs imposed by the US in April could also have negative effects on the economy. Moreover, close attention must be paid to the possible adverse impacts of the newly introduced market-based exchange rate system.

Risks will remain. But people have endured hardship for many years. Now, they want relief from inflation, jobs for the unemployed, security for ordinary citizens, and freedom from uncertainty for businesses. It was these expectations that drove large numbers of people to participate in the July mass uprising. Their hope is that at least some of these demands will be fulfilled in the new fiscal year.

The piece can be aptly concluded with a few lines from American poet Emily Dickinson’s poem “Hope”

"Hope is the thing with feathers,

That perches in the soul,

And sings the tune without the words,

And never stops at all."