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Last fiscal test before LDC graduation
THE upcoming national budget for fiscal year 2026–27 is not just another fiscal exercise. It is the final budget before Bangladesh exits the Least Developed Country category on November 24, 2026. This transition will mark the end of preferential treatment and the beginning of a more competitive...
www.newagebd.net
Last fiscal test before LDC graduation
THE upcoming national budget for fiscal year 2026–27 is not just another fiscal exercise. It is the final budget before Bangladesh exits the Least Developed Country category on November 24, 2026. This transition will mark the end of preferential treatment and the beginning of a more competitive economic reality. The question is no longer about growth alone, but about whether that growth can sustain itself without protection. Internationalnews coverage
With a projected expenditure exceeding Tk 8.8 trillion, the government faces three immediate pressures: a volatile global energy market, a banking sector weakened by default loans, and a large youth population entering the labour market each year. The budget must respond with discipline, not expansion for its own sake.
Energy remains the most immediate constraint. The recent escalation in the Middle East has once again exposed Bangladesh’s vulnerability as a fuel-import-dependent economy. With nearly 95 per cent of its energy needs reliant on imports, global price spikes quickly translate into domestic fiscal pressure. Subsidy burdens have expanded, while power shortages and gas constraints continue to disrupt industrial production, particularly in export-oriented sectors.
The current approach of delaying price adjustments has created fiscal strain without resolving supply instability. A gradual, predictable pricing mechanism is necessary to reduce shocks while limiting subsidy leakage. At the same time, the budget must shift focus from subsidising consumption to investing in diversification. Expanding domestic gas exploration, strengthening renewable energy incentives and reducing system loss through grid efficiency are more sustainable responses than continuing to absorb external shocks through subsidies.
Macroeconomic stability presents a second challenge. Inflation has remained elevated, hovering near 9 per cent despite tighter monetary policy. High interest rates have slowed investment, yet supply-side disruptions — particularly in energy and logistics — continue to push costs upward. This creates a policy imbalance where demand is suppressed but prices remain high.
Fiscal policy must avoid worsening this imbalance. Deficit financing through excessive borrowing or monetary expansion would undermine price stability further. Instead, the focus should be on removing supply bottlenecks and improving market efficiency. Without addressing structural inefficiencies, inflation will persist regardless of monetary tightening. Bangladeshtravel guide
Revenue mobilisation is equally critical. Bangladesh’s tax-to-GDP ratio remains low, while public debt continues to rise. With the end of concessional borrowing after LDC graduation, debt servicing will take up a larger share of revenue. This limits fiscal space for development spending.
The budget therefore cannot rely on debt-driven growth. Expanding the tax base through improved compliance, reducing exemptions, and strengthening digital collection systems are necessary steps. Without this, the government risks diverting funds away from development simply to manage debt obligations.
External stability is also under pressure. Foreign exchange reserves have stabilised but remain vulnerable to high import bills. Increasing remittance flows through formal channels will be important. Introducing targeted financial instruments, such as pension or insurance schemes for migrant workers, could incentivise formal transfers and strengthen reserve buffers ahead of the LDC transition.
The significance of this budget becomes clearer in the context of graduation. The loss of duty-free quota-free access will place pressure on exports, particularly in the ready-made garment sector. Without improvements in productivity and diversification, export earnings could decline.
This makes competitiveness a central concern. Investment in non-RMG sectors such as leather, pharmaceuticals, and ICT must be prioritised to reduce dependency on a single industry. At the same time, compliance with international labour and environmental standards will determine access to key markets, particularly in the European Union. Budgetary support in these areas is not optional; it is necessary for maintaining export continuity. Economics
The banking sector remains another structural weakness. Non-performing loans continue to strain liquidity and limit credit availability for productive sectors. The persistence of default culture has forced the government to rely more heavily on domestic borrowing, increasing pressure on interest rates and crowding out private investment.
Addressing this requires more than incremental reform. Strengthening regulatory enforcement, holding defaulters accountable and improving asset recovery mechanisms are essential. Without restoring discipline in the financial sector, broader economic reforms will remain constrained.
Employment presents the most immediate social challenge. Each year, more than two million young people enter the labour market. Yet job creation has not kept pace with economic growth. This disconnect suggests that growth has been concentrated in areas that do not generate sufficient employment.
The risk is that LDC graduation will intensify this pressure. If export sectors face adjustment shocks, employment opportunities could narrow further. The budget must therefore prioritise job creation as a core objective, not as a secondary outcome of growth.
Public spending should shift towards human capital rather than infrastructure alone. Investment in skills development, technology-oriented training, and industry-linked education is necessary to prepare the workforce for a changing economy. Incentives for firms to hire and train young workers can help bridge the gap between education and employment.
The upcoming budget is, in effect, a test of economic maturity. Bangladesh is moving beyond a phase where external support and preferential access compensated for internal weaknesses. Those weaknesses — in energy, revenue, banking, and employment — now require direct policy correction.
The choice is clear. The government can continue to manage pressures through short-term adjustments, or it can use this moment to implement structural reforms that will sustain growth in a post-LDC environment. The latter will require restraint, prioritisation, and a willingness to confront entrenched inefficiencies.
If the macroeconomic foundations are stabilised now, LDC graduation can serve as a transition point towards a more resilient economy. If not, the shift may expose vulnerabilities that have long been deferred rather than resolved.
Md Badrul Millat Ibne Hannan is an associate member of CPA Australia and a certified financial consultant with IFC Inc., Canada.
THE upcoming national budget for fiscal year 2026–27 is not just another fiscal exercise. It is the final budget before Bangladesh exits the Least Developed Country category on November 24, 2026. This transition will mark the end of preferential treatment and the beginning of a more competitive economic reality. The question is no longer about growth alone, but about whether that growth can sustain itself without protection. Internationalnews coverage
With a projected expenditure exceeding Tk 8.8 trillion, the government faces three immediate pressures: a volatile global energy market, a banking sector weakened by default loans, and a large youth population entering the labour market each year. The budget must respond with discipline, not expansion for its own sake.
Energy remains the most immediate constraint. The recent escalation in the Middle East has once again exposed Bangladesh’s vulnerability as a fuel-import-dependent economy. With nearly 95 per cent of its energy needs reliant on imports, global price spikes quickly translate into domestic fiscal pressure. Subsidy burdens have expanded, while power shortages and gas constraints continue to disrupt industrial production, particularly in export-oriented sectors.
The current approach of delaying price adjustments has created fiscal strain without resolving supply instability. A gradual, predictable pricing mechanism is necessary to reduce shocks while limiting subsidy leakage. At the same time, the budget must shift focus from subsidising consumption to investing in diversification. Expanding domestic gas exploration, strengthening renewable energy incentives and reducing system loss through grid efficiency are more sustainable responses than continuing to absorb external shocks through subsidies.
Macroeconomic stability presents a second challenge. Inflation has remained elevated, hovering near 9 per cent despite tighter monetary policy. High interest rates have slowed investment, yet supply-side disruptions — particularly in energy and logistics — continue to push costs upward. This creates a policy imbalance where demand is suppressed but prices remain high.
Fiscal policy must avoid worsening this imbalance. Deficit financing through excessive borrowing or monetary expansion would undermine price stability further. Instead, the focus should be on removing supply bottlenecks and improving market efficiency. Without addressing structural inefficiencies, inflation will persist regardless of monetary tightening. Bangladeshtravel guide
Revenue mobilisation is equally critical. Bangladesh’s tax-to-GDP ratio remains low, while public debt continues to rise. With the end of concessional borrowing after LDC graduation, debt servicing will take up a larger share of revenue. This limits fiscal space for development spending.
The budget therefore cannot rely on debt-driven growth. Expanding the tax base through improved compliance, reducing exemptions, and strengthening digital collection systems are necessary steps. Without this, the government risks diverting funds away from development simply to manage debt obligations.
External stability is also under pressure. Foreign exchange reserves have stabilised but remain vulnerable to high import bills. Increasing remittance flows through formal channels will be important. Introducing targeted financial instruments, such as pension or insurance schemes for migrant workers, could incentivise formal transfers and strengthen reserve buffers ahead of the LDC transition.
The significance of this budget becomes clearer in the context of graduation. The loss of duty-free quota-free access will place pressure on exports, particularly in the ready-made garment sector. Without improvements in productivity and diversification, export earnings could decline.
This makes competitiveness a central concern. Investment in non-RMG sectors such as leather, pharmaceuticals, and ICT must be prioritised to reduce dependency on a single industry. At the same time, compliance with international labour and environmental standards will determine access to key markets, particularly in the European Union. Budgetary support in these areas is not optional; it is necessary for maintaining export continuity. Economics
The banking sector remains another structural weakness. Non-performing loans continue to strain liquidity and limit credit availability for productive sectors. The persistence of default culture has forced the government to rely more heavily on domestic borrowing, increasing pressure on interest rates and crowding out private investment.
Addressing this requires more than incremental reform. Strengthening regulatory enforcement, holding defaulters accountable and improving asset recovery mechanisms are essential. Without restoring discipline in the financial sector, broader economic reforms will remain constrained.
Employment presents the most immediate social challenge. Each year, more than two million young people enter the labour market. Yet job creation has not kept pace with economic growth. This disconnect suggests that growth has been concentrated in areas that do not generate sufficient employment.
The risk is that LDC graduation will intensify this pressure. If export sectors face adjustment shocks, employment opportunities could narrow further. The budget must therefore prioritise job creation as a core objective, not as a secondary outcome of growth.
Public spending should shift towards human capital rather than infrastructure alone. Investment in skills development, technology-oriented training, and industry-linked education is necessary to prepare the workforce for a changing economy. Incentives for firms to hire and train young workers can help bridge the gap between education and employment.
The upcoming budget is, in effect, a test of economic maturity. Bangladesh is moving beyond a phase where external support and preferential access compensated for internal weaknesses. Those weaknesses — in energy, revenue, banking, and employment — now require direct policy correction.
The choice is clear. The government can continue to manage pressures through short-term adjustments, or it can use this moment to implement structural reforms that will sustain growth in a post-LDC environment. The latter will require restraint, prioritisation, and a willingness to confront entrenched inefficiencies.
If the macroeconomic foundations are stabilised now, LDC graduation can serve as a transition point towards a more resilient economy. If not, the shift may expose vulnerabilities that have long been deferred rather than resolved.
Md Badrul Millat Ibne Hannan is an associate member of CPA Australia and a certified financial consultant with IFC Inc., Canada.
