Bangladesh unveils $77 billion budget, targets 6.5% growth despite Moody’s downgrade – Firstpost

Bangladesh on Thursday presented a 9.38 trillion taka (about $77 billion) national budget for fiscal year 2026-27, setting an ambitious target of 6.5 per cent economic growth while aiming to bring inflation down to 7.5 per cent. The budget comes as the country’s new leadership attempts to steer the economy out of a period marked by stubborn inflation, weak investment activity, banking sector stress and slowing industrial growth.

The spending plan is the first full-fledged budget under Prime Minister Tareque Rahman’s government and signals a shift in economic strategy following the political transition that followed the removal of former prime minister Sheikh Hasina in 2024.

With growth slowing and public sentiment strained by rising living costs, the government has opted for a more expansionary fiscal approach. Total expenditure is set to rise by 19 per cent, while development spending will surge by 47 per cent to 3.16 trillion taka. At the same time, Dhaka has set a challenging revenue collection target of 6.95 trillion taka, underscoring its efforts to balance growth ambitions with fiscal discipline.

Presenting the budget in parliament, Finance Minister Amir Khosru Mahmud Chowdhury said restoring economic stability and improving household purchasing power remain the government’s top priorities.

The budget estimates a fiscal deficit of 2.43 trillion taka, or roughly 3.6 per cent of GDP. The government plans to bridge the gap through a combination of domestic and external borrowing, with foreign financing expected to play a larger role in order to ease pressure on the country’s banking system.

Moody’s warning casts shadow

The government’s optimistic projections come against the backdrop of a recent downgrade by Moody’s Ratings, which lowered Bangladesh’s sovereign rating to B2 from B1 and revised its outlook to negative from stable.

The ratings agency cited rising political uncertainty, weaker growth prospects, liquidity pressures and vulnerabilities in the banking sector as key reasons behind the downgrade.

Moody’s also cut its growth forecast for Bangladesh to 4.5 per cent for fiscal year 2025 and warned that political instability following the change in government could complicate the implementation of reforms linked to the country’s International Monetary Fund (IMF) programme.

According to the agency, the absence of a clear electoral roadmap, concerns over law and order and persistent inflationary pressures have increased risks to the country’s economic outlook.

The report further highlighted Bangladesh’s fragile external position. Although remittance inflows have improved and development partners continue to provide support, foreign exchange reserves remain under strain after years of pressure on the balance of payments.

Economy crosses $500 billion milestone

The budget was unveiled just days after Bangladesh achieved a significant economic milestone, with the size of its
economy crossing the $500 billion mark for the first time.

Provisional estimates released by the Bangladesh Bureau of Statistics (BBS) show that GDP at current prices rose to $501 billion in fiscal year 2025-26, up from $456 billion in the previous year. The economy expanded by 4.14 per cent during the period, compared with 3.49 per cent growth a year earlier.

Per capita gross national income also crossed an important threshold, rising by $251 to reach $3,020.

The achievement reflects Bangladesh’s long-term transformation into one of South Asia’s fastest-growing economies, driven by export-led industrialisation, a thriving garment sector and rising incomes over the past two decades.

Yet beneath the headline numbers, several indicators point to lingering structural weaknesses.

The investment-to-GDP ratio fell to 27.93 per cent from 28.54 per cent a year earlier, suggesting that private sector investment remains subdued. Domestic savings declined to 21.38 per cent of GDP, while national savings slipped to 26.93 per cent, highlighting concerns over capital formation and investor confidence.

Economic activity has also become increasingly uneven. While agriculture and services continued to support growth, the industrial sector lost momentum. Industrial growth slowed to 2.86 per cent in FY26 from 3.71 per cent in the previous year, largely due to weaker manufacturing performance.

Reform agenda

Finance Minister Chowdhury acknowledged that years of structural inefficiencies, governance shortcomings and external shocks have weakened the economy.

He noted that GDP growth has steadily decelerated in recent years, falling from 5.78 per cent in fiscal year 2022-23 to 4.22 per cent in 2023-24 and an estimated 3.49 per cent in the outgoing fiscal year.