TDS Desk:

The government borrowed BDT 333.4 billion as spending outpaced revenue. The state treasury has long been fragile. Unpaid power and energy bills and rising debt-servicing costs have compounded the strain. That uncertainty now clouds how the new government will finance its political pledges, with many officials concerned about meeting public expectations in the current situation.

The recently dissolved interim government had set a BDT 7.9 trillion budget for the ongoing fiscal year. It allocated BDT 5.35 trillion for operating expenditure and BDT 2.45 trillion for the annual development programme (ADP). Finance division data show first-half spending at BDT 2.58 trillion, including BDT 2.20 trillion for operating costs and BDT 318.41 billion for development. Revenue collection over the same period totalled over BDT 2.22 trillion. The resulting BDT 353.33 billion deficit was largely financed through loans.

In the first half of the current 2025-26 fiscal year, interest payments, subsidies, salaries and pensions, and financial support to state-owned and autonomous bodies absorbed nearly 80 percent of operating expenditure. Interest payments alone totalled BDT 662.44 billion, subsidies BDT 371.63 billion, salaries and pensions BDT 471.25 billion and financial assistance to various entities BDT 261.76 billion. Spending on shares and equity investments reached BDT 200.67 billion, goods and services BDT 147.03 billion, incentives BDT 48.99 billion and other sectors BDT 40.86 billion.

The BNP government inherited more than BDT 23 trillion in debt when it took power from the interim administration on February 17. Its election manifesto pledged a “family card” for 50 million households and a “farmer card” for genuine cultivators, alongside promises to create jobs and cut the overall loan burden. The government has already approved the family card scheme with an initial pilot distributing BDT 2,000 to each cardholder across 13 upazilas. It also says it will pay a yet-to-be-determined honorarium to imams and muazzins on a pilot basis before the upcoming Eid-ul-Fitr.

Prime Minister Tarique Rahman chaired a meeting on the “farmer card” on Monday at the Cabinet Division conference room. After the session, Information Minister Zahir Uddin Swapon told the media that a pilot project would begin soon, modelled on the “family card” initiative.

Implementing these pledges will require substantial funding. Although launching as pilots, the programmes’ scope and fiscal cost are expected to expand over time.

Policy-makers in the new government say they aim to break with the past culture of loan dependence and deliver a people-friendly budget. On his first visit to his Chattogram constituency since becoming the finance and planning minister, Amir Khasru Mahmud Chowdhury told journalists the era of “patronage politics” is over. “The budget will be people-friendly,” he said, adding that loans taken previously were not spent on worthwhile projects, leaving the government burdened with vast debt.

Analysts believe the government’s scope to implement its political pledges while escaping the trap of loan dependence is severely constrained. The only way to increase spending without borrowing, they argue, is to boost revenue. Yet expenditure is already growing at a faster clip than annual revenue increases. Raising taxes to generate more income would merely pile additional pressure on the public, which experts say has left the government in a fiscal bind.

Dr Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, told journalists: “In the current circumstances, there appears to be no room for the government to increase spending. There is some limited scope to save on development project expenditure. But unpaid bills have accumulated in the power sector, which must be cleared. On top of that, the new government has political commitments. And it was also mentioned that a pay raise for public servants would be under consideration. Implementing these will increase government spending.”

Even as the previous Awami League government failed to muster sufficient revenue over its decade and a half in power, the budget expanded each year. In tandem, the fiscal deficit ballooned. Bridging that gap drove growing reliance on borrowing from domestic and foreign sources, and the sums spent on servicing principal and interest have climbed steadily.

A recent International Monetary Fund (IMF) report spells out the scale of the coming repayment burden. In the current FY 2025-26, Bangladesh must service a combined domestic and foreign debt of $30.58 billion — equivalent to BDT 3.73 trillion at an exchange rate of BDT 122 per dollar. The IMF projects that figure will rise further to $33.84 billion in FY 2026-27.

Despite receiving the largest subsidies, the power sector has built up arrears of BDT 450 billion. The burden of settling that sum now falls on the new government. An ongoing energy shortage is also straining industrial and residential consumers. Added to that is the concern that investment and employment are unlikely to grow without a reliable and uninterrupted supply of energy. Discovering and developing new gas reserves is a lengthy process, while meeting demand through imports would require vast sums.

The new power and energy minister, Iqbal Hasan Mahmud, has described the situation in his portfolio as an “ordeal by fire”. Speaking recently, he said: “Given the volume of unpaid bills left behind from the previous period, and the amount of energy I will have to import, it’s a tough ordeal by fire for me. I’m trying my best to work out how to manage this and deliver benefits to the people.”

Finance ministry officials say the revised budget for the current fiscal year includes a BDT 200 billion allocation to implement the Pay Commission’s recommendations. If the government defers implementation this year, the funds would remain unspent and could initially be redirected to political pledges. However, these programmes are expected to expand next fiscal year. Securing additional resources then will pose a serious challenge.

Balancing limited fiscal space, a rising debt burden and pressure to deliver on popular pledges has become the new government’s toughest economic test. Former senior finance secretary Mahbub Ahmed says this will leave the administration struggling to finance its commitments. “For a developing economy like ours, with the growth trajectory we aspire to, a budget worth at least 25 percent of GDP is advisable,” he told journalists. “We don’t achieve that. Moreover, even approved budgets are not fully implementable because our tax-to-GDP ratio is extremely low. It’s natural that the government will want to fulfil the political pledges it has made. There’s also pressure to raise public-sector salaries and allowances. Inflation also has to be kept under control. So the government has no other option aside from increasing revenue collection. Financing such expenditure through borrowing won’t be ideal.”

He further said, “Raising indirect taxes to boost revenue would push up commodity prices. The alternative therefore is higher direct taxation. But structural constraints will make even that course difficult.”