Bangladesh budget offers green signals but faces major execution test

Bangladesh’s proposed budget offers green signals on renewable energy, social protection and climate adaptation, but ambitious targets, debt pressure, tax fairness and implementation gaps raise serious concerns.

Bangladesh’s proposed 2026-27 national budget has arrived at a moment when the economy is under pressure from inflation, revenue shortfalls, rising debt-servicing costs, dependence on imported energy, foreign exchange stress, weak job creation, climate risks and looming trade challenges after graduation from least developed country status.

That means the budget should not be viewed merely as an income-and-expenditure statement. It is a test of the state’s priorities, its ability to understand risk and its broader vision for future development.

The proposed budget totals 9.38 trillion taka. It is a large budget and also a politically ambitious one. The government has set growth at 6.5 percent and inflation at 7.5 percent. Development spending has been increased, social sectors have been presented as priorities and tax incentives have been proposed for renewable energy and electric vehicles. These are positive signals. But the central question remains whether the budget can place economic recovery alongside an integrated transformation of nature, livelihoods, food, energy and climate security.

One of the budget’s strengths is the attempt to raise the share of development expenditure. For years, Bangladesh‘s budgets have seen the quality of development spending weakened by the pressure of operating costs, subsidies, interest payments and inefficient project spending. The latest pledge to expand development expenditure is therefore important at least at the policy level.

Education, health, social protection, human resources, science, research and technology have all been identified as priorities. The proposal to raise allocations for social protection is also encouraging, especially at a time when inflation has made life harder for low-income people. But a larger allocation alone will not be enough. Allowances, food support, cash transfers and employment programmes will have to reach the real poor, climate-affected communities, women, children, older people, persons with disabilities and workers in the informal sector. That will require a dynamic social registry, digital verification and accountability at the local level.

Perhaps the most important positive measure is the proposed zero tax rate for the solar power sector until 2035, along with a 5 percent tax rebate on solar electricity bills. Though late, it is a step in the right direction. For Bangladesh, energy security alone is no longer enough. What is needed is energy sovereignty. That means not only access to electricity but also reduced import dependence, savings in foreign currency, local production, community-based energy systems, affordable electricity for agriculture and small industry and development that does not destroy nature.

The biggest weakness in the budget is that its revenue target appears more optimistic than realistic.

To achieve the proposed revenue target of 6.95 trillion taka, Bangladesh would need deep reform of tax administration, stronger action against evasion, digital audits, fair taxation of high-income groups, effective application of wealth taxes and reform of the political economy surrounding tax exemptions. If the burden is widened mainly by putting more pressure on ordinary people, small businesses and the middle class, the economy will not be revived. Instead, purchasing power will fall.

For many years Bangladesh has set high revenue targets in the budget only to fall short in implementation. If the government fills that gap through higher bank borrowing, it risks crowding out private investment, fuelling inflation and pushing interest costs even higher. The revenue strategy therefore cannot be only about collection. It must also be about fairness. Tax policy should not punish the food of the poor, the production of farmers, the capital of small entrepreneurs or the standard of living of the middle class.

The pressure of interest payments in the budget is also deeply worrying. Heavy allocations for servicing domestic and foreign debt mean less room for development, health, education, agriculture, climate adaptation and renewable energy. Debt in itself is not the problem. The real questions are where the debt is spent, under what conditions it is taken, what return it generates and whether it protects the rights of people and nature.

Bangladesh’s development model has long been tied to mega projects, import-dependent energy, subsidy-based power generation and costly infrastructure. One consequence is mounting pressure from interest payments and subsidies in the budget. If the new budget truly aims to be reform-oriented, project evaluation should be required to consider not only financial returns but also natural rights, social justice, livelihood security, climate risk and future operating costs.

The energy sector remains the area where transformation is most urgently needed and still incomplete.

The budget acknowledges that higher international prices for energy, liquefied natural gas, oil and chemical fertiliser have created major pressure on the economy. That is clear evidence that an import-dependent energy structure is no longer safe. Power sector subsidies, capacity charges, fuel imports, dollar shortages and gaps between production cost and tariffs all pose serious risks to financial stability.

The solar tax exemption proposal is welcome but not sufficient. Duties and taxes on renewable energy equipment, including inverters, batteries, mounting structures, DC cables, smart meters, storage and grid-connection technologies, would need to be brought down to zero to deliver the desired impact. Bangladesh also needs to move beyond large solar parks alone. Rooftop solar, solar irrigation, micro-grids in chars and coastal areas, solarisation of schools and hospitals, solar systems for small industries and community-owned energy models should all be placed at the centre of financing.

Energy independence means buying less fuel from abroad. But energy sovereignty is a broader idea. It returns ownership of energy to people, nature and the local economy. The language of that ambition is partly present in the budget, but the full framework is still missing.

In agriculture and food security, the budget offers some short-term relief but also raises long-term biodiversity concerns.

Tax relief on fertiliser and pesticides may help reduce farmers’ production costs. But broad exemptions for all chemical fertilisers and pesticides could create lasting harm to soil, water, pollinators, fish, wetlands, public health and food security. It is dangerous to equate food security with chemically dependent production.

Bangladesh should aim to move from food security to food sovereignty. That means strengthening farmers, soil, water, seeds, local knowledge, organic fertiliser, safe food, climate-resilient crop varieties and local markets together. Any tax relief should be evidence-based, time-bound, targeted and friendly to nature and public health. Larger incentives are needed for organic fertiliser, compost, bio-pesticides, integrated pest management, salt-tolerant agriculture, rainwater harvesting and agro-solar systems.

On climate and nature, the budget contains language but not enough courage in allocations.

It mentions planting 250 million trees, mangroves, biodiversity red lists, river restoration, reducing plastic pollution, air pollution monitoring and climate adaptation. All are important. But the allocation of 1 billion taka for the Climate Trust Fund is far too small compared with the scale of risk. Bangladesh is one of the world’s most climate-vulnerable countries. Coastal salinity, river erosion, urban heat, floods, cyclones, water scarcity, wetland destruction and climate-driven displacement are no longer future threats. They are present-day sources of economic loss.

Tree planting matters, but planting trees alone does not amount to ecological restoration. What is needed is to restore river flow, protect wetlands, rebuild forests as living ecosystems, bring back water bodies and tree cover in cities, create mangrove buffers along the coast and make natural-rights assessments mandatory before development projects begin. Nature is not merely the concern of the environment ministry. It is the foundation of agriculture, energy, health, industry, urban life, water, trade and national security.

Bangladesh’s approaching graduation from least developed country status also makes export competitiveness a pressing concern.

After graduation, the country faces the risk of losing tariff preferences, market access advantages and policy support. In global markets, cheap labour alone is no longer enough. Producers increasingly need low-carbon manufacturing, renewable electricity, traceability, environmental standards, labour rights and supply-chain transparency.

That is especially true for garments, leather, agro-processed goods and future eco-products. Solar energy, water efficiency, waste management and carbon compliance will be essential. The budget does refer to export capacity, but the roadmap for nature-smart productivity should be much clearer. Industrial zones need solar rooftops, waste-to-resource systems, water recycling, green finance, low-interest technology upgrades and green compliance funds for small and medium-sized enterprises.

Tax reform, meanwhile, will not be sustainable without fairness.

Bangladesh needs higher tax collection, but the key question is from whom and by what method. If the system continues to rely mainly on value-added tax and other indirect taxes, then the poor and the middle class will bear a heavier burden. At the same time, if high wealth, land speculation, polluting industries, opaque profits, illicit capital flight and unnecessary tax exemptions remain untouched, the budget cannot be called fair.

The country needs three forms of tax reform: digital transparency in tax administration, fair taxation on high income and wealth and pollution pricing on activities that destroy nature coupled with tax incentives for ecological restoration. Tax policy is not just a tool for raising revenue. It is also the moral compass of an economy.

The budget, the writer argues, should be restructured through a Natural Rights Led Governance, or NRLG, lens.

The central question in that framework is whether public spending protects the rights of life, nature, livelihoods and future generations. If a budget damages rivers, forests, wetlands, farmland, air, soil and human health, then it is not development. It is the creation of future costs.

Every major project, the writer says, should be required to undergo a Natural Rights Impact Assessment. Local Nature Stewardship Councils should be formed for rivers, forests, wetlands, coasts and hills. Climate finance should flow directly to communities, women, farmers, fishers, small entrepreneurs and local government bodies. Ecological restoration should be treated not as a grant-based activity but as national investment.

The proposed 2026-27 budget has offered signals on stability, investment, social protection and a measure of green transition. But it remains trapped within a conventional framework of revenue and expenditure.

Bangladesh’s reality now is such that growth, subsidies and infrastructure alone will not deliver security. Security will come from food sovereignty, energy sovereignty, ecological restoration, tax justice, debt discipline and community-centred development.

The budget should therefore be revised with three explicit goals: reducing the risks of import-dependent energy and chemical-heavy agriculture, turning renewable energy, nature-smart agriculture and climate adaptation into mainstream investment and shifting revenue reform away from pressure on ordinary people toward fairness, transparency and accountability for highly polluting sectors of the economy.

Bangladesh now faces a stark choice: continue down the old path of debt, fuel imports and destruction of nature or build a new path based on a sovereign economy rooted in nature. The 2026-27 budget has opened that door slightly. What is now needed is courageous policy, disciplined implementation and a full restructuring of the budget based on Natural Rights Led Governance.

The writer is chief executive of the Change Initiative.