Bangladesh has once again entered discussions with the International Monetary Fund (IMF) for a new loan programme. The previous programme fell short of expectations as several reform commitments were not fully implemented. This time, the IMF’s priorities are clear: increase domestic revenue and improve fiscal discipline by reducing the government’s recurrent expenditure. These are not merely IMF conditions. They also reflect Bangladesh’s current economic reality. Revenue growth has remained below expectations, while government spending continues to rise. As a result, the country is facing growing pressure from budget deficits, debt servicing and interest payments.
The national budget for FY2026-27 stands at Tk9.38 trillion, with a revenue target of Tk6.95 trillion. This leaves a financing gap of around Tk2.43 trillion, which the government plans to cover through domestic and external borrowing. A large share of the budget is spent on recurrent expenditure, including salaries and allowances, pensions, interest payments, administrative costs, office operations, energy bills, government vehicles, foreign travel, meetings and seminars and maintenance of public buildings. While development spending creates long-term assets, recurrent expenditure is largely ongoing. Unless it is managed more efficiently, pressure on public finances will continue to grow.
Bangladesh’s tax-to-GDP ratio remains one of the lowest in South and Southeast Asia. Increasing revenue collection is therefore essential. However, higher tax collection alone will not solve the country’s fiscal challenges if government spending continues to expand without corresponding improvements in efficiency. Many economists argue that before asking citizens to pay more taxes, the government should first ensure that public money is being spent wisely. A modern state does not spend more, but delivers better public services with fewer resources.
Bangladesh’s public administration includes several ministries, divisions, departments and agencies performing similar or overlapping functions. In many cases, a single policy decision requires approval from multiple institutions, increasing administrative costs and slowing implementation. A comprehensive Public Expenditure Review could identify overlapping responsibilities and recommend mergers or restructuring of public institutions. Such reforms would not only reduce costs but also improve the efficiency of government services.
Reducing public expenditure does not necessarily mean large-scale layoffs. International experience suggests that governments can lower costs by eliminating unnecessary vacant positions, applying stricter recruitment policies, expanding digital services and gradually reducing the workforce through natural retirement. Digital transformation is one of the most effective ways to reduce government expenditure. E-filing, online approvals, electronic procurement, virtual meetings and paperless administration can significantly lower operating costs while improving transparency, accountability and service delivery.
The government spends billions of taka each year on public procurement. Transparent bidding, centralised purchasing, digital monitoring and stronger price verification can generate substantial savings. Similarly, better project management is essential. Delays and cost overruns have become common in many public projects. Completing projects on time would reduce financing costs and improve the overall efficiency of public investment.
Many state-owned enterprises continue to operate at a loss and depend heavily on government support. Improving corporate governance, increasing operational efficiency and restructuring underperforming enterprises could significantly reduce the fiscal burden. Subsidies play an important role in protecting low-income households. However, not all subsidies are equally effective. Programmes that fail to reach their intended beneficiaries should be reviewed. Savings from inefficient subsidies could be redirected to education, healthcare and social protection.
Over the past decade, Vietnam has made administrative reform a key pillar of its economic success. By expanding digital public services, restructuring government agencies and reducing unnecessary layers of bureaucracy, it has improved efficiency while creating a more attractive environment for investment. Indonesia once spent a significant portion of its budget on fuel subsidies. Through gradual reforms, it redirected much of that spending toward infrastructure, education, healthcare and targeted social protection. Although politically challenging, the reforms improved fiscal sustainability without abandoning support for vulnerable groups. Malaysia has adopted Outcome-Based Budgeting, where public spending is evaluated not only by how much money is allocated but also by the results achieved. This approach helps identify ineffective programmes and improves the overall quality of public expenditure.
Bangladesh could consider several practical reforms to improve the efficiency, transparency, and effectiveness of its public sector. These reforms include merging public institutions with overlapping responsibilities to reduce duplication, expanding mandatory digital government services to enhance accessibility and efficiency, and eliminating unnecessary vacant positions to optimise public expenditure. The government could also improve transparency and competition in public procurement, strengthen project planning and implementation, and reform loss-making state-owned enterprises to ensure better financial performance. In addition, making better commercial use of public assets, improving the targeting of subsidies so they reach those who need them most, and linking ministry budgets with measurable performance indicators would help promote accountability and achieve better development outcomes.
Reducing government expenditure should not mean cutting spending on education, healthcare or social protection. The real objective should be to eliminate waste, administrative duplication and inefficiency. Every taka collected from taxpayers should generate the highest possible public value.
The IMF’s new programme may provide additional momentum for these reforms. However, the real question is whether Bangladesh will pursue fiscal reform simply to meet external conditions or because a more efficient, accountable and financially sustainable state is essential for its own long-term development.
The experiences of Vietnam, Indonesia and Malaysia suggest that fiscal sustainability is not achieved merely by raising taxes. It also requires building a government that is leaner, more efficient and better able to deliver quality public services. For Bangladesh, that may be the most important reform agenda in the years ahead.
The views expressed in this article are solely those of the author
The writer is the Senior Business Reporter, Desh TV. E-mail: [email protected]
