Bangladesh is preparing to spend more on subsidies and incentives in the next fiscal year, even as the government struggles with sluggish revenue growth, mounting debt repayments, and increasing demands on the public purse, underscoring the difficult trade-offs facing policymakers.
The national budget for fiscal year 2026–27 is expected to allocate Tk1.17 lakh crore for subsidies, incentives, and cash loans, up from Tk1.12 lakh crore in the revised budget for the current fiscal year.
While the allocation represents a slightly smaller share of GDP than this year, the increase comes at a time when the government’s fiscal space is becoming increasingly constrained.
For policymakers, the challenge is clear: reduce support and risk higher prices for food, fertiliser, and electricity, or maintain subsidies and deepen pressure on already stretched public finances.
The government has long relied on subsidies to keep farms productive, ensure energy supplies, and soften the impact of inflation on households. But as budgetary pressures intensify, economists say the debate is shifting from how much money is being spent to whether the money is reaching the people it is meant to help.
The budget is expected to earmark Tk72,100 crore for subsidies, including Tk37,000 crore for the power sector, Tk9,600 crore for food, and Tk25,500 crore for other sectors. Incentives will account for another Tk33,025 crore, while cash loans remain unchanged at Tk12,000 crore.
Agriculture and energy remain at the centre of the government’s support strategy. The budget sets aside Tk27,000 crore for fertiliser subsidies, Tk37,000 crore for power, and Tk6,500 crore for gas.
Yet those figures could prove only a starting point. Shamim Alam Shibly, agriculture and social protection specialist at the Centre for Policy Dialogue (CPD), said the government may face a much larger subsidy burden if global commodity markets remain volatile.
The proposed Tk27,000 crore fertiliser subsidy allocation could ultimately rise to Tk40,000–50,000 crore if international prices stay elevated, he said. Global fertiliser prices have almost doubled since January, climbing from around $400 to nearly $800 a tonne.
Keeping fertiliser affordable will be one of the government’s toughest challenges in FY27, according to Shibly. Any sharp increase in farm-level prices would raise cultivation costs and eventually feed through to rice and other essential commodities, adding fresh pressure on inflation-weary consumers.
Supply risks are also growing. Payment-related complications have delayed fertiliser imports from some traditional suppliers, forcing Bangladesh to turn to alternative sources. At the same time, domestic production remains well below capacity because of gas shortages and operational inefficiencies. Although local fertiliser factories can produce about 2.6 million tonnes annually, actual output is only around 1.6 million tonnes.
The government faces similar uncertainty in the energy sector. Officials have warned that continuing geopolitical tensions in the Middle East could trigger another bout of volatility in global energy markets, potentially forcing authorities to spend even more on electricity generation, LNG imports, and agricultural support than currently budgeted.
Against that backdrop, economists argue that Bangladesh can no longer afford to focus only on the size of subsidy allocations. CPD Distinguished Fellow Mustafizur Rahman said subsidies remain necessary to protect food security, energy security, and household purchasing power. But he questioned whether the existing system is delivering the maximum benefit from every taka spent.
“Subsidies are not the problem. The problem is how they are designed and distributed,” he said. According to Mustafizur Rahman, support programmes often extend beyond intended beneficiaries, allowing many who do not require assistance to benefit from public funds. He called for a comprehensive review of the subsidy regime and suggested introducing sunset clauses and fixed timelines in long-standing programmes to ensure support does not become permanent by default.
The issue is becoming more urgent as Bangladesh moves closer to graduating from the least developed country (LDC) category. Barkatullah Maruf, trade researcher at LDC Graduation Watch, said maintaining large subsidy programmes could become increasingly difficult once Bangladesh loses some of the policy flexibility available to LDCs.
Even if the government spends Tk27,000 crore on fertiliser subsidies, Tk37,000 crore on power support, and Tk17,000 crore on agricultural incentives, questions will remain over how much of that expenditure ultimately reaches ordinary citizens, he said. Maruf warned that post-graduation trade rules could narrow the government’s room to provide direct subsidies, while the loss of duty-free market access in major destinations such as the European Union, Japan, and Australia would expose Bangladeshi exporters to fiercer competition from countries including China, India, and Vietnam. He also cautioned that future trade arrangements could increase dependence on imported agricultural products, creating additional pressure on local farmers.
For many economists, however, the most persistent weakness lies much closer to home. Electricity subsidies, one of the largest components of government support, are often captured disproportionately by higher-income households and businesses because they consume more power. Economist Shahadat Siddique said the system rewards consumption rather than need, meaning affluent consumers frequently receive larger subsidy benefits than poorer households.
A similar imbalance exists in agriculture, where large commercial operators and marginal farmers often receive comparable support despite having vastly different financial capacities. According to Shahadat Siddique, the root cause is the absence of a strong and comprehensive beneficiary database. Without reliable information, policymakers have little choice but to distribute support broadly rather than target it precisely.
International lenders, including the International Monetary Fund, have repeatedly urged Bangladesh to rationalise subsidy spending. Yet meaningful reform has remained politically difficult because the benefits extend well beyond vulnerable groups.
As the government prepares another budget built on sizeable subsidies, a fundamental question remains unresolved: can Bangladesh continue expanding support programmes while its fiscal room narrows, or must it finally redesign a system that economists say is becoming increasingly expensive and inefficient?
The tax-to-GDP ratio dropped below 7 per cent, and the government targets a 42 per cent increase in revenue collection next fiscal year, compared with what is ultimately estimated to be collected this year.
