Fiscal deficit pressure is intensifying, financial management crisis is growing

Staff Correspondent

While the country is likely to set a new record in revenue collection in the current fiscal year 2025-26, the revenue deficit has become a major concern. The National Board of Revenue (NBR) is expecting to collect more than Tk 4 lakh crore in revenue for the first time. However, there is a risk of a deficit of about Tk 88 thousand crore by the end of the fiscal year, which could further increase the pressure on the government’s financial management.

According to the NBR’s forecast, total revenue collection by the end of the fiscal year could stand at around Tk 415,000 crore, although this is around Tk 88,000 crore less than the revised target of Tk 503,000 crore.

According to the latest updated data of the organization, the total revenue collected till June 20, including customs, value added tax and income tax, is Tk 3,89,953 crore. Tk 29,311 crore was collected in the first 20 days of June. The NBR is looking at the possibility of collecting another Tk 25,000 crore during the rest of the month.
If this trend continues, the revenue collection will cross the Tk 4 lakh crore mark for the first time in the current fiscal year. At the same time, it will be about Tk 43,000 crore more than the Tk 3,70,843 crore of the previous fiscal year.

However, despite the potential for record revenue collection, the pressure of deficit is not easing. In the first 11 months till May, revenue collection was Tk 3,60,642 crore, while the target was Tk 4,42,84 crore. During that period, the deficit stood at Tk 81,442 crore.

Revenue deficits directly put pressure on the government’s expenditure management. Because it is almost impossible to reduce a large part of the operating expenses, including salaries and allowances, interest payments on loans. As a result, development spending usually has to be reduced to address the deficit, which can negatively impact the implementation of the annual development program.

Economists say the country’s tax-to-GDP ratio has been stuck between 6 and 7 percent for a long time, leaving the fiscal structure weak. “Large deficits have become a regular occurrence due to unrealistic revenue targets,” said Mostafizur Rahman, a special fellow at the Center for Policy Dialogue. “Without expanding the tax base, it is difficult to overcome this situation.”

Zahid Hossain, former chief economist at the World Bank’s Dhaka office, agrees. According to him, it is not possible to sustainably increase revenue without expanding tax coverage and structural reforms.

Meanwhile, growth was seen in all three sectors – customs, value-added tax and income tax. The growth in revenue collection till May was 10.02 percent.

To increase revenue, the NBR has already formed three separate working groups in the income tax, value added tax and customs departments. These working groups are working to resolve cases, alternative dispute resolution and increase revenue collection. In addition, tax evasion detection, tax supervision at source, post-import audit and risk-based audit activities have also been strengthened.

The government is planning to set a revenue target of around Tk 695,000 crore for the upcoming fiscal year 2026-27. Of this, the NBR will be responsible for collecting Tk 604,000 crore. As a result, although there is a possibility of setting a new record in revenue collection this year, there is a fear that the pressure on financial management will increase further.