Have CMSMEs Got Attention in FY2027 Budget?

The geoeconomic crisis, fuelled by the Middle-East war and its fallout, caused wide-ranging consequences across the world, hampering the global trading system. Many developed and developing economies have not become immune from the global shocks. Bangladesh is no exception to this global shockwave, experiencing the implications of this crisis. The entire private sector, encompassing the large and CMSMEs across the board, has been badly affected by the prolonged Russia and Ukraine war and the ongoing Iran and US crisis, which have aggravated the world economic order. The world economy encountered global merchandise trade and foreign investment decline, which deepened the geoeconomic meltdown to a large extent. Bangladesh, locally, is going through a macroeconomic transitional time with macroeconomic challenges including high inflation, lowering FDI, foreign trade and LDC-graduation-driven economic uncertainties. And the lifeline of the economy, the CMSMEs, is heavily impacted.
The World Bank earlier reported 90% of businesses and over 50% of employment worldwide are contributed by SMEs. In Bangladesh, the MSMEs play various crucial roles as the key facilitator of the economic acceleration and act instrumentally across all segments of the economy. The national budget through the Finance Act under Article 81 of the constitution is yearly declared for supporting economic and state operations by the government. The budget indicates a clear mapping and forecast of annual fiscal operation and a sector-wise development plan. MSMEs contribute 30% of GDP and 80% of industrial employment and act as the linkage of many core industries. This local and global share of SMEs underscores their inevitability in the world economy. With this priority sector in economic planning, the national budget lacks appropriate revival initiatives targeted at MSMEs. With the legacy of the incremental budget, the government has declared Tk9.38 trillion, 18.5% higher than the revised budget of FY2026. In the existing economic context, the budget size is relatively large with immense banking sector dependence. Ironically, the budget has given an ambitious private sector investment target which is not aligned with the current state of MSMEs. This budget has proposed some private sector and doing business process simplification initiatives but lacks MSME preference and recovery moves. The budget has proposed a fiscal support of TK. 5000 crore of the refinancing scheme out of the TK. 60000 crore refinancing scheme for the turnaround of sick and devastated businesses to address the SME challenges and their growth. The biggest concern of it is that the process of financing a bank is still very cumbersome and challenging for the CMSMEs. Given their contribution to the economy, the procedure of financing should be addressed to avoid the economic glooms and facilitate their desired growth.
The soaring cost of bank lending, liquidity crunch, inflationary stress, 50% exchange rate hike, and low import trend adversely enhanced the cost of doing business, making the local business climate harder. Consequently, the private sector credit trend becomes the slimmest, reaching below 4%, the lowest ever over the last three decades, while the private investment-to-GDP ratio hovers within 22% over the last couple of years. The budget overlooks sector-specific strategies for the unique challenges faced by different SMEs, which may limit various growth potentials. The larger banking sector-dependent deficit budget holds back the MSME investment lending with crowding-out effects.
Although the budget has made some provisions for funding and deregulation processes, external macroeconomic state and geoeconomic pressures identified are likely to weaken the MSMEs' welfare in some sectors. Business facilitation moves like plug and play in national budget, 48 hours business registration, NSW, Vat return process simplification and rapid customs clearance process with linkage programs of MSMEs, and automation of tax system along with reduction of turnover tax on traders are apparently appreciable moves if implemented. Other than these said issues, no remarkable policy incentives and support measures are devoted to aiming at CMSMEs. Taking into account the rejuvenation priority of MSMEs from economic downturn, the government could provide some strategies and policy directives to leverage the MSMEs. Since CMSMEs exist almost in every sector in Bangladesh, sectoral initiatives should have been linked with CMSME growth and development.
Since SMEs are going through a transitional time due to the LDC-led economic shift, the upcoming economic climate will have critical challenges for the preparedness of CMSMEs. The given state of SMEs may further aggravate their sustenance, as economic liberalisation and a free and open business environment will phase out the supportive and controlled business environment. MFN and equal domestic treatment will risk many local businesses, as foreign businesses will require a similar label-playing field. The uncertainty and open business atmosphere are apparent challenges of the CMSMEs. The national budget could consider blended agendas like easy and moderate policies and ease overregulation and other non-fiscal policy measures, skills transfer, research support and institutional reforms to get rid of the economic slump for their transformation. Bank borrowing process simplification, charge waivers on tax payment and IP-related readiness are essential to embrace the new economic climate upon LDC graduation. Since MSMEs encounter structural and procedural issues in the compliance of tax payment and financing, a separate, flexible SME tax code and simple bank financing access can bring in remarkable changes, as these two factors are core cost- triggering items for doing business.
Above all, the sector-specific mapping and competitiveness planning are inevitable for industrial mobility, new investment, employment, revenue generation, poverty elimination and financial sector stability and the revival of linked CMSMEs. The economic census in 2023 reported 21 million businesses countrywide, and a lion's share of them are CMSMEs. This position justifies the unprecedented importance of MSMEs and a holistic budget approach for inclusive economic growth. Without appropriate formalisation of this segment of business, the Tk. 6.3 trillion revenue and mass welfare target in the budget could be hard to attain to some extent. Economic liberalisation and trade liberalisation may affect the sustenance and competitiveness of local businesses in the turbulent global context. Incorporating these timely suggestions with post-LDC consideration for CMSMEs can lead to a conducive climate retaining the utmost interest of the private sector. Despite huge fiscal constraints for many potential industries and informal CMSMEs, the growing trend of public sector budgets at the cost of many key avenues is apparently an untimely choice. The austerity and governance in public expenditure and rational resource share could be a saviour for all priority avenues towards making a holistic budget. With these endeavours, CMSMEs are expected to contribute to a much-needed economic turnaround and perform upon graduation, translating the economic competitiveness with multiplier-positive impacts.

The writer is a macroeconomic policy researcher analyst