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Dhaka Monday,  Jun 26, 2017

Subsidy allocation may be downsized 5.5pc in budget

Jasim Uddin Haroon

The government is likely to earmark an allocation, 5.5 per cent less than the amount provided for in the original budget for the current fiscal year, on account of subsidies in the next fiscal year (2015-16), reliable sources said.

The lesser allocation, economists believe, is mainly due to the continuous decline in the prices of petroleum products in the international market.

The finance division that prepares the national budget has proposed an allocation of Tk 246.09 billion, 5.54 per cent less than the amount made available against subsidy payments in the original budget for the current fiscal year (FY) 2014-15.

Economists, however, were critical of the ‘improper’ size of the subsidy as in many cases it does not reach the target population, leading to further widening of the income inequality in the society.

They were also critical of a section of businesses that eats up much of the government’s financial support in the form of subsidies offered at the cost of the tax payers without any real benefit to the economy.

The finance division officials who deal with the budgetary allocations told the FE that subsidy allocation for the Bangladesh Petroleum Corporation (BPC) was set to drop drastically in the next financial year beginning from July 01 next.

“BPC’s allocation is likely to come down to Tk 8.0 billion against Tk 24 billion earmarked in the original budget for the current FY,” said a senior official at the finance division.

The subsidy spending on the miscellaneous head is likely to drop significantly with an allocation Tk 10.09 billion. The subsidy allocation for the same head was Tk 15 billion in the current fiscal year.

The Jute and the state-owned Bangladesh Jute Mills Corporation (BJMC) will get subsidy support worth Tk 10 billion in the next fiscal year against Tk 15 billion in the current budget.

On the other hand, the government wants to raise the volume of subsidy in some key sectors to boost their competitiveness.

The allocation for the export sub-sector is expected to go up by Tk 1.5 billion in the budget for FY 2015-16 to Tk 30 billion to make it more competitive in the international market.

The economists questioned the logic behind continuous increase in subsidies for the so-called thrust sectors since the incentive has failed to ensure any turn-around in the export menu.

The finance division has earmarked subsidies worth Tk 18 billion in food sector for FY 2015-16 against Tk 18.03 billion in FY ’15.

The subsidies for the Bangladesh power development board (BPDB) that distributes a large part of the amount among the rental power plants might go up to Tk 80 billion in the upcoming financial year.

The original allocation for the current fiscal is Tk 70 billion.

The Bangladesh Jute Mills Corporation (BJMC) is likely to get Tk 10 billion against Tk 15 billion in the current fiscal year.

The subsidy for the agriculture sector, however, will remain the same at Tk 90 billion in next fiscal year.

The government provides subsidies to the agriculture sector to keep prices of fertilisers and other inputs stable.

The sector has been maintaining the same status over the past few years since FY 2013-14.

Dr Khurshid Alam, director (operations), at the Policy Research Institute of Bangladesh (PRI), a private think tank, said the government’s aim should focus on optimum use of resources.

“Our resources are limited, so we should make right allocations of subsidy,” Dr. Alam, who earlier served the World Bank (WB) as private sector specialist, said.

He said the subsidy allocations should also be in conformity with the growth objectives.

Dr. Alam said in many cases lobby groups cash in on the adequate subsidy allocation as there is lack of accountability in terms of its use and impact.

Dr Md Yunus, a senior research fellow at the state-owned Bangladesh Institute of Development Studies (BIDS) said cut in BPC’s subsidy is consistent with the fall in international prices of the petroleum products since June last.

Dr Yunus stressed the need for an accurate evaluation of subsidy system.

“We’re doing the same routine work for year after year, we should give our attention to its impact,” Dr Yunus said.

He pointed out that if any sector deserved additional resources in the next fiscal year then they should be given the same “based on proper evaluation.”

He said the thrust sector is also getting subsidies unendingly without any major improvement in their performance.

He said some new thrust sectors are added to the list while some others excluded. All depend on the strength of lobbying, he added

“I don’t understand why we are nursing a number of thrust sectors when we see no bright prospect for them”, the BIDS researcher said.

“I think, we need an in-depth study on the thrust sectors as to whether these will require any subsidy or not to compete in the global market,” Yunus said.

He was also critical of providing subsidies on the traditional products.

“I don’t agree with long-term state patronage to exportable items. I don’t see any positive impact of the subsidy on the traditional products,” Mr Yunus further said.

Dr. AK Enamul Haque, a professor of Economics at the East West University said administrative procedures should be in place so that subsidy reaches the targeted people.

“I’m not worried about size of subsidies. Rather, it should go to the right people.” Dr. Haque said, adding that as the prices of petroleum products in the international market have been falling, the government should reduce the diesel price to benefit the farmers.

Dr Haque further said non-traditional products need government patronage to compete in the international market.

Subsidy is a form of support, either in cash or kind, extended to an economic sector generally with the aim of promoting economic and social policies.

Although the allocation of subsidy marked a downtrend in the last few years, as a share of total expenditure it remains significant.

Subsidy as share of total expenditure stood at 10.4 per cent in FY 2014-15.

It is estimated that the subsidy in the next financial year will stand at more than 11 per cent of the next budget, if the budget size is kept at Tk 2.95 trillion.

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