Make a subsidy policy

The government needs to formulate a national policy to stop doling out unnecessary subsidies, prevent leakages and make state interventions more targeted and efficient, a number of economists said yesterday. 

“Time has come to devise a national subsidy policy to regulate the spending and give emphasis to subsidies management,” said Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue (CPD).

Had there been a national policy, the country would have been able to decide when the prices of rice or oil have to be subsidised, he said.

The economist also said there has to be a clear definition of subsidies to establish transparency in the spending of the taxpayers' money.

Bhattacharya said on many occasions subsidies are deemed to be pro-poor and that may not be the ground reality. “We also need to see what other countries are doing.”

Shamsul Alam, a member of the planning commission, backed Bhattacharya's call for a national policy, adding that the distribution system has to be developed.

He, however, said subsidies are necessary if they play the role of investments. “If the return is more, definitely the subsidies should continue. However, subsidies that cannot ensure the returns should not continue forever.”

They spoke at a dialogue styled 'Subsidy Management in Bangladesh, Efficiency and Equity Issues' at the capital's Lakeshore Hotel.

The country's subsidy spending went up to 1.7 percent of the gross domestic product this fiscal year from 0.41 percent in fiscal 2001-02, said Kaniz Siddique, visiting fellow of CPD, while making a presentation.

She said the subsidies going to cottage industries, jute workers and exporters are justified as the first two segments of the population are poor and the third one helps create jobs, thus contributing to poverty reduction.

She, however, questioned whether all farmers should get blanket subsidies as not all of them are poor. “Likewise, in case of power, the subsidy is not progressive as wealthier people use large amounts of electricity.”

Siddique recommended reducing subsidy expenditure wherever possible to ensure macroeconomic sustainability.

“Subsidy should be considered only as temporary measures with a time phasing out strategy,” she said. 

At the discussion, the participants also found it hard to reach a consensus on how much Bangladesh really spends for subsidies, as there are many forms of spending in different names by many ministries and government agencies, apart from the subsidies estimate stated in the budget document each year. AB Mirza Azizul Islam, a former adviser to the caretaker government, does not think that subsidies at the current level are sustainable.

“But we have to see whether they are achieving the targets, as there are incidents that subsidies are not being able to bring the expected benefits. Sometimes, the benefits are very limited.”

Islam said the government estimate on subsidies is a gross understatement. 

The government's budget document says the total subsidy for this fiscal year is about Tk 16,600 crore, but the sum does not account for the amount handed out to the energy sector. “Transparency in the definition has to be there.” He said the government's loans to state-owned enterprises ultimately become grants as they never repay them.

“If any state-owned enterprise can't meet its production costs and day-to-day expenditure, it should be closed down or privatised. There are some SoEs which fall in this category,” he said, citing Bangladesh Sugar Mills Corporation and Bangladesh Jute Mills Corporation as examples.

Islam called for increasing administrative efficiency to better spending subsidies. Since its independence, the country had to provide subsidies in areas of food, irrigation and electricity generation, said M Asaduzzaman, professorial fellow of Bangladesh Institute of Development Studies (BIDS).

“It was needed then. But now the time is different as the whole picture has changed,” he said, while calling for proper monitoring to find the real beneficiaries of the subsidies.

Also, it has to be kept in mind that the country alone cannot control how much subsidies it will give or not, as there are external factors that also influence the decision, he added.

MA Mannan, state minister for finance and planning, said subsidies are important from the viewpoints of social, economic and equitable justice, as the government is committed to reducing poverty and inequality.

He also said the government cannot withdraw subsidies at will as there are vested elements that have benefitted from the system and grown. 

The state minister said subsidies are pervasive in the country. “For example, we give books free to all school students. But there are guardians who can afford to buy books to all children of a school. So, there is a problem in picking up the beneficiaries.”

He said subsidies cannot be seen as wastages, as they will give return in the long run. “These are investments.” Bhattacharya, however, said the government should show the political will to withdraw subsidies from sectors where they are not working. 

Sajjad Zohir, research director of Economic Research Group (ERG), said a long-term approach has to be taken when it comes to making plans for subsidy spending.

CPD Executive Director Mustafizur Rahman said subsidy spending has to be efficient because of the scarce nature of resources. “It is an issue of equitable distribution and justice,” he added. Akhter Ahmed, a senior research fellow of the International Food Policy Research Institute, said a number of African countries have been successful in implementing targeted subsidies and Bangladesh can learn from them.

Syed Tariquzzaman, a development activist, said there are leakages in subsidy spending. There are allegations that some people have received export subsidies although they have not sold anything outside of the country, he added.

SM Nasimuddin, economic adviser of the finance division, said the government gives subsidies where it deems necessary.   

Humayun Rashid, senior vice-president of the Dhaka Chamber of Commerce and Industry, said subsidies have to be given to protect industries. Abul Bashar, a professor at the Bangladesh Agricultural University in Mymensingh, said subsidies would be more effective if the government can ensure that only the suitable beneficiaries get them.

Golam Hafiz, an associate professor of Bangladesh Agricultural University, said a body has to be established to monitor the distribution of subsidies.