Subsidies face deep cuts

Subsidies are set to be cut by 25.93 percent in the revised budget for this fiscal year due to the decline in fuel and fertiliser prices in the international market, much to the relief of the government.

The allocation for subsidy in the revised budget will now be Tk 18,940 crore, down from the initial Tk 25,573 crore, according to a draft estimate of the finance ministry.

For the first time, Bangladesh Petroleum Corporation will not require any subsidy from the government exchequer, so its allocation of Tk 800 crore in the original budget for fiscal 2015-16 was withdrawn.

In the first six months of fiscal 2015-16, the state agency logged in more than Tk 5,000 crore as profits, and after the latest price adjustments, bigger gains are in store.

After incorporating all costs and taxes, it costs BPC Tk 61.25 to produce a litre of octane, Tk 62.5 for petrol, Tk 49.25 for diesel and Tk 48.25 for kerosene.

Following the price adjustments, octane sells at Tk 89 per litre, petrol at Tk 86, diesel and kerosene at Tk 65.

Alongside fuel, subsidy on power will be slashed 25 percent to Tk 6,000 crore.

Many of the rental power plants are run by fuel, and since the fuel price fell and the power price at the retail level was raised, subsidy in these areas are being cut, said a finance ministry official.

The government will also hack down the budgetary allocation for recapitalisation of state banks by more than half due to low revenue collection.

Some Tk 5,000 crore was set aside for recapitalisation in the original budget, from which Tk 1,300 crore was given to scam-hit BASIC Bank.

“At best, Tk 500 crore may be given to a few banks from the allocation,” the official said.

Food subsidy, however, will be increased, by 7.29 percent to Tk 2,000 crore, in the revised budget even though food prices fell at both the international and local levels.

In recent years, the government had cut food subsidy in the revised budgets as the prices of rice and wheat remained stable. However, this time the Open Market Sale price was raised several times, resulting in soaring of subsidies, said the finance ministry official.

When the budget is prepared, the OMS price of rice was Tk 24 per kg and that of wheat Tk 22 per kg.

The prices were lowered later to Tk 20 and Tk 19 for rice and wheat respectively. They were lowered further in February to Tk 15 for rice and Tk 17 for wheat.

Food officials said the price cut was necessary to trim down losses of the state as the quality of rice would deteriorate if they remained in warehouses.

The subsidy on export and jute would remain intact at Tk 3,500 crore though.