Subsidy to be trimmed in next budget | The Daily Star
12:00 AM, May 25, 2015 / LAST MODIFIED: 12:27 AM, May 27, 2015

Subsidy to be trimmed in next budget

The government is set to cut subsidy by 5.5 percent in fiscal 2015-16 from the current year, as it looks to reduce fuel subsidy amid depressed global oil prices.

Some Tk 24,609 crore has been earmarked for subsidy in the draft in contrast to Tk 26,053 crore in the current fiscal year's original budget, which was later revised up to Tk 27,400 crore. But the share of power subsidy looks set to rise, as more electricity has to be purchased from quick rental plants.

In the draft outlay, Tk 8,000 crore has been allocated for power subsidy, whereas in the original budget for this fiscal year it was for Tk 7,000 crore.

However, in the revised budget it is likely to cross Tk 9,000 crore: some gas-based power plants in the public sector were shut down due to mechanical faults, forcing the government to purchase electricity from the costly rental power plants.

Furthermore, the government's plans to hike electricity prices fell through, necessitating more subsidies for the power sector. In the next fiscal year, if price adjustments cannot be made and the low-cost government plants fail to come into production, the power subsidy may need to increase further.

Fuel subsidy will get the biggest chop in the upcoming budget owing to the oil price slide in the international market.

It has been kept at Tk 800 crore, down from the current year's initial outlay of Tk 2,400 crore.

In the revised budget though, it has been slashed to only Tk 600 crore.

Since fiscal 2008-09, the government has spent a total of Tk 30,986 crore to keep the prices of petroleum products low in the local market. In fiscal 2012-13, the government set aside Tk 13,558 crore in fuel subsidy, which was the highest allocation in the history of Bangladesh.

A finance ministry official said the upward trend of oil prices in the international market and desperate efforts to fix the power crunch through quick rental plants meant that subsidy on fuel and power went up in recent years.

However, the government slashed energy subsidy by hiking retail prices. And a gradual fall in fuel prices in the international market starting last fiscal year also helped Bangladesh.

Bangladesh Petroleum Corporation bucked its five-year losing streak this fiscal year, making a tidy profit of Tk 3,455 crore on the back of sliding global oil prices.

Meanwhile, Tk 3,000 crore is being set aside for export subsidy in the upcoming budget. It was Tk 3,500 crore in the original budget for the current fiscal year, which was increased by another Tk 500 crore in the revised budget.The official said the finance ministry will bring a big change to the export subsidy structure in terms of the beneficiaries. 

The ministry has already started a review and once completed, some new sectors may be included in the package and some old sectors taken off.

Agriculture subsidy has been given Tk 9,000 crore in each of the last few years and it will remain the same in the next budget too.

Food subsidy in the current fiscal year was Tk 1,806 crore, but since the rice price remained stable the amount was downsized to Tk 1,620 crore in the revised budget.

In the next fiscal year, food subsidy may stand at Tk 1,800 crore, the official added.

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