CPD backs fuel price hike
The Centre for Policy Dialogue (CPD) yesterday said the fuel oil price should be adjusted upward by at least Tk 10 a litre to reduce the mounting pressure on the state coffers.
The thank-tank made the suggestion during a news briefing on the launch of its half-yearly review report on the economy for fiscal 2011-12 at its office in Dhaka.
The report said subsidies are rising fast for fuel oils and fertiliser, food and state-owned enterprises.
“This (subsidy) is not sustainable,” said Debapriya Bhattacharya, distinguished fellow of CPD.
The economist also questioned the government estimates on subsidies that more than doubled in the revised figures.
The bulk of the subsidy originates from Bangladesh Petroleum Corporation due to higher fuel demand from rental power plants, according to the report.
The original subsidy estimate for the current fiscal year was Tk 22,477 crore or 12.5 percent of the budget. But the revised projection has increased to
Tk 47,385 crore or 29 percent of the budget and 5.3 percent of the gross domestic product.
Of the revised figure, Tk 28,014 crore is estimated to subsidise BPC alone. Bangladesh Power Development Board has placed a subsidy demand of Tk 5,200 crore. Export incentives could cost Tk 2,250 crore and Bangladesh Jute Mills Corporation and other state-run enterprises are to get Tk 3,400 crore.
The report said it would not be possible to meet the expenditure by higher revenue collection, and resorting to more domestic borrowing is also not sustainable. The government has no other option but to adjust fuel and power prices upward, but in a phased manner, according to the report.
“The government may consider bringing up the diesel, octane, kerosene and furnace oil in line with the prices in India (also to pre-empt smuggling out),” said CPD.
Bhattacharya suggested the government hike the fuel price by Tk 10 a litre to put it on par with the Indian price.
CPD also suggested the government phase out the costly quick rental power plants by 2014 to reduce pressure on subsidies. The think-tank however said it would require new public power plants to make up the production deficit, which is not visible so far.
In fact, electricity generation from public power plants declined by about 518 megawatts over the last one year, according to the report.
Although rationalisation of subsidy is of high necessity Bhattacharya believes it would not be easy without a political consensus.
The CPD report also found a serious lack of information on both subsidy allocation and expenditure by the government as the budget documents do not provide any comprehensive estimate on subsidy.
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