People in for higher living expenses

People can brace themselves for yet another round of living expense hike as the government is mulling over raising the prices of electricity, gas and fertiliser by March to bring its subsidy burden down to a tolerable limit.

The prices of electricity and gas could see a rise as early as this month and by March would come the hike in the prices of fertiliser -- whose knock-on effect would be costlier fruits, vegetables and grains -- according to finance ministry officials working on the matter.

However, there is a tug of war going on between the optics-minded and number-crunching officials over the choice to hike the prices of gas and fertiliser at this moment.

A section of the officials believes that an increase in the prices of the key items a year before the national parliamentary election would harm the government.

But the other officials deem a price adjustment is necessary now to prevent the subsidies for electricity and gas from heading towards the unreasonable territory.

The bid to hike the electricity and gas tariffs and fertiliser prices comes two months into the kerosene and diesel price hikes that went on to raise the living expenses for the poor and the middle-class still reeling from the blow dealt by the pandemic.

If the new proposals are approved, it would increase the production costs and fuel inflation further.

In December last year, inflation hit 6.05 percent, the highest in 14 months and overshooting the government's target of 5.30 percent for this fiscal year.

Food inflation was the highest in six months, while non-food inflation came close to the high of 7.05 percent seen in December 2015. It touched 7 percent in December last year.

"The increase in prices would be slight but, on the upside, the government's subsidy burden will become bearable," said a top finance ministry official asking not to be named to speak candidly on the issue.

Besides, hiking the prices will help ensure funds for urgent health emergencies like procuring additional Covid-19 vaccines and booster shots.

The government may require additional money to tackle adverse situations should any new variant of Covid-19 crop up.

"We are witnessing a surge in the number of Covid patients due to the Omicron variant. If any new wave hits the country this year too, the government will have to spend additional money for food distribution programmes."

Also, the government will have to increase rice procurement to save the farmers from incurring losses.

"That's why the government is considering hiking the price of the items," he said, adding that the final decision lies with Prime Minister Sheikh Hasina.

Different ministries are sending in requests for an additional subsidy -- and all are for hefty amounts -- to absorb the spiralling prices in the international markets.

The finance ministry is reviewing the proposals and will come up with a revised budget by March, according to another official.

It would not be possible for the government to allocate the subsidy that the ministries sought in their revised demand. But there will be some increase, they added.

For example, the power division in its proposal sought Tk 25,000 crore in subsidy to meet the rising energy costs. The amount allocated for subsidy in this budget is about Tk 9,000 crore, of which Tk 5,000 crore has been spent by December.

Now, the finance ministry is considering allocating an additional Tk 2,000-Tk 3,000 crore in subsidy, said another finance ministry official.

On the other hand, the energy division sought Tk 32,000 crore in subsidy if they are to meet the liquefied natural gas (LNG) import bills unless the government increases the price.

While a subsidy of Tk 6,000 crore has been set aside for LNG in this fiscal year, the finance ministry may increase the amount of subsidy by an additional Tk 4,000 crore in the revised budget.

The government allocated Tk 9,000 crore in subsidy for fertiliser import this fiscal year. Of the amount, Tk 5,500 crore has already been spent.

Now, the agriculture ministry sought Tk 28,000 crore in subsidy if the government does not hike the price. It wants the amount to meet the rising fertiliser price, especially urea, in the international market.

A subsidy of Tk 5,500 crore out of the total allocation of Tk 9,000 has been provided to the agriculture ministry until December last year. The finance ministry is considering providing Tk 3,000 crore additionally for the farm sector.

Speaking about the subsidy, Agriculture Minister Abdur Razzaque said: "The government was worried about where such a huge subsidy would come from. If such a huge amount in subsidy is given, the other development activities will come to a standstill."

In a statement on January 29, he said Prime Minister Sheikh Hasina said she would not raise the price of fertiliser at the moment for the welfare of farmers and to continue the development of the agriculture sector.

A finance ministry official said the government may increase the price of fertiliser after the end of the Boro harvest in March.

"But the increase would not be much," he added.

The government may increase its allocation for incentive expenses for remittance in the revised budget to help the economy absorb the shock stemming from the pandemic. Another Tk 1,000 crore is likely to be allocated for this.

It had earmarked around Tk 3,000 crore in the original budget to pay incentives to the beneficiaries of remittance.

The government may also increase subsidies in the jute sector. About Tk 300 crore would be given to this sector in the revised budget, he added.