Austerity, further hike in fuel, power prices likely

---

Nazmul Ahsan The government may go for a drastic cut in its spending and hike in fuel price and power tariff in a bid to maintaining the country's macro-economic stability that, of late, has come under threat due to soaring subsidy costs. The meeting of Council for the Co-ordination of Fiscal, Monetary and Exchange Rate Policies held Monday at the Ministry of Finance (MoF) with Finance Minister AMA Muhith in the chair reviewed the overall macro-economic situation and discussed possible ways of meeting the challenges. The meeting decided to identify areas where spending could be reduced to help lessen the pressure on the budgetary resources, a secretary who attended the meeting, said. The process of locating possible candidates for spending cut will be completed by the end of next month. The Coordination Council will meet again to decide finally on readjustment of government spending, he added. "The government's fiscal management faces problems due to high spending on subsidies. Since it is difficult to cut subsidy costs, the government is left with no options other than trimming its revenue expenditures or increasing fuel price and power tariff," the senior government official told the FE on Monday. Bangladesh Bank (BB) Governor, Chairman of National Board of Revenue (NBR), secretaries of finance division, banking and financial institutions division, economic relations division (ERD) under the MoF, and secretaries of commerce and planning ministries also attended the meeting. The meeting analysed all major economic indicators of the current fiscal year. According to the latest data, placed in the meeting, the bank borrowing of the government as of October 19 was Tk 95.75 billion. Of the total amount, Tk 60.75 billion was borrowed from BB, while the rest from the scheduled banks. The bank borrowing target set in the national budget for the current (2011-2012) fiscal was Tk 189.57 billion. "The situation with the government's bank borrowing during the first 109 days of the current fiscal year is really serious one. If the trend continues, the total bank borrowing might be more than twice the target set for the current fiscal," a BB high official told the FE. The meeting was told that the amount of subsidy for the current fiscal, originally estimated at Tk 224.70 billion, could rise up to Tk 410 billion if price adjustments are not made soon. In the last fiscal, subsidy was originally estimated at Tk 142.63 billion. But it went up to Tk 193.99 billion in the revised budget, according to the finance ministry's budget documents. The meeting noted with concern that foreign aid disbursement recorded a decline in the first quarter of the current fiscal as the country received funds worth US$ 246 million, $70 million less than the same period of last fiscal. However, export and revenue earnings marked 22 per cent and 15 per cent increase respectively during the first quarter of the current fiscal year. "We had 15 per cent revenue earning growth during July-September period compared to that of the corresponding period of the previous fiscal," Nasir Uddin, Chairman, NBR, who attended the meeting, told the FE. He said he was hopeful of achieving revenue target set for the current fiscal year. The meeting was unanimous on the issue of reducing the bank borrowing by the government with a view to reining in the inflationary pressure on the economy. Inflation soared to 11.97 per cent in last September which was the highest in the last decade. Another high official felt that the government would face difficulties to cut both revenue spending and subsidies. Measures such as cutting the number of foreign trips by government officials and suspending purchase of new vehicles for government officials and for project offices would make little difference. He, however, said the government has no option other than increasing the prices of fuel and power tariff to tackle the situation.