Ballooning energy subsidy has posed the biggest challenge to the policy-makers as the government prepares the budget for the fiscal year (FY), 2011-2012, an official said Saturday. The official said the size of energy subsidy would be more than Tk 150 billion (15,000 crore) next fiscal, or nearly twice the amount allocated in the revised budget for the current fiscal. "The estimate is based on the current oil price in the international market. If the crude price soars like in the first half of 2008, the subsidy would be even bigger," he said, on condition of anonymity. Oil price is hovering around US$120 a barrel, up from $80 three months back. But an uprising across the Middle East spiked the price to almost three years' high. The subsidy on power and oil import would alone gobble up some nine per cent of the estimated Tk 165 billion (Tk 165,000 crore) for the upcoming fiscal, the official said. "Growing energy subsidies in fuel import and purchase of electricity from rental power plants have emerged as the key challenges for the budget-makers. We have been trying hard to find a perfect balance to offset the impact," he added. Major parts of the problem stemmed from the government headlong push for dozens of small diesel- and furnace oil-powered plants in a desperate effort to fix the country's acute power crisis. Per unit power of these plants is expected to hit an average Tk 13 -- up from the government's selling rate of Tk 4.0-5.0. The gap is to be paid up by the taxpayers' money. The World Bank has estimated that the government would need at least $1.2 billion (Tk 85 billion) to pay for the energy subsidy. The amount will soar as more rental plants start producing power in the coming years. The official said farm and social safety subsidies are also expected to grow at around 10 per cent in the coming fiscal year, putting a strain on the budget spending. The increase will nullify the impact of inflation and bring more disadvantaged people in the government's expanding welfare network. Benefits for the freedom fighters would see a notable growth. The Finance Minister, Mr. A.M.A. Muhith, is expected to unveil the budget on the second Thursday of June in line with a decades-long customs. He is expected to present an outline of the budget to the Prime Minister today (Monday). The official said despite the surging energy subsidy, the fiscal deficit in the next budget will be kept below five per cent of the GDP, with foreign aid and increased flow of internal revenue keeping the deficit down to a tolerable level. In recent months, a 30 per cent growth in tax revenue has given the government something to cheer about. A significant amount of foreign aid is still in the pipeline although its pace of utilisation or disbursement remains a concern. "Tax revenue collection will cross 11 per cent of the gross domestic product (GDP) in the current fiscal. We estimate it will be 12 per cent of the GDP in the upcoming fiscal," he said. To offset the deficit, the government has planned to avail an array of supplier's credit from external sources. The interest rate of such credits will be well below the interest rate of saving certificates or commercial banks. "The aim is to shore up the foreign exchange reserve at any cost. The reserve is already under some pressure due to higher import cost and modest remittance flow," he said. "A fall in foreign aid may put further strain on the reserve in the first quarter of the coming fiscal," he said, adding soft loan worth $1.0 billion from the International Monetary Fund (IMF) could help the scenario. But the IMF, which was expected to disburse the loan in February this year, has attached some hard conditions for the release of this fund in tranche, following its approval.
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