The government is likely to cut subsidies by more than 20 per cent in the next fiscal year (2014-15). The possible cut, economists believe, is aimed at minimising budget deficit as revenue mobilisation might prove difficult in the next fiscal.
Economists said currently subsidies in many cases do not reach the target population, leading to further widening of the income inequality in the society.
Many economists have been found critical of the continued support to the 'thrust' sectors since the subsidies have failed to make them efficient.
However, the government is likely to earmark Tk 260.53 billion subsidy for the next fiscal year, equivalent to 1.9 per cent of the gross domestic product.
The government has planned drastic cut in subsidies to fuel as well as to the state-owned Bangladesh Jute Mills Corporation.
The subsidy to be spent on agricultural sector is likely to remain almost unchanged at Tk 90 billion in the next fiscal year. Export earnings sector may see a rise in subsidies to Tk 28.5 billion against Tk 25.92 billion.
Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB), said this is a step in the right direction as most of the subsidies are eaten up by the people outside the target groups.
He said the government has been doing the same for long and this in the real sense did not help the poor sections like farmers or others much.
"Actually, subsidies have been a burden on the budget and the decision to cut subsidies is a right step," Dr. Hussain said.
He felt that the government might not be able to mobilise the targeted revenues in the next fiscal year as the economy is yet to pick up.
"We expect that the revenue earnings will rise but it will not surge to the level it is now being envisaged," he said.
The WB economist said if revenue falls against its target next year, the government will not need to borrow much as the subsidies will shrink substantially.
He said price stability in the international market in respect of fuel oils is also another key reason for cutting the subsidies.
"Subsidy spending goes up when the fuel price surges in the international market. The fuel price has so far remained stable and it is expected that it will remain more or less the same in the coming years," he noted.
Subsidies go up at a time when the prices of fuel in the international market rise as Bangladesh does not adjust it with the domestic prices immediately.
Dr Hassan Zaman, chief economist at the Bangladesh Bank (BB) said administrative procedures should be in place so that subsidy is spent reaches the targeted people.
"I'm not worried about the amount of subsidies. Rather, subsidies should go to the targeted people." Dr. Zaman said.
The BB chief economist said non-traditional products need government patronisation to compete in the international market.
"I feel, subsidies should also go for exploring new markets and for promoting non-traditional products," the BB chief economist added.
Subsidy is a form of support, either in cash or kind, extended to an economic sector generally with the aim of promoting economic and social policies.
Dr Md Yunus, a senior research fellow at the Bangladesh Institute of Development Studies (BIDS) said subsidy cut in the case of fuels has both negative and positive impact.
He said subsidy on kerosene should not be reached considering its use in rural areas.
"In rural areas, kerosene is still a major fuel for lighting and for other purposes. So a cut in fuel subsidy in general will affect the poorer section as the cost of fuel will rise there," Yunus said.
The BIDS research fellow, who worked on public finances, was highly critical of export subsidies.
"I don't agree with long-term state patronisation of exports. I don't see any positive impact of the subsidy on the traditional products," Yunus said.
He said the thrust sector is also getting subsidies for years after years without any major improvement in the sectors.
"I think, we need an in-depth study on the thrust sectors as to whether these will require any subsidy to compete in the global market," Yunus said.
However, the government plans to give subsides for food sector Tk 18.03 billion, miscellaneous Tk 15 billion, the Power Development Board (PDB) Tk 70 billion, the Bangladesh Petroleum Corporation (BPC) Tk 24 billion, and the Bangladesh Jute Mills Corporation (BJMC) Tk.15 billion.
Substantial cut in subsidies in next budget likely
Jasim Uddin Haroon | Published: May 10, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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