Originally posted in The Financial Express on 18 May 2023
Jacking up electricity subsidy, particularly as power generation in private plants remains expensive, is set to swell the overall amount of fiscal incentives in the forthcoming national budget, officials said.
The government is likely to allocate nearly Tk 320 billion in subsidy for the power sector in the fiscal year (FY) 2023-24 national budget, nearly 39-percent higher than in the revised budget for the current fiscal, Ministry of Finance (MoF) officials told the FE Wednesday.
The total subsidy in the upcoming budget might come to Tk 1.10 trillion-Tk120 billion higher than the current fiscal’s revised outlay on this head.
In the original budget’s subsidy figure for the current FY2023 was Tk 814.90 billion, which was recently revised upward to Tk 980 billion.
Meanwhile, the government is set to propose in parliament a Tk 7.64 trillion worth of national budget for the upcoming fiscal on June 01.
“As the US dollar price has increased a lot over the year and there are some previous pending payments on capacity charges to the private-sector local and International Power Producers (IPPs), we need an increased amount of power subsidy in the next fiscal,” says a senior MoF official.
The state-run Bangladesh Power Development Board (BPDB) needs more money to pay off previous dues to the IPPS and power producers as it purchased electricity from them, he adds.
Meanwhile, the government has increased the power price at consumer level thrice in recent past, which has eased the pressure on the fiscal support from the government.
However, the arrears in last fiscal year’s (FY2022) subsidy have prompted the government to boost the total subsidy by nearly 39 per cent in the next budget, MoF officials said.
They said the subsidies on agriculture, stimulus and other fiscal benefits for others are also likely to be increased in the next national budget.
In the agriculture sector, the subsidy may be increased to nearly Tk270 billion as the ministry has demanded higher funds for paying arrears and minimising the gap between fertiliser import and consumer-level prices.
A total of Tk160 billion was allocated as agriculture subsidy in the budget for the current FY2023. In the revised budget, the allocation was ramped up to Tk260 billion as the fertilizer price on the international market remained volatile.
In the budget for the last FY2022, there was an allocation of Tk91 billion for subsidies in agriculture.
Meanwhile, the government has already decided to increase the prices of all types of fertilisers by Tk5.0 per kg, which will save some Tk70 billion in its marketing.
MoF officials said the post-Covid impact and the Ukraine-Russia war affected the global market prices of fuel oils, fertilisers, food products and gas, resulting in the augmenting of overall subsidy demand by various ministries for the next budget.
Meanwhile, the International Monetary Fund (IMF) has suggested that the government cut its subsidy on energy, agriculture and all other sectors to maintain fiscal discipline as Bangladesh is going to graduate from its LDC status to a developing nation in 2026.
“Although the last IMF mission has already raised questions on the extended subsidy allocation in the next budget, but we have no option at this moment to cut it drastically overnight,” another senior MoF official told the FE.
“We will be reducing our subsidy gradually which would also minimize pressure on the country’s fiscal discipline.”
The MoF officials said in the current fiscal budget, about Tk60 billion was allocated for food subsidy, and in the revised budget, an additional allocation of Tk8.12 billion.
An allocation of Tk80 billion has been estimated for subsidizing food in the upcoming FY2024, they said.