The government spending on subsidy is likely to increase this fiscal year by 16 percent over FY 2010-11 due to a rise in global fuel price and import of additional petroleum products for quick rental power plants.
Economists say the subsidy hike can be continued if it helps increase short-term power generation. But for medium and long terms the government also has to find alternatives.
Over the last two and a half years, oil price has nearly tripled in international market.
In December 2008, oil was trading at around $34 a barrel that climbed to more than $70 by August 2009. The end of 2010 saw the price rise to nearly $90.
On Friday it was selling at $94.62 per barrel.
However, a finance ministry official insists the rise in subsidy is mainly due to import of additional fuel for quick rental and peaking power plants.
Energy ministry officials said the government in the current fiscal year will have to import about 70 lakh tonnes of petroleum which was 54 lakh tonnes in the last FY and 26 lakh in 2009-10.
In recent times, energy and power sectors have overtaken agriculture and food in terms of subsidy which is mainly meant for lower-income groups, the most affected by price hike of essentials.
The government has made an allocation of Tk 22,470 crore for subsidies for FY 2011-12. In the last fiscal year's original budget, it was Tk 14,263 crore which went up to Tk 19,399 crore in the revised budget, according to the finance ministry's budget documents.
In FY 2010-11, according to the government estimate, subsidy in the revised budget increased by 36 percent over the original one.
The allocation was Tk 9,334 crore in the revised budget for FY 2009-10, according to Medium Term Budget Framework (MTBF) prepared by the finance ministry and placed in the House on June 9.
The MTBF shows subsidies in energy and power sectors increased by about 280 percent in the revised budget of the FY 2010-11 compared to those of previous fiscal year.
In the total subsidy outlay, the share of these two sectors was 51 percent in the revised budget for the last fiscal year and 22.5 percent in 2009-10. It is 62 percent in the current fiscal year.
The MTBF says 1,556 megawatt of electricity was purchased in the last FY from the private rental and peaking power plants at higher prices and it will increase further in the current FY.
Talking to The Daily Star, World Bank's senior economist Zahid Hussain said if power generation increases and GDP growth goes up through the spending on subsidy, it can be continued for a longer term.
But if power generation dose not increase despite the subsidy, the macroeconomic balance has to be made sustainable through price adjustment.
Salehuddin Ahmed, former governor of Bangladesh Bank, said the amount of subsidy is increasing thanks to quick rental power plants.
He said alongside quick rental power plants the government can take initiative for establishing big power plants under public-private partnership.
If the government makes price adjustment repeatedly to cut subsidy, cost of living and doing business will also rise, Salehuddin said.
The government should prepare a long term energy policy to reduce uncertainty, he added.
Centre for Policy Dialogue (CPD) in its report, State of the Bangladesh Economy in FY 2010-11, released last month said the amount of subsidy has gone up to a huge sum and if necessary, price and tariff adjustments might be considered for maintaining fiscal balance.
CPD Executive Director Mustafizur Rahman told The Daily Star, "We are not against subsidy but there should be a study on which sector should get how much."
The budget does not have clear breakdown of sector-wise subsidy, he added.
SUBSIDY CONFUSION
In the government budget document, there is no specific information regarding how much subsidy is being given to which sector.
The Budget in Brief placed in parliament mentions agriculture and food subsidies specifically. But no details on subsidy in other sectors were found in it.
MTBF documents have provided separate outlays of subsidy on food, agriculture, fuel, power and export and others, but not in conformity with the Budget in Brief.
A finance ministry official said in the budget document the subsidy in energy and power sector is shown under loan and advance heads allocation which is Tk 13,994 crore in the current FY.
Source: The Daily Star
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