The government has proposed an allocation of Tk 82,745 crore to run its subsidy programme for 2022-23, an increase of 53.7 percent from this fiscal year's original outlay, creating a challenge to macroeconomic stability.

For 2021-22, the government initially set aside Tk 53,852 crore for subsidy expenditure, but later augmented the amount to Tk 66,825 crore to contain the ripple effect of inflation.

Price increase in the global commodity market due to the Russia-Ukraine war and the coronavirus pandemic have compelled the government to take the measure.

Finance Minister AHM Mustafa Kamal in his budget speech said the rising subsidy poses a challenge in the budget management for the next fiscal year.

He also said the proposed amount could be 15-20 percent higher than the initial estimates, considering the price trend in the global market.

The proposed subsidy expenditure stands at 1.90 percent of GDP compared to 1.70 percent this fiscal year.

But economists argue that the government should consider either withdrawing or cutting the subsidy on some sectors.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said there was no scope to assume how much the prices of essential commodities would increase in the global market.

"The government should not increase the subsidy allocation to a large degree as it would threaten macroeconomic stability," he said, adding that hiking subsidy is a political agenda.  

The government is now providing 2.5 percent cash incentive to expatriate Bangladeshis for sending remittances.

This incentive should be withdrawn as the exchange rate of taka has depreciated largely against the US dollar in recent months, he added.

The taka has depreciated 7.90 percent to Tk 91.50 per American greenback in the last one year, meaning remitters are already getting more benefits than what they had got earlier.

The government allocated Tk 6,200 crore for remitters for the upcoming fiscal year, up 24 percent year-on-year.

Ahsan also suggested slashing incentive allocated for the export sector.

The government has planned to keep aside Tk 8,300 crore for exporters for the next fiscal year, up 6 percent year-on-year.

Ahsan further said the major portion of cash incentive in the export sector is usually received by the readymade garment sector, which is now well-established.

The cash incentive for the sector should be reduced, he said, adding it should be phased out gradually.

Selim Raihan, executive director of the South Asian Network on Economic Modeling, said the budget deficit would be widened if the subsidy was increased further. In that case, the government will have to borrow the amount from the banking sources.

If the government takes the fund from the Bangladesh Bank, inflation will fuel further. The reason is the central bank will have to provide fresh money to the market, which leaves an adverse impact on inflation, he explained. 

Selim further said allocating incentive for the agriculture sector is essential but the government should explore ways to ignore subsidy for fossil fuel in the long run.

"Renewable energy is a good option to sidestep fossil fuel. But the government has no plan in the proposed budget for expansion of renewable energy."

This view was echoed by Ahsan, who said the government should reduce subsidies to remitters and RMG sector.

The proposed allocation for education and social safety net programmes has decreased considering their ratios of GDP.

"If we cut the subsidy spending, more allocation can be ensured for the two sectors," Ahsan said.