Subsidy spending climbs for crisis-related expenditure

The government's subsidy spending would go up by 26.25 per cent to Tk 56,051 crore in the next fiscal year, on the back of taxpayer-funded allocation for food, interest and agriculture sectors. 

The allocation was Tk 44,400 crore in the original budget for fiscal 2019-20.

Next fiscal year's subsidy outlay is 15.57 per cent higher than Tk 48,500 crore set aside in the revised budget for fiscal 2019-20 and accounts for 9.87 per cent of the total budget.

Subsidies and transfer play an important role in achieving pro-poor and inclusive economic growth, according to a macroeconomic policy statement of the government.

The government gives priorities while allocating subsidies and incentives to the sectors that create positive externalities for other sectors, it said.  

Transfers are set aside for the not-for-profit companies that provide service at the households' levels.

Usually, sectors such as food, fertiliser and rural electrification receive subsidies through budgets.

The Bangladesh Power Development Board, the Bangladesh Petroleum Corporation and the Bangladesh Jute Mills Corporation get financial assistance in the form of loans.

Agriculture and export sectors receive the government support every year as the engines of the economy.

The next fiscal year's subsidy budget would be mostly going towards taxpayer-funded spending for agriculture, food support for the poor and loans for large industries and SMEs.

The move to provide low-cost loans to pandemic-hit micro, small, medium and large entrepreneurs, farmers and exporters would increase the subsidy spending on interests to Tk 5,000 crore in the upcoming fiscal year. There has been no such allocation in the ongoing fiscal year.

The government has allocated Tk 9,500 crore for the agriculture sector for fiscal 2020-21, up 16.85 per cent from Tk 8,130 crore of the revised budget to maintain the growth in farm production and ensure food security.

Usually, agriculture subsidy spending hovers around Tk 6,000 crore every year and this may go up to Tk 7,000 crore this fiscal year.

As much as Tk 200 crore has been allocated as incentives for farm mechanisation.

Besides, the government has raised the target for government procurement and distribution of rice and paddy by 2 lakh tonnes in fiscal 2020-21 to ensure that farmers get a fair price for their produce while at the same time the retail market price of rice remains stable, said Finance Minister AHM Mustafa Kamal in his budget speech on June 11. 

The agriculture sector needs to ensure proper utilisation of subsidy in fiscal 2020-21, said the Centre for Policy Dialogue on June 7.

Despite the allocation of Tk 9,000 crore in successive budgets over the last three years, a significant part of the sum remained unutilised.

In fiscal 2015-16 Tk 2,570 crore was unused, in fiscal 2016-17 Tk 5,390 crore was left idle and in fiscal 2017-18 Tk 3,800 crore, the think-tank said.

Despite the collapse in economic activities at home and abroad owing to the coronavirus pandemic, the government has kept unchanged the subsidy allocation for export and remittance -- the two major sources of external financing for Bangladesh -- at Tk 6,825 crore and Tk 3,060 crore for fiscal 2020-21.

The subsidy for the power sector was trimmed from Tk 9,500 crore to Tk 9,000 crore and that of liquified natural gas imports from Tk 9,000 crore to Tk 8,500 crore.

Bangladesh has deferred two LNG cargoes as a nationwide lockdown to combat the coronavirus pandemic dented domestic demand for natural gas.

Both the cargoes were bound to supply LNG in May from Qatar's QatarGas, Md Kamruzzaman, managing director of state-run Rupantarita Prakritik Gas Company, told S&P Global Platts, a provider of information, benchmark prices and analytics for the energy and commodities markets.

Both cargoes have been re-scheduled for later in the year -- one of them will supply LNG in September and another in December -- when domestic demand is expected to grow, he said.

Food subsidies rose 26.25 per cent to Tk 6,166 crore, from Tk 4,884 crore.

The subsidy spending for providing food has been increased as the country's expenditure to feed the poor has increased sharply because of the coronavirus-induced shutdown, which has put a brake on the economic activities leaving people with no work.

More subsidies have to be given in the next fiscal year compared with previous years and the increase in subsidies for the priority sectors such as agriculture, food and interest rate is understandable, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, a think-tank.

"But $6.5 billion in subsidy spending is not a small amount. We have to think about the sector. We can't give such large allocations inefficiently. We have to bring it down gradually," he told The Daily Star recently.

The Tk 5,000 crore earmarked as interest subsidies is a token amount but still desirable as the funds are being channelled for economic recovery.

Remittance and export subsidies are unnecessary and these could be extended by depreciating the exchange rate to some extent, Mansur added.