LNG import pushes up subsidy burden

Staff Correspondent

16th June, 2019 10:15:15 printer

Although the government subsidy has been on the decline in recent years, it is going to see a big jump next year mainly due to import of LNG and its supply to the public at a subsidised rate.

In the proposed budget of FY’20, allocation for subsidy and incentives has risen to Tk43,230 crore or 24.5 percent year-on-year over FY’19 revised allocation.

The allocation is the highest in the last decade. It accounted for 8.3 percent of the budget and 1.5 percent of GDP, which was 7.8 percent of the budget and 1.4 percent of GDP in the revised budget of the outgoing fiscal. 

Over the last seven fiscal years, the subsidies have been shifted to power and gas from agriculture and Bangladesh Petroleum Corporation (BPC).

Remittance also emerged as the new component of subsidy that constituted 7 percent of total budgetary allocation on subsidy and incentives.

During FY’14 and FY’15, subsidies and incentives were 11.9 percent and 12.1 percent of the budgets and 1.7 of percent and 1.6 percent of GDPs respectively when most subsidies were for BPC due to stubbornly high global oil price. 

In the new budget, Bangladesh Power Development Board (BPDB) received Tk9,500 crore due to increased demand.

It was 3.3 percent higher than that of the revised allocation in FY’19.

Power generation with imported LNG and upward trend in global oil price created added demand for subsidy.

Subsidy for Gas and others registers a 113.3 percent yearly growth in FY’20 with Tk9,600 crore allocation.

Demand for BPC fell as it made a profit of Tk29,409 crore during FY’15 and FY’19 and repaid all its loans to the government.

Since FY’16 BPC did not need any subsidy. No allocation is made for FY’20.

Agriculture, on the other hand, received Tk9,000 crore which is 20.8 percent of the total allocation – a similar allocation since FY’14.

During the last three fiscal years, it has never been possible to fully spend the agriculture subsidy. Tk2,570 crore, Tk5,390 crore and Tk3,800 crore remained unutilized in FY’16, FY’17 and FY’18 respectively.

Low price of fertilizers in the world market helped keep the subsidy demand low during this time.

Fertiliser price index dropped from 98.4 in 2015 to 74.3 in 2017.

Considering the increased rise in global price of urea fertilizer, it is projected that Tk3,500 crore may remain unutilized in FY’19 as well.

The government has proposed that subsidies will be provided to mechanisation of harvesting.

There was no compensation or cash incentive for farmers who have incurred losses this year due to low price of boro paddy.

BJMC has been proposed to receive an allocation of Tk4,000 crore down from Tk4,100 crore revised allocation in FY’19.

The state-run jute mills corporation incurred a loss of Tk3,055 crore during FY’15 and FY’19.

Economic analysts have repeatedly called for steps to bring reforms to the agency to reverse the losing trend of the important agency.

The budget FY’20 has proposed new fiscal incentives for export sector — cash incentive of 1 percent for the RMG export.

An allocation of additional Tk2,825 crore will be provided for this. A 2 percent cash incentive has been proposed to increase remittance inflow via formal channels.

But Centre for Policy Dialogue (CPD) has said the move will create a fiscal burden on the government.