Cost-cutting should be focused before increasing subsidies

We formulate our economic policies on incorrect index assumptions. Policy formulation based on poor assumptions leads to various problems at the implementation stage.

As a result, none of the indicators come close to achieving the target at the end of a stipulated period. The current fiscal year's national budget is no exception.

At the time of budget formulation, the economy of Bangladesh was also in crisis due to the global unrest triggered by the Ukraine-Russia war. There were warnings from various quarters that the pressure on the economy could increase in the near future. All these warnings were not heeded and the budget was given treating the entire crisis as a temporary problem.

This crisis has intensified with time. No one can predict which direction the world economy is heading. Even the IMF is revising its projections on various indicators every few days. In this situation, some amendments are needed in the budget. However, it does not mean it will be possible to increase the size of the subsidy several times.

The demand for subsidies is increasing. The question is where will our money come from? Our tax-GDP ratio has dropped after Covid. The tax collection is decreasing on one hand – the amount of import expenditure is increasing on the other. In this situation, it will be very difficult to continue the ongoing subsidy in the budget.

As such, the government's cost-cutting initiatives must be strengthened before increasing subsidies. Although several initiatives such as reducing foreign travel and implementing priority projects have been talked about, the extent to which they are being implemented should be looked at more seriously. There is no alternative to reduce the amount of wastage and corruption to zero. However, there is no strong initiative on the government's part.

The government has the option of reducing subsidies through resetting priorities. People irrespective of rich and poor are getting many subsidy benefits. We have to think of ways to ensure all these allocations reach the poor only.

Electricity bills can be discounted for poor people who consume a certain amount without subsidising electricity at mass rate. In some cases, food assistance for poor people can be increased by eliminating subsidies altogether.

Even before enacting the budget, we had recommended increasing the allocation for social security. Considering the current inflation, the needs to increase the size and scope of social security, per capita allocation and food assistance at subsidised rates have increased.

Dr Fahmida Khatun, executive director, Centre for Policy Dialogue (CPD)