Govt likely to trim subsidies in new budget

(Highlights)

• Subsidy allocation in FY25 was Tk120,585 crore
• FY26 allocation likely to be Tk1,16,000 crore
• Subsidy pressure drops on global price fall, clearing outstanding dues
• Allocation to be increased only if needed
• Subsidies for power, LNG may drop
• Food subsidy may increase
• Export, remittance incentives to remain same

The government is set to reduce its allocation for subsidies and incentives in the upcoming fiscal year's budget, with a projected figure of approximately Tk1,16,000 crore, a slight decrease from the current fiscal year's original allocation of Tk120,585 crore, according to officials.

The anticipated reduction is primarily attributed to a decline in global prices for fertilisers, fuel, and food, alongside the settlement of a significant portion of outstanding electricity and fuel subsidies in the current fiscal year.

This settlement was largely facilitated through bond issuances and increased allocations in the revised budget, thereby easing the pressure on the gas and power sectors for the upcoming fiscal year. The government has also issued bonds to clear outstanding agricultural subsidies.

In an exclusive interview with TBS recently, Finance Adviser Salehuddin Ahmed affirmed that there would be no curtailment in agricultural subsidies. He emphasised the government's commitment to providing the necessary funds for fertiliser imports to boost agricultural production and ensure food security.

The finance adviser said, "After the recent gas price hike to reduce subsidies, I have advised the power and energy adviser not to increase prices further. Gas and electricity prices will not rise in the new fiscal year. The required subsidies for these two sectors will be allocated in the budget."

Power sector subsidy to fall

According to finance ministry officials, the average monthly subsidy for the power sector is approximately Tk3,000 crore. However, due to pending payments from the previous fiscal year, the current fiscal year's original budget allocated Tk40,000 crore for this sector and Tk7,000 crore for LNG subsidies. To clear these outstanding subsidies, the revised budget increased the allocation for these two sectors to Tk62,000 crore.

An official from the Finance Division noted that fuel prices are falling in the international market, and said, "In this situation, if the growth in exports and remittances continues, the value of the taka against the dollar will remain stable. As a result, an allocation of approximately Tk35,000 crore is being set aside as a subsidy for the power sector."

Gas exploration to be in focus

He said the demand for LNG imports will increase next year as well. However, instead of increasing imports, the government wants to boost gas exploration and extraction from domestic sources, he said. "In the new fiscal year, a project is being undertaken to drill five new wells. In addition, gas prices have recently increased for new connections and additional loads. As a result, the amount of subsidy in this sector may decrease to some extent."

Subsidy for LNG may drop

The original budget for LNG import subsidies in the current fiscal year was Tk7,000 crore, which may decrease to Tk6,000 crore in the upcoming budget.

Finance ministry officials said the agriculture ministry has requested Tk25,000 crore in subsidies for the upcoming fiscal year, with a likely allocation of Tk20,000 crore. This agricultural subsidy primarily supports fertiliser imports. The finance ministry is prepared to increase the allocation as needed if global fertiliser prices rise or if there is a depreciation of the taka. There are no government plans to increase fertiliser prices in the upcoming fiscal year.

Food subsidy to rise

To achieve the target of reducing inflation from the current nearly 9% to 6.5% within the next fiscal year, the government plans to expand food assistance and the sale of food products at reduced prices through the TCB. For this, Tk10,000 crore may be allocated for food assistance subsidies and Tk19,000 crore for TCB subsidies. The current fiscal year's budget includes Tk7,360 crore for food subsidies and Tk19,000 crore for TCB subsidies.

While the current fiscal year's budget has the same allocation for TCB, the government has cancelled 44 lakh of TCB's one crore cardholders and is now selling products through TCB trucks in the open market, similar to previous practices.

Export, remittance incentives to remain same

The finance ministry officials also indicated that with Bangladesh's LDC graduation in November of next year, export incentives will no longer be provided. Therefore, the government had decided to gradually reduce export incentives starting from the current fiscal year. 

While export incentives for readymade garments and other sectors have been reduced this fiscal year, the current government does not wish to make any decisions that could hinder exports amid the ongoing global trade situation. 

Consequently, they plan to maintain the allocation for export incentives at the same level as the current fiscal year in the upcoming budget. Furthermore, the 2.5% remittance incentive is also likely to remain unchanged.

The current fiscal year's budget allocated Tk14,000 crore for export and remittance incentives. However, an increase in remittance inflow would necessitate additional expenditure in the sector, said the officials. 

The current fiscal year's budget allocated Tk7,825 crore for export incentives and Tk6,200 crore for remittance subsidies. Additionally, there may be a Tk1,200 crore incentive for jute and jute product exports.

Beyond these subsidies, the government also provides cash loan assistance to various institutions, which is categorised as a subsidy. Approximately Tk10,000 crore may be allocated for this purpose, said the officials.