Subsidy surges for avoidable expenses, people pay dearly

Government budget spending on subsidy has swelled over seven times in seven years with the pressure upsetting fiscal and macroeconomic management, ultimately compelling people to bear the cost, analysts say.

Capacity payment to private power producers and relieving government entities of financial burdens are among the heads that necessitate handing out subsidies from the public exchequer, financial officials have said.

In the last fiscal year (FY) 2022-23, a sum of Tk 707.51 billion was spent on subsidy from the operating budget--7.79 times higher than the expenditure in FY2017, Ministry of Finance (MoF) statistics showed.

An FE analysis has found the budget expenditure on the purpose of subsidies to different sectors-like agriculture, power and energy, fertiliser, and fuel-having escalated year on year.

The ex-gratia payments are meant for cushioning the blows from price spikes of fuels, fertilisers, and food on the global market in fallout from the Russia-Ukraine war, MoF officials said Friday.

Meanwhile, the government in the middle of the last fiscal revised the allocation for subsidy upward to disperse the pressure of huge expenditure on grants transfer from state coffer.

In the original national budget, the government earmarked Tk 565.35 billion for subsidy. Later, the allocation was jacked up by Tk206.61 billion to Tk 771.96 billion in the revised budged.

The FE analysis has found that the subsidies in the national budget have risen at a faster pace especially over the last five years since FY2019.

In FY2018, the government utilised Tk108.12 billion as subsidy in the national budget and the figured rose to Tk 226.54 billion in the subsequent FY2019 in a 2.09-time increase year on year.

In the following fiscal, FY2020, the subsidy payments swelled to Tk 292.33 billion, marking a rise by 29.04 per cent from that in the previous financial year.

Similarly, the amount of grants also increased to Tk 276.39 billion in FY2021, to Tk 419.51 billion in FY2022 and to Tk707.51 billion in FY2023 in a crescendo, the MoF data showed.

A senior MoF official has said the amount of subsidies in the budget has been swelling at higher rate over the last few years as the government has to pay substantial funds to the power producers as capacity charge and power-purchase costs.

"Besides, higher prices of agricultural inputs on the global market have also been forcing us to enlarge the subsidy amount in the national budget over the last few years," he added.

Centre for Policy Dialogue (CPD) Research Director Dr Khandker Golam Moazzem says the subsidy in the agricultural sector is somehow better for taming the prices as well as encouraging farmers in food production.

However, it's a matter of research how much of subsidies directly going into farmers' hands, he adds.

"If the government pays a huge amount of capacity charges to the power producers indiscriminately in the name of subsidies, how much the general people are benefiting from it?" Dr Moazzem questions.

The policy researcher observes that, sometimes, the government enhances prices of fuel oils, power and energy and passes directly on to the consumers in the name of cutting burden of the public entities and reducing subsidies. "But it is not a better fiscal management as the general people are affected directly from it."

The CPD director suggests that for reducing such burdensome subsidies, the government should go for a market-based price-adjustment mechanism rather than passing on the price-hike pressure directly to the consumers.

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