To reduce the expenditure of the fund, to end subsidies to the energy sector | Whuff News

The government should stop wasting money on the energy sector and eventually end subsidies, which have put pressure on the public purse, according to economists and businessmen.

However, subsidies should not be withdrawn amid the ongoing economic crisis, they said.

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The proposals came after two international lenders — the International Monetary Fund (IMF) and the World Bank — suggested removing subsidies to make Bangladesh’s budget more efficient.

The government’s planned subsidies have reached a record high in the ongoing financial year and are now at around Tk 83,000 crore, an increase of 19 percent from Tk 67,000 crore last year.

Meanwhile, the revised government funding was Tk 49,330 crore for the 2020-21 fiscal.

The government has been subsidizing the prices of fuel, fertilizer, electricity and gas in an unsustainable way that benefits the poor and the rich alike.

The government’s planned subsidies have reached a record high in the ongoing financial year and currently stand at about Tk 83,000 crore, up about 19 percent from Tk 67,000 crore last year.

A recent visit by the IMF called for the implementation of a formula for setting the prices of fuel, fertilizer, electricity and gas while reducing funding for the next financial year.

The 10-member mission is in Dhaka on a 15-day visit to finalize the terms of the $4.5 billion the country needs.

Following these suggestions, the Daily Star contacted a few economists and businessmen for their take on the matter.

“The recommendation to cut funding makes sense, especially in the power sector,” said KAS Murshid, former director general of the Bangladesh Institute of Development Studies.

However, the decrease in subsidies to the power sector during this period will increase the suffering of the general public, who are going through a tough time following several hikes in electricity prices.

Therefore, the government can negotiate a plan to end the subsidy without putting these people at risk, he added.

Murshid went on to say that the government should work on implementing the suggested reforms, especially regarding the suspension of fuel prices.

“In the energy sector, the government subsidizes influential people, which creates chaos,” he said.

Funding should not be based on lobbying or on an ad-hock basis and instead, it should be for the betterment of the people and in a clear way, Murshid added.

“The government published a market-based pricing formula in 2005 or 2006 that was never used or spent,” said Zahid Hussain, a former economist at the World Bank’s Dhaka office.

“So why should we wait a year to produce a formula when one already exists? Even a redesign of the current model can be done with one stroke of the pen,” he added.

Hussain then said that there is no sense behind supporting diesel, kerosene or any fuel during climate change.

Besides, the government should impose taxes and introduce environmentally friendly technologies to reduce the use of fossil fuels.

If the government provides equity-based financing, the question remains whether the rural and urban poor use less fossil fuels than the rich.

So, technically rich people get more benefits from funding.

Instead of subsidizing prices, the government could increase funding through social security programs for the poor.

“After that, the poor will get the real benefits of funding as there will be more equity,” he added.

Although both the IMF and the World Bank want to reduce funding to the energy sector, nothing is being done about solving the reasons why aid is given in the first place, said Professor Anu Muhammad, former chairman of the department of economics at Jahangirnagar University.

“The government is burdened with subsidies to give huge benefits to power generation companies in the name of capaty charge. Therefore, they should work to reduce the expenditure of the fund in the name of support,” he added.

The Bangladesh Power Development Board (BPDB), the country’s sole consumer of electricity, paid 16,785 crore in capacity charges to the power plant in the first nine months of the last fiscal year for a daily power generation capacity of 22,118MW.

Earlier, it paid Tk 18,977 crore for 101 power plants in 2020-21 and Tk 18,123 crore for 102 plants in 2019-20, BPDB data shows.

“The funny thing is, if the funding is cut following the IMF decree, the masses will suffer as they are already in trouble following the decline in their real income,” said Muhammad.

Anwar-ul Alam Chowdhury, president of the Bangladesh Chamber of Industries, said the government should provide funding considering its potential as the country is not in a position to lose jobs or allow high inflation.

Germany launched a 200 billion pound energy bailout to protect its people and the private sector amid economic uncertainty.

“Therefore, there is no problem in providing funding to provide benefits to its people and keep the business competitive,” he said.

As the domestic market is not in good condition due to the low purchasing power of the people, the subsidy should continue, added Chowdhury, who is also the former president of Bangladesh Garment Manufacturers and Exporters Association.

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