Rejaul Karim Byron
When the economy has been reeling under mounting strains of subsidy, the government will substantially increase the outlay further in the next fiscal year.

According to the finance ministry's draft estimate for the next fiscal year, the spending on subsidy may increase by 69 percent over the current year's original budget and stand at Tk 34,533 crore.

In the current fiscal year's revised budget, the amount of subsidy may rise by 43 percent to Tk 29,313 crore.

In the current fiscal year, the total allocation for subsidy was Tk 20,447 crore, which is 2.3 percent of the gross domestic product and 12.5 percent of the total budget.

However, a finance ministry official said the next year's subsidy will be less than that in this year's revised budget as Tk 10,000 crore from this year's subsidy demand will be carried over to the next year's amount.

The government in a memorandum sent to the International Monetary Fund (IMF) admitted to the subsidy pressure and said, “Macroeconomic pressures have intensified over the past 18 months resulting in heightened risk to Bangladesh's external position.”

The government also said, “Despite record tax takes, fiscal pressures have also emerged, stemming mainly from rising fuel, electricity, and fertiliser subsidies.”

As a result of the pressure, the government's domestic borrowing increased sharply, straining available liquidity and increasing interest rate and inflation, the government said in the memo to the IMF.

However, the finance ministry official said, alongside fuel, electricity and fertiliser, a new sector will need subsidy due to the government's policy change about the jute mills.

The government gave only Tk 300 crore in subsidy to Bangladesh Jute Mills Corporation (BJMC) and related sectors in fiscal 2010-11. But in fiscal 2011-12 the allocation in this sector rose to Tk 2,900 crore. However, such allocation may be Tk 1,700 crore next year.

There is a huge demand for subsidy on fuel in the current fiscal year as the government has to meet the demand of rental power plants and it did not yet make adjustment in the local market with the international fuel price.

The government allocated Tk 3,500 crore as subsidy on fuel in the current fiscal year but the demand later soared to more than Tk 28,000 crore.

However, through price adjustment, the demand for subsidy was lowered, and around Tk 7,000 crore may be carried over to the next year.

In the next fiscal year, the allocation for fuel may be Tk 13,300 crore including the carried over subsidy.

In the current year's budget, the allocation for agriculture was Tk 4,500 crore but the ministry demanded Tk 10,000 crore as the price of farm inputs went up.

This year the agriculture ministry may get Tk 6,500 crore for subsidy. The rest will be carried over to the next fiscal year and the total amount will be Tk 6,000 crore.

In the power sector, the subsidy in the next fiscal year may be Tk 5,600 crore even after price adjustment.

The finance ministry official said the prices of fertiliser, fuel and electricity may be hiked in the next fiscal year to ease the subsidy pressure.

Besides, an automatic pricing formula will be introduced for fuel. As a result, if the price goes up by 10 percent on the international market, the fuel price will get adjusted automatically on the domestic market.

Early this month, Finance Minister AMA Muhith in a pre-budget discussion with some editors said the amount of subsidy will be kept within a limit.

“If the amount of subsidy is higher, it becomes difficult to run the state machinery,” Muhith said.