The Awami League government will focus on tamping down inflation, but subsidies will be sacrificed, says Shahiduzzaman Sarker
Published : 25 May 2024, 10:49 AM
The first budget for the Awami League government’s fourth consecutive term will attempt to meet the demands of the people by tackling inflation. Despite this, the government will also be looking to follow a policy of gradually reducing the range and scope of its subsidies as a logical step, says State Minister for Planning Md Shahiduzzaman Sarker.
The withdrawal and reduction of subsidies will put more pressure on ordinary people and those from lower income groups. Asked about taking the unpopular step at a time of rampant inflation, the state minister spoke about the capacity building of the Awami League government.
Just as the government’s capacity has improved over the course of its time in office, so has the capacity of the people, Shahiduzzaman said.
He added that subsidies contribute to inequality as both the rich and the poor enjoy the same benefit.
The state minister’s comments give a brief glimpse into the government’s thinking on subsidies ahead of the budget for the coming fiscal year.
In an interview with bdnews24.com ahead of the budget declaration on Jun 6, Shahiduzzaman said, “The budget is not just a numerical calculation, it is also always an ideological one.”
Economists and analysts believe that the government will struggle to pay off large amounts of foreign debt while trying to tamp down inflation and cut down on subsidies. But, under the circumstances, the state minister did not see anything bad about borrowing millions from abroad to fund development programmes in the country.
Despite the increase in foreign debt dependence, it will increase the dollar supply in the economy, which will stimulate interest and play a major role in job creation.
Of the Tk 2.65 trillion allocated to the Annual Development Plan (ADP) in the upcoming budget, Tk 1 trillion, or 37.74 percent, will be coming from foreign sources. The amount of foreign loans and grants in the revised ADP for the current year was Tk 835 billion. This means foreign financing will jump by Tk 165 billion in the upcoming budget.
One key factor in the budget is the slate of reforms to the financial sector that Bangladesh agreed to while taking a $4.7 billion loan from the International Monetary Fund (IMF). This includes raising fuel prices and cutting subsidies.
Since the loan agreement, Bangladesh has started taking several of the necessary steps, such as raising power and gas prices and reducing subsidies.
To reduce the budget deficit, international lenders have also suggested increasing the tax-to-GDP ratio, ending tax exemptions and reforms to the financial sector.
The budget for the current fiscal year allocated nearly Tk 1.11 trillion to subsidies. Reports say this number may increase to around Tk 1.13 trillion in the upcoming budget. But while the gross amount is going up, the scope of subsidies for power, fuel, and agriculture is likely to be reduced.
Asked about this, Shahiduzzaman said, “The capacity of our country’s people has improved. In that context, we can’t expect to run everything through subsidies. Subsidies should be phased out gradually. The subsidy is allocated for a specific period. We won’t hand out subsidies for decades and decades. Our economy has grown. And the World Bank also wants us to cut down on subsidies.”
Asked whether the IMF’s conditions were forcing Dhaka’s hand in cutting subsidies, the state minister said, “We can provide benefits to the financially disadvantaged as a matter of social security. But we cannot do that for agriculture as a whole. For example, when fertiliser is subsidised, those who own a hundred bigha of land get the same benefits as everyone else. It is not separated and only given to poorer farmers. There is an inequality here. That is why they should be lifted gradually.”
“And a subsidy is a temporary support. Subsidies should eventually be withdrawn. There is pressure from the World Bank and pressure on the economy to cut subsidies. They have their suggestions on how to do so and we will take them into consideration. After all, the most important thing is the interests of the people of our country. Still, they are our development partners. We must take their participation into consideration as well.”
Regarding whether the government would aim for a contractionary budget this year, the state minister said, “Due to the economic recession, the whole world has shifted into a contractionary mode. Japan is taking a contractionary approach to the economy for the first time in its history, while the US has consistently raised interest rates. Our country’s economy depends on imports. Many products have to be imported. We have exports too, but not to the same extent. The balance of trade is disrupted when we fail to match imports and exports. If the price of the dollar rises, the prices of imported goods will naturally increase.”
“Whether we like it or not, there is a natural wave of inflation coming. We will face this pressure and overcome it with courage and commitment and keep moving forward towards our vision for the future.”