News Desk: The finance ministry has identified eight key challenges for Bangladesh’s economy in the FY 2022-23, which include crucial issues such as tackling import driven inflation, and securing enough funds to cover rising subsidies for oil, gas and fertilisers caused by skyrocketing prices.
The budget for FY23 is being framed around these key challenges, and Finance Minister AHM Mustafa Kamal is set to address these issues in his upcoming budget speech, ministry sources told The Business Post.
Four other major challenges are facilitating private sector investment for employment generation, stabilising the forex reserves while keeping necessary imports uninterrupted, keeping bank loan interest rate unchanged, boosting revenue and curb budget deficits.
And the remaining two are delaying implementation of less important development projects and expanding the scope of social safety net programmes.
Subsidies, incentives 1.90% of GDP
In the budget for FY23, the government is allocating Tk 82,745 crore or 1.90 per cent of the GDP for providing subsidies and incentives, due to the need for more subsidies for fuel, edible oil, electricity, gas and fertilisers in the domestic market.
The multiple recent price hikes of fuel oil and fertilisers in the global market has necessitated the increase in subsidies for the above mentioned products.
Moreover, the government has plans to further boost allocation by 15 per cent 20 per cent for this particular sector during the budget’s mid-term, pushing the allocation to a record Tk 1,00,000 crore, according to ministry officials involved in framing the budget.
In the initial budget for FY22, the allocation for subsidies and incentives stood at Tk 53,852 crore, which rose to Tk 66,852 crore in the revised budget 1.70 per cent of the GDP. So, comparing these figures year-on-year, this allocation is going up by 21.1 per cent.
During his budget speech scheduled on June 9 this year, the finance minister will mention that the government spending on subsidies and incentives in FY23 will go up by 15 per cent to 20 per cent, insiders say.
This rise in allocation for this purpose could pose a challenge to Bangladesh’s budget management in the next FY, Finance Division officials say.
Prices of essentials spiraling out of control
The price of fuel and food has been witnessing an upward trend ever since the Russia-Ukraine conflict began.
Compared to April 2021, fuel oil prices in the international market rose by 70 per cent in the same month this year. During that period, global prices of urea fertiliser tripled, soybean oil prices rose by more than 40 per cent, wheat prices by 80 per cent, and sugar by 25 per cent.
Considering these indicators, several international research organisations projected a further rise in global inflation. Food and Agriculture Organisation (FAO) data predicted that the global prices of agricultural and food items went up in 2021, and this trend will continue in 2022.
The price of natural gas has witnessed a 12 times increase between April 2021 and April 2022.
Russia and Ukraine are key global exporters of a number of consumer goods, and the ongoing conflict between these nations has destabilised the international market.
The upcoming budget speech will mention that a prolonged Russia-Ukraine conflict will disrupt the global post-Covid economic recovery efforts, ministry sources say.
The International Monetary Fund’s World Economic Outlook for April 2022 stated that in the developed economies, the CPI inflation was 3.1 per cent in 2021, which is projected to hit 5.7 per cent in 2022.
Under these criteria, USA’s inflation in 2022 will hit 7.7 per cent.
Meanwhile, in the developing economies, the inflation was 5.9 per cent in 2021, which is projected to go up to 8.7 per cent in 2022. The finance minister is set to mention these figures in his upcoming budget speech, insiders say.
‘No alternative but to boost subsidies’
Speaking to The Business Post, Centre for Policy Dialogue’s (CPD) Distinguished Fellow Mostafizur Rahman said, “Under the current circumstances, there is no alternative for the government but to boost allocations for subsidies.
“However, the ongoing instability in the international market will not continue for long. So, the government should not hike the prices of fuel oil, fertilisers, gas and electricity in the next FY. Already, the people’s purchasing power has declined.”
Power to get largest subsidy
The government is allocating the largest amount of subsidy Tk 18,000 crore to the power sector. This figure is double the amount allocated in the initial budget for FY22, and a 50 per cent increase compared to the revised budget for the same year.
Allocation for subsides which will cover imports of liquefied natural gas, the government’s loan liabilities and other related matters is going up by 68 per cent to Tk 17,300 crore in the budget for FY23- when compared year-on-year.
Meanwhile, the fertiliser sector is getting around Tk 15,000 crore in subsidy allocations next FY. This figure is 57.9 per cent higher compared to the initial budget of FY22, and 25 per cent more than the revised budget for the same year.
These subsidies will ensure that the prices of electricity and gas will not increase at a level recently recommended by the Bangladesh Power Development Board (BPDB) and Bangladesh Energy Regulatory Commission (BERC).
Ministry insiders who are involved with the framing of the next budget also believe that the fertiliser prices will remain stable as well.