The New Nation - Internet Edition

Pulack Ghatack

Subsidies in various sectors would eat up around Tk 16000 crore in the upcoming budget putting a serious pressure on the country's macroeconomic stability.

Despite minimisation of the annual development expenditure at Tk 25600 crore the budget deficit would widen to over 6 per cent of GDP, due mainly to higher subsidies in fuel, fertilizer and food.

The government will require to spend more than 15 per cent of its upcoming fiscal budget on subsidies, sources in the Finance Ministry told The New Nation yesterday.

In current fiscal year (July 2007 to June 2008), the Government exchequer is under huge pressure due to increased prices of fuel, food and fertilizer in the international market and therefore, the Government has to provide huge subsidies in order to keep these prices at acceptable levels.

The revised spending on subsidies shot up by 93 percent in the current fiscal to Tk 11600 crore from the originally projected Tk 5999 crore.

"We may have to set aside at least 15.5 per cent of our budgetary expenditure on subsidies in fertilizer, fuel and food in the next fiscal budget," said an official who is involved in the budget making process.

A 200 percent hike in fertilizer prices and almost 100 percent hike in food and fuel prices led to the record government spending in subsidies in the ongoing fiscal, as it sells the items far lower in the local market than the international prices.

However, some multilateral agencies such as the International Monetary Fund and the Asian Development Bank have long been pressing the government to shed its subsidy burden, warning that the country's fiscal management is now

under threat because of high borrowings to finance subsidies.

In the next budget the Government is likely to allocate Tk 5000 crore for diesel and fertiliser under the agriculture sector, outside the purview of oil import uner BPC, a Government official told this correspondent.

In the current year the budgetary allocation for diesel and fertiliser under the agriculture sector was Tk 2,250 crore. But the revised import target of urea and non-urea fertiliser in the current fiscal by the agriculture ministry will need another Tk 1,765 crore subsidy.

The government would almost double its allocation to provide subsidy in food items, which would rich at Tk 1100 crore, sources said.

The subsidy allocation was Tk 300 crore in the original budget of the current fiscal year. Later Tk 400 crore was added with it to cope with price spiral food and loss of food production due to cyclone and floods.

The power sector got allocation of Tk 1200 crore subsidy in the outgoing fiscal. It would about 1500 crore in the current fiscall year.

The Government will also continue cash subsidy for some export sectors, which was scheduled to be phased out in the outgoing fiscal year.