It is now high time for formulating a national subsidy policy to give benefits of the subsidies or cash incentives to the genuine people and ensure financial transparency in subsidy distribution mechanism, analysts say.
They viewed that the present subsidy system was not based on enough research, and influenced by political clout in many cases.
The analysts came up with the observation at a dialogue titled “Efficiency and Distributional Equality of Subsidy in Bangladesh” organised by the Centre for Policy Dialogue (CPD) at a city hotel yesterday.
Former Finance Adviser Mirza Azizul Islam noted that subsidy definition was necessary to bring transparency in its distribution as subsidy estimated in Bangladesh is just based on a gross estimation.
“Under the country’s existing subsidy regime, there is a lot of space for development in respect of transparency, efficiency and equality,” he said.
Islam explained that the government’s investment in shares and equities of the state-owned enterprises (SoEs) was seen as grant as it did not get any dividend for those entities.
“The government gives loan with lower interest rate at about 5% but this loan is never paid back by SoEs, which leads to increase debt service liability of the government. Such enterprises should be closed or divested.”
Professorial Fellow of Bangladesh Institute of Development Studies (BIDS) M Asaduzzaman observed that proper study, in many cases, was not made before giving any subsidy.
“The government should pay due attention on the usage of subsidy by taking global context and intentional price movements into the account.”
On energy subsidy, he said solar power home system was a stellar example for its impressive expansion in recent years because of subsidy.
But he strongly criticised about energy subsidy on the quick rental power plant.
“Subsidy in quick rental power plant was supposed to give for temporary period but it has already taken quite a long time. Those, who are technologically inefficient in the world to produce power, is given subsidy thorough BPC to the big private business groups,” said Asaduzzaman.
In response, State Minister for Finance MA Mannan explained that the government had taken such decision for quick power generation in the context of the period when the country was struggling with acute power shortage.
He further said the government primarily usage subsidy with an intention to reduce inequality and poverty.
“It cannot be withdrawn suddenly due to its contribution to and pervasiveness in the economy.”
CPD distinguished fellow Debapriya Bhattacharya said many hidden and non-transparent financial management was not yet clear.
“Rising about the political influence and in light of reality, economic structural changes and WTO trading system, a national subsidy policy is needed,” he viewed.
He also observed that with the recent fall of fertiliser and oil prices in the international market, the government could now pay attention to the existing subsidy management.
CPD visiting fellow Kaniz Siddique, in her study, discovered that whether subsidy as a policy tool was fiscally sustainable when used not only to address market failure and equity but also to mitigate government failures.
Focusing on subsidies in the export, food, national energy, power sectors and national agricultural policies in Bangladesh, her study found that subsidy was not a major macro instability and unsustainably threat as the government had been able to maintain a “comfortable and manageable” level of fiscal deficit.
For being of complex nature and a non-transparent fiscal instrument, she recommended for using subsidy as little as possible to ensure sustainability at macroeconomic level.
Sajjad Zohir, research director and head of treasury, Economic Research Group, said, “While estimating subsidy, market price, economic price or accounting price as a reference price on which the size of subsidy will depend are important.”
