Eminent economist AB Mirza Azizul Islam advised the government not to allocate subsidies for imported fuel oil in the next budget and to reduce the price of fuel in the domestic market.
He said the government should reverse the decision to sanction fuel oil subsidies to state-owned oil importer Bangladesh Petroleum Corporation (BPC).
Currently the government is not considering any price reductions of petroleum products in the domestic market even though the price of these products slumped to a four-year-low in the international market.
In FY2013-14, BPC incurred a loss of Tk2,477.73 crore. The government compensated the state-owned body under a subsidy package.
Official sources at the Energy Ministry said the government provides subsidy to the energy sector though a credit programme to keep pressure on state entities to pay back the amount.
They said another objective of such a mechanism is to show the amount as a loan instead of a direct subsidy to avoid the financial implications of this when receiving foreign loans.
In reality, the amount is a subsidy which is never paid back by the state-owned entities, they claimed.
Officials said the BPC’s profit was around Tk2,000 crore during the first seven months of FY2014-15 following the drastic fall in international oil prices.
Finance Minister AMA Muhith recently rejected the World Bank’s advice to drop subsidies to the power and energy sectors at a meeting between the governemnt and the multilateral in the US capital, according to media reports.
For FY2014-15, the government has set aside Tk2,400 crore for petroleum subsidies. Of the amount, only Tk350 crore is likely to be used in the end, said a BPC official.
“Subsidies are a costly burden on the taxpayer which should be progressively eliminated. The consequent consumer benefit depends on the price adjustment at the domestic market commensurate with the international price,” Mirza Azizul, the finance adviser to the past caretaker government, said.
Lower oil prices help reduce the cost of living by lowering transport costs and bringing down inflation, he said.
The former finance adviser suggested adjusting the price of petroleum products as quickly as possible. “It is common in Bangladesh that if the international price of anything goes up, we do not raise our price and if the price goes down, we do not reduce it. This results in subsidies.”
