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WB warns Bangladesh against huge subsidy

Publication Date : 21-06-2012

 

The World Bank yesterday advised the Bangladesh government to revise down subsidy allocation in the 2012-13 budget, as it is disproportionately benefiting the society's well-offs.

Subsidy to the power sector takes up most of the allocation, and the high income group, with their heavy consumption of gadgets, stands to gain the most.

In line with the income distribution patterns, more than 52 per cent of it goes to the top 20 per cent of the population, while the bottom 20 per cent, only receives 12 per cent of it, said Zahid Hussain, the World Bank's senior economist.

“Rather than reducing disparity in the society, it is, as a matter of fact, widening it,” he said.

It is high time the government stopped shielding the power and energy sector from the escalating global price through ever increasing subsidy allocation, Hussain said.

The subsidy on diesel is 24 taka per litre at present, while it is 16 taka for furnace oil and 2.78 taka per unit for electricity.

It is best for the economy that the consumers bear the burden of the global price rise, Hussain said.

Sanjay Kathuria, lead economist of the World Bank, illustrated the enormity of the share of subsidy in the upcoming budget, which, at 3.1 per cent of GDP, is 1.5 times the education budget and 3.5 times the allocation for the health sector.

While deposit mobilisation in the banking system is falling, indicating resource constraint, the government's demand for bank borrowing to fund subsidy, worryingly, is increasing, Kathuria said.

“Crowding out of the private sector has already begun and, it may intensify,” Kathuria added.

“Falling private investment does not bode well for growth sustainability, and strongly highlights the need for reforms in energy, power, land, infrastructure and ease of doing business,” Kathuria said.

Citing various tax measures in the proposed budget, the WB said the 1 per cent tax at source on mobile phone bills and 1 per cent on amount received by International Gate Way (IGW) services should have been more targeted.

On the government's growth target of 7.2 per cent for the next fiscal year, Hussain opined that it is achievable but challenging.

“The growth next year, however, could reach as high as 7 per cent if there are not any power and energy crisis,” added Hussain.

 

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