Pressure mounted in next budget
Mahfuja Mukul: Due to the effect of Russia-Ukraine war, the prices of fuel oil, food, gas and fertilizers increased abnormally in the world market. In addition, the crisis created the US dollar. Due to which the price of dollar increases against money. A rising dollar and commodity prices boost import spending. This increases the cost of power generation, fertilizer and food import. On the other hand, while selling these products at affordable prices, there is a huge pressure on the subsidy.
According to the finance department, in the current (2022-23) financial year, additional subsidy of Tk 21 thousand crores should be calculated only for agriculture, electricity and food. Besides, the additional cost of paying the interest of the additional internal debt with the increase in dollar value will be Tk 9,638 crores.
Recently, these facts were highlighted in the meeting of the ‘Financial, Currency and Currency Exchange Rate Coordination Council’ and the ‘Budget Monitoring and Resources Committee’ under the chairmanship of Finance Minister AHM Mustafa Kamal. This information was found in the relevant sources. A senior official of the finance department involved in this process told that the big challenge in both the current and next budgets is to deal with the cost of subsidy and interest payments. Due to the ongoing war, there is a huge pressure on subsidies to increase the cost of imports. Although now the price of the product is on the downward trend. But after June 2022, the prices of all types of products increased at an abnormal rate. As a result, the government has to import at a higher price and sell at a cheaper price.
Due to which the subsidy cost is more than the target. Besides, the cost of this sector has also increased due to high domestic debt interest expenses.
If asked, the former caretaker government’s finance advisor ABM Mirza Azizul Islam said that the expenditure in the subsidy sector is going too much in the budget. It should be reduced gradually. This may lead to some inflation. And in case of inflation, the lower and lower middle-class families may face some problems.
However, the coverage of social security programs should be increased to protect them. He said regarding the interest expenditure, overall expenditure in the interest sector is increasing in the current budget. And a large part of this expenditure is going to pay the interest on the domestic debt. In particular, higher interest has to be paid on savings certificates. However, borrowing from savings bonds is being reduced this year. This will reduce the interest in this sector in the future. To come out of this excess interest expenditure, he suggested less borrowing from the domestic sector and more borrowing from the foreign sector.
According to him, foreign debt is good for reserves. There is a need for foreign loans. The current external debt to GDP ratio is in a better position than other countries. No need to worry about it.
It is known that Tk 39,745 crore of subsidy has been allocated to food, agriculture and electricity sectors in the current financial year. Out of this Tk 6,745 crores in food, Tk 18 thousand crores in electricity and Tk 15 thousand crores in agriculture. But in the end, Tk 21 thousand crore will be spent on subsidies for these three sectors. Then the total subsidy in these sectors will be Tk 60,745 crores.
It was said in the coordination council meeting regarding financial, currency and currency exchange rate that the price of fertilizer in the world market has gone up to Tk 81 per kg. Imported at that price and given to the farmer at the rate of Tk 20 per kg. Before August 1, urea fertilizer was given to farmers at the rate of Tk 16 per kg. Abnormal subsidy expenditure in this sector has increased due to buying at higher prices and giving fertilizers to farmers at lower prices.
Meanwhile, a decision has been taken to adjust the price of electricity to reduce the subsidy. Electricity prices for all types of customers were increased last February. Earlier in January, prices were increased by 5 percent at the retail and wholesale levels. New announcements show residential and industrial electricity prices rising at least 5 percent in February. And prices for wholesale distribution companies are increasing by at least eight percent. The government had already hinted that the price of electricity and gas may be adjusted every month from now on.
In response to the question why the subsidy in this sector is increasing despite this coordination, an official of the finance department said that the coordination is being done at the last moment. But due to non-coordination at the beginning of the financial year, the subsidy increased abnormally. Meanwhile, a process of adjustment of fuel oil prices is going on in line with the world market.
Meanwhile, to ensure security, an agreement was made to import about 11 lakh 80 thousand tons of food. Although the import target in the budget was 7 lakh tons. That is why subsidies are increasing in the food sector.
Meanwhile, in the current fiscal year, Tk 80,375 crores have been allocated for the payment of interest on loans. This year, another Tk 9,638 crore will be charged in interest expenses. According to those concerned, a major part of this expenditure will go towards domestic interest expenditure.
Especially in the savings sector. Current bank deposit interest rate is 4 to 4.5 percent. But the maximum interest rate on savings bonds remains up to 11.5 percent. As a result, bank depositors are now investing more in savings bonds. Due to which the interest cost has increased a lot. According to the Department of Finance, savings bonds are viewed as social security program tools. That is why the interest rate here is kept very high. However, that opportunity is being closed in the next financial year. Only 20 percent of the total loan will be taken from here.
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