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Bangladesh - March 24, 2022

Upward expenses hit budgeting plan for FY 2022-23

Impact of Ukraine war

Golam Mostafa Jibon: Country’s budget formulation discipline may breach tremendously due to continuous rising of expenses especially costs of living in impact of Ukraine war.
MK Muzeri, a former chief economist at Bangladesh Bank and executive director of the Institute for Inclusive Finance and Development said, “The war in Ukraine has forced the government to reduce the cost of fuel and fertilizers, as well as food imports. This is an unexpected expense. The government was not thinking about the war situation while formulating budget. In order to deal with such situation, non-development expenditure is handled by reducing the expenditure of general development sector. Doing so will again have a negative impact on GPD growth. Now government subsidy spending needs to be adjusted in such a way that its benefits reach farmers and low-income people. Only then can you benefit from this extra expense.”
According to the sources, the impact of the Ukraine war has led to a sharp rise in government spending. The main reason for the increase in government expenditure is the increase in subsidies against fuel and fertilizers. Besides, the government’s expenditure is also increasing due to food imports and distribution of food to low-income families at affordable prices.
Finance ministry officials said that the overall situation has reached a point, where it is undermining budget discipline.
Finance Department sources said, the budget for the current financial year was allocated Tk 48,825 crore for subsidies. It is feared that, the subsidy will be much higher than the government’s estimate, if the war situation is prolonged.
Officials said, the government subsidies for energy, fertilizer and LNG could exceed Tk 70,000 crore in the current financial year. Meanwhile, several ministries, including the Ministry of Agriculture and the Ministry of Power and Energy, have sent letters to the Finance Department demanding for subsidy.
Seeking anonymity, an official of the finance department said, the increase in fuel and fertilizer imports was putting the most pressure on the subsidy. The government was not prepared to increase such expenditure in the second half of the financial year. This is a totally unexpected expense. The gap between revenue and expenditure is widening in the government’s budget plan – this is a matter of concern.
Fuel prices have almost doubled since the Ukraine war. On the other hand, the price of fertilizer has increased almost three times as compared to last year. Fertilizer prices are being kept affordable to help farmers. As a result, government expenditure is also increasing day by day. Apart from this, due to the increase in the prices of daily commodities, food aid is being provided to about 1 crore families through TCB at affordable prices across the country. The government’s expenditure in this sector is also increasing.
Increasing pressure on fuel oil and fertilizers:
Increasing government spending on energy subsidies is raising more concerns. State Minister for Power, Energy and Mineral Resources Nasrul Hamid himself has said that, BPC is losing Tk 80 crore every day due to increase in fuel prices in the world market. In the meantime, it has been learned that the Ministry of Power and Energy has sent a request to the Finance Department for an additional subsidy of around Tk 12,000 crore.
A letter has also been sent from the Ministry of Agriculture asking for extra money from the Ministry of Finance for the subsidy.
According to the information of the concerned ministry, where the subsidy was Tk 7,717 crore in the fiscal year 2020-21, in the current financial year, despite the allocation of Tk 9,500 crore, an additional Tk 18,500 crore will have to be given only to the government. The ministry’s policymakers said, most of the country’s fertilizer comes from Russia and neighboring Ukraine’s Belarus. Due to the war, the import of fertilizer from that country has stopped. Farmers have to import from different countries including India and the Middle East at higher prices to maintain their production.
Minister of Agriculture Md. Abdur Razzaque said, the government is working hard on where the huge subsidy will come from. Giving such subsidy may hamper other development activities, while increasing the price of fertilizer will increase the cost of production of farmers. Food production will be disrupted and food prices will be increased.

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