held on Saturday 2 May 2015, CPD organised the dialogue on “Subsidy Management in Bangladesh: Efficiency and Equity Issues” at Lakeshore Hotel.
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Published in The Financial Express
Subsidies usually do not reach target groups, promote inequality
Experts at CPD dialogue call for nat’l subsidy policy
FE Report
The urgency for formulation of a national subsidy policy was highlighted when speakers at a dialogue on Saturday expressed their concern over indiscriminate allocation and abuse of subsidy.
Subsidy is financial support the government provides to keep the price/cost of products or services at low level.
To ensure transparency and accountability, they wanted a review of the overall subsidy programme of the government, analysing its distribution system and impact. They also suggested phasing out of fuel and power subsidies and reducing agriculture and food subsidies.
If required, they said, subsidies should be given at the level of end-users.
They observed that, in most cases, the subsidies do not reach the target groups and promote inequality. The benefits are usually harnessed by the high-income group defeating the very purpose of providing subsidy.
They identified, among others, quick rental power plants and some government enterprises where the subsidies are being abused widely.
“The quick rental power plants are which use the most inefficient technologies devour huge amounts of subsidies through the Power Development Board and the Bangladesh Petroleum Corporation,” said Bangladesh Institute of Development Studies (BIDS) Professorial Research Fellow Dr M Asaduzzaman.
“The government should not extend the tenures of the quick rental power plants to ease its subsidy burden,” said the economist seeking its selective and judicial use while allocating subsidies.
State Minister for Finance and Planning MA Mannan, who attended the programme as the chief guest, however, said quick rental power plants were allowed to meet immediate necessity, as people wanted electricity at any cost. So, the minister said, these cannot be withdrawn immediately.
But he agreed that many of such subsidies are creating distortions.
The subsidies, the minister said, are given with a view to reducing poverty and inequality.
“Sometimes, subsidy can be an investment if made available to the right place like education. But it may considered spending in case of electricity and fertiliser,” said the minister.
Former Advisor to the caretaker government Dr AB Mirza Azizul Islam, who attended the programme as the guest of honour, also stressed the need for more transparent, judicial and accountable system for allocation of subsidies and urged the government to shift from generalised system of subsidies to targeted subsidies.
In case of government enterprises, which fail to generate income and mostly depend on government allocations, he strongly recommended for not allocating any subsidy for those. “If the commercial enterprises cannot meet their variable costs, those should be closed down,” felt the economist.
“Jute mills do not have money to buy jute. Sugar mills produce sugar, but cannot sell it. If this is the situation, the government should privatise the mills or close down those,” said the former adviser.
Private think-tank, Centre for Policy Dialogue (CPD), organised the dialogue on “Subsidy Management in Bangladesh: Efficiency and Equity Issues” at the city’s Lakeshore Hotel on Saturday which was attended by a large number of economists, researchers, businessmen, academics and officials from government and non-government organisations.
Presided over by CPD’s Distinguished Fellow Dr Debapriya Bhattacharya, the dialogue was addressed among others by Economic Research Group (ERG) Research Director Dr Sajjad Zohir, Planning Commission Member Dr Shamsul Alam, DCCI’s Senior Vice President Humayun Rashid, Dr. Akhtaruzzaman of IFPRI, Dr. Bimal Saha of BIDS, prof. Golam Hafiz of Bangladesh Agriculture University and Energy and Power Editor Molla Amzad Hossain. CPD’s Visiting Fellow Dr Kaniz Siddique presented the keynote paper on the subject.
In his speech, Dr Debapriya Bhattacharya also highlighted the urgency for properly defining subsidy, its areas and modes of allocation with formulation of a notational policy for judicial use of the fund.
Dr Kaniz in her paper explained how wealthier people are being benefited from the money, usually paid by the government to keep prices stable, reduce cost and help the poor.
“It certainly helps some poor, but large farmers are benefited relatively more,” she added. Fuel like kerosene is subsidised more because a large number of users live in rural areas. But subsidy on petroleum is not pro-poor, she said demanding restructuring of subsidy components to ensure its efficiency and effectiveness of public expenditure.
Published in New Age
Poor don’t get benefits of govt subsidies
Experts say at CPD seminar
Staff Correspondent
Government subsidies in different sectors do not effectively reach to the poor segment of people or the end users rather people with political connection are often benefited from the public money, said experts at a seminar on Saturday.
Local think tank Centre for Policy Dialogue organised the seminar ‘subsidy management in Bangladesh: efficiency and equality issues’ in a city hotel on the day.
The keynote speaker, Kaniz Siddique, a visiting fellow of the CPD, said subsidy was not a good fiscal tool and it should be used on a temporary basis.
She said the subsidies did not reach to the poor segment of the society who needed those most.
‘Food takes up a fairly large portion of the subsidy where army and police have a big chunk that are not poor segment,’ she said.
The share of subsidy to the GDP was only 0.41 per cent in the fiscal year 2010-11 that increased to 2.8 per cent in the FY2012-13 and again came down to 1.7 per cent in the FY2014-15, she said.
‘Subsidy can be used for addressing market failure or improving equality or for both,’ she said.
Kaniz said in case of agricultural subsidy, the richer farmers were getting more benefits from the subsidy than the poorer farmers.
‘And in most of the cases, the subsidies actually help the richer among the segments. And in some cases those help the people with political links,’ she said.
‘The subsidy on petroleum is also not pro-poor. The wealthier people use more petroleum and enjoy higher subsidy,’ she said.
Former adviser to the immediate past interim government Mirza Azizul Islam said the goal of subsidy was not achieved in the country.
‘The government can close down the state-owned entities which are in loss. The government also understate the amount of subsidy in the budget documents,’ he said.
He said the subsidy in the power sector was also not effective.
‘And it’s often dubbed as “system loss” which is a theft outright,’ he said.
State minister for finance MA Mannan, however, said that the government went for a quick solution for power problem and used subsidy as a tool.
‘The people were crazy for power and our government decided to solve the problem instantly and we did it successfully. Subsidy may not be the finest tool but you cannot change a system overnight. We don’t want to allow black money but sometimes we don’t have any choice but to accept the reality,’ he said.
Shamsul Alam, member of the General Economics Division of the Planning Commission, however, said that subsidy could be used effectively when it ensured better return.
‘When the government subsidises industry like export and it’s ensure better return, then a subsidy is better than investment. We have to study the opportunity cost of subsidy to realise the effectiveness of such expenditure,’ he said.
CPD distinguished fellow Debapriya Bhattacharya said that there was no clear definition of subsidy yet.
‘And as we can define it in various ways so the subsidy calculation also becomes problematic. We need a separate policy for subsidy management,’ he said.
Bangladesh Institute of Development Studies representative Bimal Saha said the subsidy was needed to be considered as a social tool rather than a financial instrument.
‘If you don’t look at it from a social view of point, subsidy can also turn out to be a tool of oppression,’ he said.
CPD executive director Mustafizur Rahman said as the country has limited resources, ensuring efficiency of the public money is crucial.
‘And in that case, equality of subsidy becomes a very important issue where we often see the subsidy is not reaching to the end users,’ he said.
Published in The Daily Star
Make a subsidy policy
Analysts say the policy will bring better results for beneficiaries
Star Business Report
The government needs to formulate a national policy to stop doling out unnecessary subsidies, prevent leakages and make state interventions more targeted and efficient, a number of economists said yesterday.
“Time has come to devise a national subsidy policy to regulate the spending and give emphasis to subsidies management,” said Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue (CPD).
Had there been a national policy, the country would have been able to decide when the prices of rice or oil have to be subsidised, he said.
The economist also said there has to be a clear definition of subsidies to establish transparency in the spending of the taxpayers’ money.
Bhattacharya said on many occasions subsidies are deemed to be pro-poor and that may not be the ground reality. “We also need to see what other countries are doing.”
Shamsul Alam, a member of the planning commission, backed Bhattacharya’s call for a national policy, adding that the distribution system has to be developed.
He, however, said subsidies are necessary if they play the role of investments. “If the return is more, definitely the subsidies should continue. However, subsidies that cannot ensure the returns should not continue forever.”
They spoke at a dialogue styled ‘Subsidy Management in Bangladesh, Efficiency and Equity Issues’ at the capital’s Lakeshore Hotel.
The country’s subsidy spending went up to 1.7 percent of the gross domestic product this fiscal year from 0.41 percent in fiscal 2001-02, said Kaniz Siddique, visiting fellow of CPD, while making a presentation.
She said the subsidies going to cottage industries, jute workers and exporters are justified as the first two segments of the population are poor and the third one helps create jobs, thus contributing to poverty reduction.
She, however, questioned whether all farmers should get blanket subsidies as not all of them are poor. “Likewise, in case of power, the subsidy is not progressive as wealthier people use large amounts of electricity.”
Siddique recommended reducing subsidy expenditure wherever possible to ensure macroeconomic sustainability.
“Subsidy should be considered only as temporary measures with a time phasing out strategy,” she said.
At the discussion, the participants also found it hard to reach a consensus on how much Bangladesh really spends for subsidies, as there are many forms of spending in different names by many ministries and government agencies, apart from the subsidies estimate stated in the budget document each year. AB Mirza Azizul Islam, a former adviser to the caretaker government, does not think that subsidies at the current level are sustainable.
“But we have to see whether they are achieving the targets, as there are incidents that subsidies are not being able to bring the expected benefits. Sometimes, the benefits are very limited.”
Islam said the government estimate on subsidies is a gross understatement.
The government’s budget document says the total subsidy for this fiscal year is about Tk 16,600 crore, but the sum does not account for the amount handed out to the energy sector. “Transparency in the definition has to be there.” He said the government’s loans to state-owned enterprises ultimately become grants as they never repay them.
“If any state-owned enterprise can’t meet its production costs and day-to-day expenditure, it should be closed down or privatised. There are some SoEs which fall in this category,” he said, citing Bangladesh Sugar Mills Corporation and Bangladesh Jute Mills Corporation as examples.
Islam called for increasing administrative efficiency to better spending subsidies. Since its independence, the country had to provide subsidies in areas of food, irrigation and electricity generation, said M Asaduzzaman, professorial fellow of Bangladesh Institute of Development Studies (BIDS).
“It was needed then. But now the time is different as the whole picture has changed,” he said, while calling for proper monitoring to find the real beneficiaries of the subsidies.
Also, it has to be kept in mind that the country alone cannot control how much subsidies it will give or not, as there are external factors that also influence the decision, he added.
MA Mannan, state minister for finance and planning, said subsidies are important from the viewpoints of social, economic and equitable justice, as the government is committed to reducing poverty and inequality.
He also said the government cannot withdraw subsidies at will as there are vested elements that have benefitted from the system and grown.
The state minister said subsidies are pervasive in the country. “For example, we give books free to all school students. But there are guardians who can afford to buy books to all children of a school. So, there is a problem in picking up the beneficiaries.”
He said subsidies cannot be seen as wastages, as they will give return in the long run. “These are investments.” Bhattacharya, however, said the government should show the political will to withdraw subsidies from sectors where they are not working.
Sajjad Zohir, research director of Economic Research Group (ERG), said a long-term approach has to be taken when it comes to making plans for subsidy spending.
CPD Executive Director Mustafizur Rahman said subsidy spending has to be efficient because of the scarce nature of resources. “It is an issue of equitable distribution and justice,” he added. Akhter Ahmed, a senior research fellow of the International Food Policy Research Institute, said a number of African countries have been successful in implementing targeted subsidies and Bangladesh can learn from them.
Syed Tariquzzaman, a development activist, said there are leakages in subsidy spending. There are allegations that some people have received export subsidies although they have not sold anything outside of the country, he added.
SM Nasimuddin, economic adviser of the finance division, said the government gives subsidies where it deems necessary.
Humayun Rashid, senior vice-president of the Dhaka Chamber of Commerce and Industry, said subsidies have to be given to protect industries. Abul Bashar, a professor at the Bangladesh Agricultural University in Mymensingh, said subsidies would be more effective if the government can ensure that only the suitable beneficiaries get them.
Golam Hafiz, an associate professor of Bangladesh Agricultural University, said a body has to be established to monitor the distribution of subsidies.
Published in Dhaka Tribune
Analysts: It’s high time to formulate subsidy policy
Tribune Report
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.”