Plan to increase food subsidy is a bold step

The government is likely to take a bold decision in the next budget to increase food subsidies. It is a decision, if taken, will go against the International Monetary Fund (IMF) as the international lender under its $4,7 billion loan programme recommended that the government should reduce such subsidy. The IMF does so everywhere around the world wherever they grant a loan.

Why does the IMF do so? When it grants a loan it wants to confirm that the government concerned has the ability to repay the loan. If the government continues to increase subsidy in different sectors the loan repayment of the IMF becomes uncertain as subsidies put a dent into the state coffer. This is why the international lender always adds this condition before granting loans.

This time the decision of the government might incur the wrath of the IMF. If any kind of loan prompts the government to reduce its subsidies for the poor people it ultimately badly impacts the economy. The proposed allocation for the food subsidy is Tk6, 500 crore which is Tk5, 900 crore for the current fiscal year. However, the decision is yet to be finalized. Hopefully it will be finalized at a meeting of the Food Planning and Monitoring Committee recently.

However much this increase in the food subsidy in the next budget is, it might not come in handy if the government sticks to its decision to increase the price of fertilizer by Tk5 a kg. This rise in the price of fertilizer along with the hikes in gas and electricity prices multiple times over the past few months is unlikely to yield anything positive even after the increase in the food subsidies. It is our apprehension.

In one of our recent editorials we urged the government to take two measures to tame the rising inflation. One of them was to check the disproportionate price hikes by a section of unscrupulous businessmen and traders and the second one is to increase the allocation for the food subsidy. If food subsidy is increased it can bring stability in the market to some extent. But if hikes in prices of gas, electricity and gas will continue to rise it may become counterproductive.

According to the report of The Business Post, the government seems to have devaluation of taka against the US dollar in mind before making the plan to increase the allocation for the food subsidy. Apart from the strong dollar the increase in Libor rate, increase in the US treasury interest rate, and increase in the interest rate on the government treasury bonds also were major concerns of the government. All these factors might have been behind the plan to provide food subsidy.

No matter for whatever reasons the government is mulling over the plan, it can for sure be said it will not come to any fruition if disproportionate price hikes are not taken into consideration. This is one aspect of the would-be-taken steps the government must brood over. The other aspect is what the government has already given a thought to – the food subsidy.

These are the two measures that we are reiterating for the government to seriously take up. At the same time it has to ensure that there will be no more hikes in prices of gas, electricity and everyday essentials. Hiking prices of gas and electricity were also the part of the conditions set by the IMF. The government needs to make a good balance between the two – people’s need and loan repayment.