Middle East war may force Tk 36,000cr extra energy subsidy: Finance minister
Finance Minister Amir Khosru Mahmud Chowdhury today said that as a consequence of the US-Israel war on Iran, during the March-June period of the current fiscal, the government will have to provide an additional subsidy of nearly Tk 36,000 crore for electricity, energy, and LNG.
“Prices of crude oil and LNG have more than doubled in the international market,” the minister informed the parliament this morning while delivering a statement under Rule 300 of the Rules of Procedure.
For all latest news, follow The Daily Star's Google News channel. He was addressing the House on the fragile state of the economy inherited from the previous government.
The Middle East war has created new uncertainties in the global energy market, supply chains, and international trade, the minister said.
“This will not only increase the budget deficit but also put pressure on foreign currency reserves, as an equivalent of about USD 3 billion will be required for import payments,” he said.
To confront this unexpected situation, the government has taken several measures to encourage efficient use of energy and electricity among the public. Notable steps include, closing government and autonomous offices at 4 pm instead of 5 pm, maximising daylight to reduce use of electric lights and regulating air-conditioner temperatures, closing markets and shopping malls by 7 pm, securing energy reserves by sourcing from alternative suppliers, ensuring timely release of subsidy funds to maintain uninterrupted energy imports and supply, and seeking additional budgetary support from development partners to ease fiscal and balance-of-payments pressures.
The finance minister said as an import-dependent economy, Bangladesh is not immune to this geopolitical reality. Despite the need for additional subsidies due to high global energy prices, the government has decided not to adjust domestic prices for now, keeping in mind the hardship of the people.
The government have already begun work on formulating the budget for FY 2026-27, with the aim of establishing discipline across various sectors of the economy and addressing multifaceted pressures.
“We are fully aware of the immense expectations of the people from the first budget of the newly elected government. At the same time, we hope the public will also recognise the limitations we face due to inherited challenges”, he added.
He said the government’s goal this time is not merely growth, but to build a sustainable, transparent, and inclusive economy.
Taking stock of the situation inherited from the Awami League government, the finance minister presented the state of macroeconomic indicators, social sector indicators, and institutional conditions across three key periods: the final fiscal year of the last BNP government (2005-06), the final fiscal year of the previous Awami League government (2023-24), and the interim government’s fiscal year (2024-25).
Over 16 years, the fascist government has driven the economy to the brink of collapse through rampant corruption and unchecked plunder, while rendering the social and institutional sectors dysfunctional, the minister said.
In contrast, under the BNP government, the economy’s key indicators had been placed on a positive trajectory thanks to its farsighted and people-oriented economic vision, accelerating the pace of growth. Much of that progress, however, has been undone over the last sixteen years, he said.
Economic Growth and Inflation
Amir Khosru told the parliament that In FY 2005-06, GDP growth at constant prices was 6.78 percent, while inflation remained relatively controlled at 7.17 percent. Later, although the size of the economy expanded, due to mismanagement and misguided policies, by the end of FY 2023-24 growth fell to 4.22 percent and inflation rose to 9.73 percent.
Employment
When an economy loses its industrial driving force, employment contracts and overall productivity declines. This was starkly evident in recent years.
Over the past decade, the share of value added in agriculture fell by about 4 percent, while industry and services increased. Yet, employment in agriculture rose by 4.8 percent, while employment in industry and services declined.
Because industry and services failed to generate sufficient jobs, young people were compelled to remain in agriculture. This intensified disguised unemployment, wasted youth labor potential, and limited productivity and income growth, the minister observed.
Currently, agriculture contributes only 11.6 percent of total national value added but employs nearly 41 percent of the workforce. This mismatch highlights low labour productivity in agriculture and exposes deep structural weaknesses in the labour market -- signaling the risk of jobless growth.
Exchange Rate
In FY 2005-06, the exchange rate was Tk 67.2 per US dollar. By FY 2023-24 it had depreciated to Tk 111, and in FY 2024-25, further to Tk 121. Over 15 years, the taka lost nearly half its value, raising import costs, fuelling inflation, eroding purchasing power, and multiplying living expenses.
Money Supply
In FY 2005-06, broad money (M2) growth was 19.3 percent and reserve money growth was 23.9 percent -- signs of vitality in the economy. By FY 2023-24, M2 growth had fallen to just 7.7 percent and reserve money growth to 7.9 percent, the minister said.
Domestic Resource Flow
In June 2006, domestic resource growth was 19.5 percent; by 2025 it had dropped to 6.7 percent. Domestic credit growth fell from 21.1 percent to 8 percent, reflecting sluggish private investment and liquidity stress in the banking sector.
Private Sector Credit
In FY 2005-06, private sector credit growth was 18.3 percent. Under the Awami League government, due to monetary mismanagement and structural weaknesses, it fell to 9.8 percent, and further to 6.5 percent in FY 2024-25.
Fiscal Management
Revenue collection showed little progress. The tax-to-GDP ratio remained unsatisfactory, with leakages and waste limiting resource mobilization.
In FY 2005-06, total revenue was Tk 439 billion (8.2 percent of GDP), while expenditure was 11.1 percent, leaving a deficit of 2.9 percent of GDP. By FY 2023-24, revenue rose to Tk 4,090 billion but still stood at 8.2 percent of GDP. Expenditure climbed to 12.2 percent, pushing the deficit to 4 percent.
“Projects were overvalued, feasibility studies were often inadequate, and mega projects implemented under the previous government failed to deliver expected benefits. Billions were siphoned abroad through corruption, as documented in the interim government’s White Paper Committee report,” the minister said.
Interest payments are most alarming, said the finance minister: Tk 85 billion in FY 2005-06 rose to Tk 1,147 billion in FY 2023-24 -- an increase of more than 13 times. Heavy reliance on domestic borrowing crowded out private sector credit, especially for SMEs.
Trade, Remittances, and Reserves
In FY 2005-06, exports and imports were USD 10.5 billion and USD 13.3 billion respectively, with growth rates of 21.6 percent and 12.2 percent. Remittances stood at USD 4.8 billion and reserves at USD 3.5 billion.
By FY 2023-24, exports rose to USD 40.8 billion and imports to USD 63.2 billion, though both recorded negative growth. The wide trade gap strained reserves. Remittances increased to USD 23.9 billion, but illicit flows reduced reserves to about USD 20 billion.
Under the interim government, exports grew modestly, imports slowed, and remittances surged to USD 30.3 billion, strengthening reserves to USD 33.2 billion by December 2025.
“Despite quantitative progress in various indicators, qualitative imbalances, policy incoherence, and structural weaknesses left the economy in a vulnerable state -- overcoming which is now a major challenge for the present government,” the finance minister said.
Per capita income figures may appear impressive at first glance, but most of the gains accrued to a small privileged group, he said.
Due to unequal distribution of wealth, poor governance, and corruption, inequality has worsened. According to the Bangladesh Bureau of Statistics’ Household Income and Expenditure Survey (HIES), the income-based Gini coefficient was 0.467 in 2005. It deteriorated steadily to 0.499 in 2022.
In 2005, the richest five percent of households earned 35 times more than the poorest five percent; by 2022, this gap widened to 81 times. This has fostered an oligarchic, unequal society.
“Social safety programmes provided allowances to marginalised groups, but coverage and benefit levels were not adjusted to inflation. Beneficiaries remained excluded from inclusive development, deepening inequality. Selection of beneficiaries was also marred by partisanship and corruption,” Amir Khosru told the parliament.
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