How Much Would Bangladesh Gain from the Removal of Subsidies on Electricity and Natural Gas?

37 Pages Posted: 18 Dec 2018 Last revised: 19 Dec 2018

See all articles by Govinda R. Timilsina

Govinda R. Timilsina

World Bank - Development Research Group (DECRG)

Sheoli Pargal

World Bank - Development Research Group (DECRG)

Marinos E. Tsigas

U.S. International Trade Commission

Sebnem Sahin

World Bank

Date Written: December 17, 2018

Abstract

As in many countries around the world, subsidies to energy in Bangladesh impose a significant fiscal burden, with benefits that disproportionately accrue to high-income households. Any reforms of energy subsidies should benefit the overall economy rather than those who use energy the most. Using a computable general equilibrium model, this study investigates the economywide impacts of the removal of direct subsidies in the electricity sector and indirect subsidies in natural gas in Bangladesh. The study finds that removal of energy subsidies would be beneficial to the economy and would increase gross domestic product. The magnitude of the economic impact depends on how the budgetary savings from the removal of the electricity subsidies and increased revenues due to the removal of indirect subsidies to natural gas are reallocated to the economy. Recycling the savings (or the new revenues) to fund investment would benefit the country most, followed by the case of utilizing them to fund cuts in income taxes, and finally to fund cuts in indirect taxes. Although the reallocation of budgetary savings to households through lump-sum transfers is found to be inferior to the other recycling options considered, it would be the preferred option from the distributional perspective.

Suggested Citation

Timilsina, Govinda R. and Pargal, Sheoli and Tsigas, Marinos E. and Sahin, Sebnem, How Much Would Bangladesh Gain from the Removal of Subsidies on Electricity and Natural Gas? (December 17, 2018). World Bank Policy Research Working Paper No. 8677. Available at SSRN: https://ssrn.com/abstract=3302953

Govinda R. Timilsina (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

Sheoli Pargal

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Marinos E. Tsigas

U.S. International Trade Commission ( email )

500 E Street SW
Washington, DC 20436
United States

Sebnem Sahin

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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