The Economic Impact of Natural Gas and Electricity Subsidy Reforms in Bangladesh

Abstract

This study examines the effects of direct electricity and indirect natural gas subsidies in Bangladesh using the GTAP-9 database and the Computable General Equilibrium (CGE) model. Three simulation scenarios explore the impacts of gas and electricity subsidies on economic indicators, such as price, supply, imports, sectoral outputs, and consumer welfare. Findings reveal the intricate relationship between subsidy rates and energy sources, hinting at potential price stability through moderate adjustments. Subsidies stimulate electricity production and stabilize gas prices for industries and households. Subsidies' interaction with energy imports affects coal imports and trade dynamics, stressing the importance of sector-specific policy. Higher gas and electricity subsidies reduce consumer welfare, necessitating balanced policies. Insights aid subsidy reform for improved consumer welfare and economic efficiency in Bangladesh, contributing to subsidy reform literature with practical recommendations.

Keywords: CGE model, Power and Energy subsidies, Fuel subsidy