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The Government of Bangladesh spends a major share of its budget providing direct subsidies for fossil fuels and electricity, the costs of which have been escalating rapidly in recent years.

In FY2012, the government reports it spent BDT 81.4 billion (US$ 944 million) in direct expenditure on energy subsidies. However the GSI, in collaboration with the Bangladesh Institute of Development Studies, estimates that the cost of subsidies is much higher, totalling BDT 148.9 billion (US $1.7 billion) in FY2012 when taking into account off-budget subsidies such as low-interest rate loans that the government provides to the Bangladesh Power Development Board and the Bangladesh Petroleum Corporation.

The Government faces an urgent need to address energy subsidies as the costs continue to escalate due to volatile international oil prices and skyrocketing demand for imported oil to help address Bangladesh's power crisis. For FY2013 - the Government has budgeted BDT 155 billion (US $1.9 billion) for the direct, on-budget energy subsidies alone. With the FY2013 energy subsidy bill estimated to be six times more than 2010 expenditure, it is becoming increasingly difficult for the government to sustain current energy subsidies with its limited fiscal resources.

This report provides detailed analysis deriving new estimates of the full cost of Bangladesh's energy subsidies and maps the stakeholders, particularly low-income groups, most likely to be affected by reforms. This paper forms part of an ongoing programme of work to analyse energy subsidies in Bangladesh and develop practical policy advice to support the Government's reform efforts.