Gunatilake, H. and S. Raihan (2014), “Opportunity Cost of Natural Gas Subsidies in Bangladesh”. ADB South Asia Working Paper Series No. 25, Asian Development Bank, Manila.


Abstract: Natural gas is heavily subsidized in Bangladesh, resulting in waste, low government revenues, and gas and power shortages. This paper examines the impact of optimal gas pricing policy- aligning the price with the international market price – together with better gas revenue management regime, in which augmented gas revenue is used to invest in physical and social infrastructure. General equilibrium model assessment results show that Bangladesh is losing a significant development opportunity due to gas subsidy. By 2030, if these changes were made, Bangladesh could reach $4070 gross domestic product per capita in comparison to the business-as-usual per capita projected gross domestic product of $1580. Inflationary pressures from higher energy prices would be completely offset by the positive impacts of infrastructure constraint removal. The optimal gas pricing and investment in infrastructure would benefit all sectors of the economy without any adverse effects on the poor.