The ADB yesterday released Bangladesh Quarterly Economic Update that suggested the government to withdraw all kinds of energy subsidy gradually to allow the national economy and individual consumers to adapt to higher energy prices.

Success in the garment sector can be reversed if social compliance issues, including labour unrest, are not addressed, says the ADB report released at a press conference at its office in the capital.

"Recurrence of labour unrest will be damaging not only to the garment industry but to the entire economy..The labour unrest needs to be resolved dispassionately in the best interest of the three parties: workers, employers and the government," the report says.

ADB Country Director Hua Du and its economist Rezaul Karim Khan were present at the press conference.

About a huge subsidy on energy products, Hua Du said the government should reallocate the money to sectors like health and education so that poor people can get subsidised services.

"You (Bangladesh) need to basically prioritise in allocating scarce resources," she said, adding that mostly the rich people use subsidised energy products.

"Subsidy on diesel and octane means that well off segment of the society is getting the subsidised products. But the government should focus the subsidy for the less well off people and thus it should allocate more money for health and education," Hua Du said.

She observed that a huge subsidy on energy products has inflationary pressure and at the same time it is creating pressure in the money market when government borrowing increases every year.

On the price spiral of essentials, the ADB country director said she has noticed a huge margin between the import price and retail price of essential products like sugar.

Hua Du said some people have indicated this might be happening due to syndication. But it needs in-depth investigation to come to a conclusion about the allegation of syndicated price hike of essentials, she said.

The ADB report said the government provided Tk 7,340 crore subsidy on energy products in FY06, which is 1.8 per cent of the GDP.

It claimed that the government provided Tk 4,672 crore subsidy on diesel prices and Tk 958 crore on kerosene.

The government policy of subsidising natural gas, power and petroleum products has exacerbated the financial condition of Bangladesh Oil, Gas and Mineral Resources Corporation, Power Development Board and Bangladesh Petroleum Corporation as well as the Nationalised Commercial Banks, the ADB economic update said.

It however said Bangladesh Petroleum Corporation (BPC) made a profit of Tk 8.43 per litre of octane after the price hike in June. On the other hand, the BPC incurred loss of Tk 16.88 per litre of diesel and Tk 15.93 per litre of kerosene. Diesel ad kerosene constitute about 75 per cent of the consumption of petroleum products in the country.