Fuel price hike likely among IMF loan conditions

The International Monetary Fund (IMF) is likely to impose five essential conditions on Bangladesh for qualifying for a $4.5-billion loan that the government has been soliciting, a finance ministry official said.

The strings are harsh for the government ahead of entering into national polls possibly late next year and include trimming subsidy endowments for power and energy sectors and introducing automated price adjustment mechanisms in line with international prices.

The official, who was involved with the IMF budget support loan process but wanted not to be named, said the other three conditions are reforming the country’s banking sector, revenue structure and lessening defaulted loan volume.

A nine-member IMF team recently concluded their visit to Bangladesh under New Resilience and Sustainability Facility programme when Bangladesh sought budget support from the international lender.

The IMF delegation discussed various issues of mutual concerns with the finance and commerce ministries, officials of the Economic Relations Division and Bangladesh Bank, respectively.

Another IMF team is likely to visit Bangladesh at the end of August, officials concerned said.

IMF stringent conditions include non-interference in the foreign exchange market, ensuring accountability of the expenses of the mega projects and maintaining good governance in every sector of the economy.

The IMF wanted to know how much US dollars are being spent to subsidise Bangladesh’s ‘fuel oil and food’ per annum.

The organisation has also conveyed its concern to the Ministry of Finance in this regard. This information is sought as part of the discussions that recently began over borrowing from the IMF.

The Finance Ministry has already sent letters to the ministries concerned seeking information on food and fuel subsidies.

The global lender also proposed reforms in macroeconomic management and sought pledges for efficient use of resources in the health sector. Bangladesh has already started formal talks with the IMF to obtain a loan to help meet the deficit budget for the current fiscal year (2022-23). Finance Minister AHM Mustafa Kamal has written to the managing director of the organisation, Kristalina Georgieva in this regard.

Last week, the finance minister said they would determine the loan volume depending on the strings. However, Bangladesh has not disclosed the amount of the loan, so far, officially.

Former finance adviser to a caretaker government Dr AB Mirza Azizul Islam told Business Insider Bangladesh that the IMF wanted Bangladesh to reform its pricing system of fuel oil.

Besides, the organisation has recommended trimming the overall subsidy endowment. In the future, if this organisation endorses any loan to Bangladesh, it can include these strings, he added.

However, it is necessary to implement these conditions in advance, before obtaining the loan, he added.

Meanwhile, Energy Division officials said the price of fuel oil is likely to increase by Tk 15 to Tk 20 per litre this week.

An official of the Finance Division involved in the subsidy allocation process said that every year, tentative subsidies for food and energy sectors are worked out. But at the end of the year, the amount actually allocated varies. The final expenditure may be less or more than the actual allocation.

To make projections precise, a letter has been written to the ministries concerned and asking them for the actual amount of subsidy on food and fuel oil.

Information is being channelled from across the ministries which will be conveyed to the IMF officially.

According to the officials, in the current fiscal year (2022-23), Tk 6,745 crore have been allocated for subsidies in the food sector. Last year, the subsidy was Tk 5,500 crore and in the previous financial year (2020-21) it was worth Tk 3,360 crore. Due to the coronavirus pandemic, the government has distributed food among the poor at a low price. For this reason, the amount of subsidy in the food sector has substantially increased.

Meanwhile, the government has not given any subsidy on fuel oil for the past few years. In the fiscal year of 2014-15, a total of Tk 600 crore was provided as a subsidy to this sector.

However, in 2021, amid the coronavirus pandemic, the price of fuel oil increased a lot in the world market. The price of oil rose to $113 per barrel due to the negative impact of the latest Russia-Ukraine war. However, it has come down to $98 per barrel. Due to this unusual price increase, the government has adjusted the price of fuel oil. Still, the government has to approve a subsidy of about Tk 23,000 crore at that time.

According to officials of the Ministry of Energy, in the last 20 years, the price of diesel wsa adjusted 17 times in the country. Out of this, upward adjustments were made 13 times and prices were cut only 4 times. When the price of oil rose to $85 in the world market last time, the government increased the price of kerosene by Tk 13 to Tk 80 per litre.