IMF meeting: Govt has to slash subsidies in oil, gas, power

The International Monetary Fund (IMF) has asked the government to reform its subsidy schemes in gas, power and fertilizer as the latter has been in a negotiation with the global lender for a loan of USD 4.5 billion. 

As the government itself raised the fuel oil prices nearly three months ago, the IMF did not find it necessary to seek any reform in this regard.

The lending agency generally implies reduction in subsidy through its term ‘reformation’. It has sought a specific timeframe about the desired reforms. Also, it asked about the government’s plan over handing over the loss-making companies kept alive by the subsidies to the private sector. 

A team, led by Rahul Anand, head of IMF’s Asia and Pacific division, has been holding meetings with various government departments since 26 October. The delegation held three separate meetings with the finance division on Monday and placed their requirements, including the subsidy reduction, according to sources.  

Bangladesh has sought a loan of USD 4.5 billion from the IMF in July. The global lender responded to the letter and sent a delegation to Dhaka to negotiate the loan conditions. 

Three additional secretaries of the finance division – Khairuzzaman Majumder, Arfin Ara Begum, and Sirajun Nur Chowdhury – took part in the meetings on Monday. They, on behalf of the government, apprised the IMF team of the crises that the nation is going through.

They said Bangladesh is all set to be a developing country upon its graduation from the list of the least developed countries (LDC) in 2026. It is quite difficult to undertake major reforms on subsidies before the transformation.

The IMF has, however, called upon the government to take significant steps in this regard by 2023.

The IMF delegation sought to know the trends of net expenditure on education and health from the allocation for the social safety sector. Besides, it has asked about the government's plan on handing over the loss-making state-run companies to the private sector, in addition to the issue of subsidies in energy and fertilizers. 

According to sources, the finance division explained the situation to the IMF team in detail. It said that slashing subsidies in fuel oil requires raising the selling price. Earlier, the authorities raised the price in August as per recommendations made by a committee concerned.

The same is applicable to power. Bangladesh Energy Regulatory Commission (BERC) plays the key role in this regard. The IMF delegation did not raise any question over the subsidies in fertiliser, though the issue was on the agenda.  

The government allocated a total of Tk 827 billion for different sorts of subsidies in the budget for the fiscal year 2022-23. The lion’s share of the allocation is earmarked for the fuel oil, gas, power and fertilizer sectors. The IMF describes the subsidies in the name of ‘subsidy management’. 

There is a chapter named ‘cash loan’ in subsidy management, but it also ends up being a subsidy. Different organisations, including Bangladesh Petroleum Corporation and Power Development Board (PDB), receive the cash loan, but do not repay.   

According to a source involved with the meeting, the government provides loans to the PDB to buy electricity from the private sector at a higher price and sell it to the public at a lower price. It is also a subsidy as the government does not get it back. 

The IMF delegation suggested reforms in this regard, asked to realise these loans and adopt cautionary measures to avoid its repeat.  

The losses of 10 state-owned enterprises exceeded Tk 50 billion in the last fiscal. Apart from PDB, other loss-making companies are Trading Corporation of Bangladesh (TCB), Bangladesh Sugar and Food Industries Corporation (BSFIC), Bangladesh Chemical Industry Corporation (BCIC), Bangladesh Road Transport Corporation (BRTC), Bangladesh Jute Mills Corporation (BJMC), Bangladesh Textiles Mills Corporation (BTMC), Bangladesh Inland Water Transport Corporation (BIWTC), Bangladesh Inland Water Transport Authority (BIWTA) and Bangladesh Fisheries Development Corporation (BFDC).

The enterprises are counting losses for years and the government is making up those with the public taxes. The financial scenario of these organisations for 2021 and 2022 as well as the projection for 2023 were presented before the IMF team. 

The delegation said a strategy should be devised to reduce these losses and it would be better to gradually release some of the entities to the private sector. Besides, they sought an update from the government on new industrial policies and revitalization of starving industries.

The revenue has always been lower than the GDP in Bangladesh. According to sources, the IMF team asked whether the government has any risk analysis on the revenue management. They were briefed that the finance division analyses the risks in revenue management every year.  

In addition, the delegation sought information about the formulation of budget financing strategy for the period 2023-26, targets regarding the economic indicators as per medium term macroeconomic framework (MTMF), alignment of MTMF with the Annual Development Programmes (ADP), integration of climate change with MTMF, volume of public investment and revenue risks. 

The current budget consists of an allocation of Tk 1136 billion for the social safety sector, including health and education. The IMF delegation asked the finance division to ensure that the spendings in health and education are accurate and the scholarships and grants are conferred digitally. The real beneficiaries should get the assistance.

Ahsan H Mansur, former IMF official and executive director of the Policy Research Institute (PRI), told Prothom Alo, “There is no need for restructuring in the fuel sector for the time being. But the electricity needs it.”

Asked whether a hike in electricity price would swell the inflation inflicted by the fuel price jump, the noted economist said it is better to increase the price than the prevailing situation that the government is failing to meet the costs. 

“There are two options – We don’t want electricity, or we want electricity at a higher price. I think many will say that they want electricity even at a higher price,” he added. 

He is also against keeping prices of natural gas and chemical fertilizers at such a low. He said, "If chemical fertilizers were not so cheap, there would have been a big market for compost fertilizers. We need to adopt the policy, reducing the subsidy."

Regarding risk analysis in revenue management, Ahsan H Mansur said the analysis regarding this issue is always incomplete. There is no income, so the balance is maintained by axing the spending. Bangladesh is very expert here.

About the loss-making companies, he said, "The burdens should be dropped from the shoulders. Some government officials enjoy facilities sitting on the board of directors. Except for the issue, there is no need for them."