IMF may ask govt to cut subsidies

The visiting delegation of the International Monetary Fund (IMF) is likely to ask the government to lower subsidies while keeping the spiralling inflation under control.

A five-member IMF Staff Mission, led by Rahul Anand, division chief in the IMF's Asia and Pacific Department, arrived in Dhaka on Thursday on a weeklong visit to discuss the government's request for a $4.5 billion loan as budget support.

It will hold a series of discussions with the government entities concerned, including Bangladesh Bank, finance ministry and National Board of Revenue (NBR), on the problematic areas of the economy.

The revenue collection will get the highest priority in the upcoming meetings, the finance ministry sources said, adding that the IMF team will want to know about Bangladesh’s strategy on raising revenue mobilisation.

For 2022-23 fiscal year, the government has kept aside Tk 827.45 billion or GDP’s 1.9 percent for subsidies, Tk 159.20 billion higher than that of the last fiscal year, as a tool for fighting imported inflation.

The finance ministry officials said the government may also be asked to readjust power and energy tariffs. The IMF loan may also be tagged with market-based exchange rate and lending rate, and reforms in the banking sector and tax administration.

Earlier in March last, another IMF mission visited Bangladesh. The new mission will be seeking to know the progress of reforms programmes but will not discuss the loans, sources said.

The finance ministry officials said the IMF staff mission will prepare a report after holding meetings with the central bank, NBR and different divisions of finance ministry. The report will be handed over to the government after the end of the visit.

Another IMF team will come to Dhaka after two months and the lender will only give new loan commitments after evaluating reforms by that team, official sources said.

If the negotiations are fruitful, Bangladesh will get the loan after approval from the IMF headquarters in Washington DC.

Apart from warning the government of the Sri Lanka crisis that stemmed from loans, the IMF will put emphasis on domestic revenue mobilisation so that Bangladesh does not face problem in regularly repaying foreign loans.

It will hold discussion with Bangladesh Bank on the pressing issues of inflation control, exchange rate and foreign exchange reserves. The IMF thinks that there is no alternative to containing inflation to keep macroeconomy stable.

The lending agency sees subsidy as an unproductive sector because subsidies increase budget deficit, which jeopardises economic stability and eventually fuels inflation.

It has already suggested that the government cut subsidies below 1 percent of GDP from existing 2-2.5 percent.

The finance ministry officials said the government raised the subsidy allocation in the wake of the domestic and international situation, but the government is concerned about the budget deficit.

“The main agenda of this IMF mission is to discuss the issue of revenue and how Bangladesh can boost it. They might raise the question about the increased allocation on subsidies and we’ll give our own explanation to them,” a senior finance ministry official said, seeking not to be named.

They, however, will not seek the loan support at the meeting, he said, adding that the request for loan will only be made after holding more negotiations.

The official informed that the loan amount has not yet been fixed.

Earlier, Bangladesh took IMF budget support, which was tagged with conditions, in FY91, FY2004, FY2012 and FY21, but the amount never crossed $1 billion.