Only poor should get subsidy benefits: IMF

An IMF delegation discussing a fresh lending package for Bangladesh has recommended devising a mechanism to restrict the subsidy benefits only to the poor while the affluent pay actual or market rates for power and energy services.

The visiting International Monetary Fund (IMF) delegation made the suggestion Monday at a meeting with finance ministry officials in Dhaka on electricity, natural gas, fuel, fertiliser, food and other subsidies, sources say.

The 11-member IMF delegation, led by Ivo Krznar, the IMF Mission Chief for Bangladesh, is now here assessing macroeconomic situation of the country and discussing new credit programme with focus on their reform agenda and policy priorities.

Meeting sources said the IMF delegation did not oppose the subsidies provided by the government in the power and energy sectors. Rather they want the benefits of these state bounties to actually reach the poor.

However, under the current system, people from all socioeconomic classes avail these benefits, leading to a waste of subsidies.

In the wake of conflicts in the Middle East, government’s energy subsidy has spiraled. In the just-concluded fiscal year, the government had to allocate an additional Tk 426 billion as subsidy for oil, gas, electricity and fertiliser imports.

In the current fiscal year, the government has allocated some Tk 370 billion for electricity subsidies.

Meantime, Finance Minister Amir Khosru Mahmud Chowdhury has said reform measures will be implemented in phases by taking into consideration the country’s economic reality.

“No major change is possible overnight. The International Monetary Fund has agreed on the sequencing of the reforms based on needs,” he told newsmen after a meeting with the visiting delegation of the Washington-based lender, at his Bangladesh Secretariat office.

The finance minister, who also holds planning portfolio, said the IMF has respected the government’s fiscal reforms, political responsibility, and economic decision-making process.

Furthermore, the IMF has specifically acknowledged the public-welfare obligations and responsibilities of a political government, says the minister.

Mr Chowdhury said the two sides have also had positive discussions on the fundamental principles of the new credit programme.

He added that the IMF has expressed satisfaction with the progress made by the present government in the past four months in financial-sector reforms, development of the stock market and the capital market, and revenue mobilisation.

The minister claimed that this is for the first time in the country’s history a significant progress has been made in revenue mobilisation in just four months. There was also positive discussion on the government’s plan to increase the tax-to-GDP ratio by maintaining this trend.

Asked whether there was any discussion on subsidy payment in energy and power sector, Mr Chowdhury answered in the negative. “Until now, no specific conditions or details have been discussed. We only discussed the basic fundamentals of the programme.”

To a query as to when the funds will be available under the new credit programme, the minister said giving a timeline in this regard is not possible now.

He said after this mission is over, a further discussion will be held again in October during the IMF-World Bank Group’s annul meeting. And, another IMF mission led by its one of the vice presidents will visit Dhaka after the meeting for further negotiating the lending deal.