Bangladesh cuts energy subsidy to extend targeted assistance: IMF

Bangladesh is lowering subsidy expenditure to divert higher assistance to a targeted group of people who really deserves to get it.

“They are reducing untargeted fiscal subsidies by making them more targeted to people affected by high energy and electricity prices...,” said Krishna Srinivasan, Director, Asia and Pacific Department, International Monetary Fund (IMF).

At a press conference on Thursday in Washington DC, on the side-line of IMF/WB Spring Meetings on the Economic Outlook for Asia Pacific, he further said Bangladesh has “increased electricity and energy prices so that subsidy is channelled towards more targeted fiscal sides”.

Replying to a query on the exchange rate of local currency taka against US dollar he said they are making a unified and market-based exchange rate instead of the existing many rates.

On Bangladesh’s economic growth target and IMF’s lower projection, Mr Srinivasan said the growth the country has right now “is not insignificant”, but it has been affected by “what (is) happening on external demand and risks coming from slowing markets in US and Europe which have impacts on export”.

But as these external headwinds ease, he said, there should be an uptake or upside potential growth.

The IMF this February granted a $4.7 billion loan to Bangladesh to help face the external shocks as forex reserve had been falling following the Russian-Ukraine war early last year.

Under the loan programme, Bangladesh has been conducting various reforms, as suggested by the IMF, including cutting energy subsidies whose major beneficiary is a richer segment of people.

He further said the economy of Asia Pacific region is facing four key policy challenges-- which are related to inflation, financial risks, fiscal policy, and medium-term growth.

“Despite the solid growth outlook for Asia Pacific this year, policymakers in the region can’t be complacent,” said Mr Srinivasan.

He said the economy in Asia-Pacific is projected to grow this year by 4.6 per cent, an increase by 0.3 percentage points which was expected last October and “this upward revision largely reflects China’s reopening”.

Mr Srinivasan said inflation is still above target. “Core inflation remains sticky and has become a more important driver of headline inflation recently, which may lead to more persistent inflation and wage pressure.”

On financial risks, he said, the global banking stress has had a limited impact on Asian markets so far.

“Direct exposures of Asian banks and investors to SVB were minimal, and we see Asian financial systems as being well-capitalised and profitable,” he said.

On fiscal policy, Mr Srinivasan said, there are risks associated with high debt and rising interest rates. “Public debt levels in the region have increased significantly compared to before the pandemic. Most governments in the region are expected to tighten fiscal budgets this year and next.”

Regarding medium-term growth challenges he said the productivity growth in Asia is projected to decline.

“China’s growth, though rebounding strongly this year, is expected to drop over the medium term. This will have important implications for the region, especially for those economies with significant trade links to China,” he noted.

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