a year ago

IMF backs Bangladesh’s energy price hike

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The International Monetary Fund has welcomed Bangladesh’s efforts to cut subsidies for the energy sector by raising the prices of fuel oil, gas and power, hinting at more price rises.

In a country report on the government’s request for loans, the IMF said the authorities will further explore options to gradually reduce energy subsidies, reports

The report said control measures could prolong the ongoing hardships and will likely hurt both near-term growth and medium-term economic potential, but the rationalisation of energy subsidies will free fiscal resources for social and development spending.

While recent price hikes have brought petroleum prices broadly in line with international prices, gas and electricity subsidies are expected to rise to 0.9 per cent of GDP in FY23 from 0.5 per cent a year earlier, the IMF said, welcoming the recent power price hike to cut the subsidies.

“The authorities will further explore options to gradually reduce gas and electricity subsidies, while strengthening social safety nets.”

The IMF Executive Board approved the loans for Bangladesh at the request of the government on Monday, helping the country build a buffer against depleting foreign currency reserves. The global lender on Thursday released $476 million in the first instalment of the $4.7 billion loans it approved for Bangladesh.

Over the loan programme period, the introduction of a periodic formula-based fuel price adjustment mechanism will help ensure no structural subsidies for petroleum products, the IMF said.

It said the programme will leverage the ongoing efforts to strengthen and expand social protection by other development partners. The government’s efforts to enhance social safety nets and increase development spending will be anchored by ITs on social and development capital spending under the programme.

Following the IMF’approval of the loans, the government decided to resume buying liquefied natural gas from the open market after an eight-month pause due to high prices and low dollar reserves.

The halt on LNG purchases amid the global crisis triggered by the Russia-Ukraine war forced the government to cut electricity production rapidly and ration supply by introducing rolling power outages.

As the lack of gas and power hit production, industries urged the government to resume LNG import even if it had to raise gas prices.

The government in January raised gas prices by a maximum of 178 per cent for industries and power plants for resuming LNG import. The government will start charging for gas at the new rates once new LNG is supplied to the industries and power plants.

The government has also raised the prices of power at both the wholesale and retail levels for February. Retail prices have gone up 5.0 per cent for the second time in a month, while wholesale prices are seeing an increase of 8.06 per cent.

The electricity price hike came after parliament passed a new law which provides discretionary powers to the government from the regulator to change electricity and energy prices whenever necessary.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid said: “If we want to cut back on subsidies, we must increase prices. We will adjust the prices of gas and electricity every month if necessary to keep in step with the international market. In that case, if the price decreases in the international market, it will also drop here.”

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