IMF sees more energy subsidy cuts to steady Bangladesh finances

The International Monetary Fund (IMF) expects Bangladesh to keep reducing energy subsidies to free resources that the nation needs as it faces a financing gap of $9 billion over four years, according to a report from the lender.

“Not all subsidies are helping the poor and vulnerable,” Rahul Anand, IMF’s mission chief to Bangladesh, said in an emailed statement Wednesday. “In Bangladesh where gas and electricity are being subsidized, the rich drive more cars and use more air conditioning.”

Bangladesh raised retail electricity prices 5% on Jan. 31 for the second time in a month, despite protests from opposition parties, after parliament passed a new law giving the government discretionary powers to change energy prices whenever necessary.

Authorities also plan to regularly adjust petroleum prices using a formula-based mechanism, IMF said as it released $476 million to Bangladesh — the first installment of a $4.7 billion loan approved this week.

Bangladesh Secures $4.7 Billion in IMF Loans to Cushion Economy

Still, gas and electricity subsidies in the South Asian nation are expected to rise to 0.9% of gross domestic product in the fiscal year ending June from 0.5% prior, IMF said.

Barring further global price shocks, Bangladesh had committed not to boost subsidies during the IMF program. The Fund is also encouraging the government to increase tax-to-GDP from 7.5%, which is one of the lowest in the world, as the nation faces large financing needs while maintaining adequate level of reserves.

Foreign currency reserves rose to $32.69 billion on Thursday after the first installment of the IMF loan, from $32.19 billion the previous day. _Agencies