IMF may seek subsidy cuts, more revenue against $3b loan
The International Monetary Fund (IMF) is likely to give more reform recommendations to reduce subsidies and increase revenue collection for an additional $3 billion loan sought by the interim government, according to a top official of the multilateral lender in Dhaka.
A four-member IMF team led by its Mission Chief Chris Papageorgiou is expected to visit Dhaka from September 24 to September 30 for preliminary discussions on the loan proposal.
For all latest news, follow The Daily Star's Google News channel. In January last year, the multilateral lender approved a $4.7 billion loan programme for Bangladesh, imposing various reform conditions, including over subsidies and revenue. Of this, $2.3 billion has been disbursed so far.
Yesterday, IMF Resident Representative in Dhaka Jayendu De met with Finance Adviser Salehuddin Ahmed, where the IMF informed the government of its reform priorities.
A four-member IMF team is expected to visit Dhaka from September 24 to September 30 for preliminary discussions on the loan proposal
After the meeting, Salehuddin told journalists that an IMF preparatory team would visit Bangladesh and provide financial support to implement various reform initiatives undertaken by the interim government.
He added that they have requested additional funding from the multilateral lender as a separate package in addition to the ongoing $4.7 billion loan programme.
After assuming power, the interim government sought budgetary support from various development partners, including $3 billion from the IMF, to boost dwindling foreign currency reserves.
According to an IMF talking point sent to the government, most of the reform programme will focus on subsidies and revenue.
During the visit, the IMF team will discuss the government's strategy to reduce energy and fertiliser subsidies by increasing prices.
Besides, it will talk about subsidies for fuel, fertiliser, and electricity, as well as the government's allocation for subsidies in FY24 and projections for FY25 and FY26.
When approving the third tranche of the $4.7 billion loan in June this year, the IMF suggested an alternative to reducing agricultural subsidies—raising fertiliser prices and providing cash or vouchers for certain farm inputs to support poor farmers.
"Increases in fertiliser prices could be coupled with cash transfers or vouchers for a range of agricultural inputs (including fertiliser) targeted at small or poor farmers," the IMF said.
It suggested that several options could be considered to reduce the fertiliser subsidy bill.
Raising domestic production of fertilisers by increasing the natural gas supply to existing fertiliser factories could also help reduce reliance on expensive imports. The impact of reducing gas supply to other sectors would need to be carefully considered, the IMF said.
At that time, the IMF also suggested increasing electricity tariffs.
In response, the previous government assured the IMF of progressively reducing the power subsidy by increasing prices four times a year.
The government allocated more than Tk 1 lakh crore for subsidies and incentives in the last fiscal year. The same amount has been allocated for the current fiscal year.
On the revenue front, the IMF mission is likely to raise more than 25 issues, including a backward-looking assessment of FY24 tax collections, a forward-looking commitment to tax revenue measures under the IMF programme and plans for FY25 and FY26.
Also, the multilateral lender will discuss a joint domestic revenue mobilisation initiative undertaken by it and the World Bank.
It will also raise the issue of the impact of the income tax act and the customs act on revenue collection.
On September 14, Julie Kozack, director of the IMF Communications Department, told a press briefing in Washington DC, "As part of the upcoming mission [to Dhaka], the team will be assessing all of the economic developments and any potential financing needs."
"From the IMF side, we are working closely with the interim government [of Bangladesh]," she said, according to a transcript of the briefing published on the IMF website.
"We remain fully committed to working with Bangladesh and to support the people within the context of the IMF programme, we will continue to work closely with the authorities to help advance the reform agenda," she added.
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