IMF calls for fuel pricing formula by 2024

The visiting mission of the International Monetary Fund called for a pricing formula for fuel, fertilizer, electricity and gas by the next fiscal year and to reduce expenditure on subsidies for effective budget financing.

The ten-member mission, which is in Dhaka for a 15-day tour to decide on the terms of the requested $4.5 billion loan, held a tribunal with the finance division yesterday.

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For a long time, the government has subsidized the prices of fuel, fertilizer, electricity and gas – an unsustainable practice that benefits both the poor and the rich.

Thanks to the war in Ukraine, the prices of fuel, fertilizer and gas soared, prompting the government to raise their prices at home, which seemed like a jolt to the poor and the earners on fixed incomes.

Adopting a pricing mechanism that is tagged with world market prices would then prevent such price shocks and help the government meet additional social expenditures.

The Washington-based multilateral lender called for a time-bound plan on the pricing mechanism and pushed for it to be implemented by next fiscal year.

In response, ministry officials said they were working on it, but the government is unlikely to agree to introduce the formula before 2026.

“It is a transition period and therefore not the right time for such moves,” said an official familiar with the discussions.

The global coronavirus pandemic and the war in Ukraine have disrupted government plans and there is the impending exit from the least developed countries tranche to consider.

The mission also called for reducing expenditure on grants, the allocation of which reached a record Tk 82,745 crore this fiscal year.

Instead of expanding subsidies, the IMF has called for increased spending on the social safety net, health and education. The team also researched the government’s current plan for the three sectors.

He also called for a fiscal financing strategy for the 2023-24 fiscal year through the 2025-26 fiscal year as well as a fiscal risk analysis.