Prices of gas, electricity to go up in Feb before IMF releases fund

Infographic: TBS

Prices of gas and electricity may go up before the International Monetary Fund (IMF) releases the first instalment of the much-needed loan amounting to $4.5 billion by next February, said finance ministry officials.

The Bangladesh Bank is also likely to implement the market-determined dollar rate from November this year in compliance with the IMF's conditions, said officials at the finance ministry and the central bank.

Seeking anonymity, a finance ministry official told The Business Standard that the IMF has set conditions for raising prices of electricity and gas alongside reducing subsidies. There have been talks about fulfilling the conditions before the first instalment is disbursed.

The government is also keen to adjust fuel prices periodically in keeping with the international market within this period.

"The IMF has given Bangladesh time till December next year to make a periodic adjustment of fuel oil prices with the international market. The government will do it in a month or two," he noted.

Following the meeting with the IMF delegation on Wednesday, Bangladesh Bank Governor Abdur Rouf Talukder also acknowledged that they got the condition of reducing subsidy on gas from the international lender.

"The IMF discussed subsidies on fertilisers and gas. We have explained to them that fertiliser should be subsidised for food security," he also said.

Huge subsidies in the power and energy sectors have put additional pressure on the government. In the six months of the current fiscal year, subsidies in these two sectors exceeded Tk50,000 crore. The government had taken an initiative to raise gas and electricity prices but could not execute it, considering its ripple effect on the people grappling with soaring commodity prices.

But the government now has no alternative but to go for upward adjustments of gas and power prices, officials at the finance ministry said.

In the FY23 budget, there is an allocation of Tk82,745 crore for subsidies on fertilisers, gas, electricity, food, as well as incentives on export earnings and remittances. Of the amount, Tk16,000 crore has been earmarked for the agriculture sector, Tk18,000 crore for the power sector, and Tk13,300 crore for LNG.

In a recent meeting with Prime Minister Sheikh Hasina, finance ministry officials highlighted the fact that the amount spent on subsidies has increased much more than the allocation. They also informed the prime minister of the IMF's condition for reducing the subsidies. The PM gave the go-ahead to a hike in gas prices, a senior secretary told TBS after the meeting.

Even if prices of gas and electricity go up, the subsidies will not be completely withdrawn, said finance ministry officials, adding that the coordination council on revenue and monetary and currency exchange rate has convened a meeting this month to discuss the amount of subsidy adjustment by increasing prices.

An official of the Finance Division said, "The prices of gas and electricity may be increased in such a way that the amount spent on subsidies in these two sectors does not exceed the allocation in the current fiscal year's budget.

Neighbouring India fixes fuel oil prices every 15 days in line with international market rates. Developed countries adjust prices in mornings and afternoons. The IMF has given a formula to the government on how Bangladesh will adjust the prices of fuel oil with the international market rates.

Dr Zahid Hussain, former lead economist, the World Bank, Dhaka office, said the IMF has asked to rationalise government expenditure, which meant subsidies would have to be reduced. For this, the price of gas electricity should be increased. 

The IMF has also said the farmers and the poor should be brought under the social safety net so that they do not suffer, he added.

On the increase in gas and electricity prices, he said the IMF must have given a formula for the hikes. It has to be seen whether the prices are rising according to that, Zahid said. 

Market-based dollar rate from November 

The central bank will advise banks to buy and sell dollars by considering the demand and supply in the market. Based on this, the market-based interbank exchange rate will be fixed.

If the dollar rate is left to the market, dollar prices may increase slightly in the beginning, but the spread between buying and selling prices of the greenback will be much lower than now, according to the Bangladesh Bank.

The central bank will also rationalise the rate of dollars supplied to state-owned banks to meet government import expenditure. The current selling rate is Tk97 per dollar.

Moreover, the central bank will announce its monetary policy twice a year. Accordingly, it will unveil the second monetary policy statement next January.

The Bangladesh Bank will also release its monetary policy quarterly once the Bangladesh Bureau of Statistics acquires the ability to publish quarterly data.