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Pushing for further hike in petroleum prices, the International Monetary Fund (IMF) has said fuel subsidies benefit the affluent consumers at the cost of the poor.
"The domestic prices of petroleum products in Bangladesh remain significantly below international levels with substantial costs to the economy," its Adviser in the Asia Pacific region, Thomas Rumbaugh, said here Thursday, stressing on further price adjustment.
Rumbaugh, who led a Fund team, derided the present petroleum pricing policy, saying it "entails considerable and growing economic costs, mainly benefits higher income consumers and only delays the inevitable adjustment".
"… the majority of the benefits from the fuel subsidy accrue to better off households rather than to the poor," he said.
On this score, he advocated an appropriate pricing policy that "would have room to provide more services to low-income groups".
Also, the delay in fuel price adjustments has resulted in continued losses of the energy sector state-run agencies, he pointed out.
"Over the last two years, Bangladesh has passed through only about one half to two-thirds of the world oil price increases to domestic petroleum product prices," the IMF executive said as he wrapped up a weeklong mission here.
The inability of the energy sector government agencies to repay banks has also dried up liquidity in the money market, he pointed out.
On an average, the Bangladesh Petroleum Corporation (BPC) incurs loss per litre of fuel import by around Tk 5.5, according to official figures.
In addition, Rumbaugh said that oil import growth remains strong in the absence of incentives to improve fuel efficiency and in the face of cross-border smuggling.
"This has also contributed to pressures in the foreign exchange market," he added.
In FY00, petroleum import bill was $638 million or 7.8 percent of the total import bill, but in FY05, it stood at $1,602 million or 12.2 percent of the total imports, according to an analysis of the local thinktank, Centre for Policy Dialogue (CPD).
During its visit, the IMF mission had extensive consultation on recent economic developments and implementation of policies supported by the Poverty Reduction and Growth Facility (PRGF).
The IMF hoped that the growth rate is expected to touch to 06 per cent this year as the country's economy maintained the growth momentum during this fiscal.
It expressed satisfaction over the farm production, export growth and relatively low inflation rate.
Agriculture has recovered from flood-related losses in the previous year, while export growth and indicators of industrial activity have remained strong, the IMF official said.
Although inflation has declined slightly, the IMF said its 6.5 percent rate is "still higher than desirable".
Despite the positive developments, there remain key macroeconomic challenges.
The central bank should continue to tighten the monetary policy for sustaining the growth and reducing inflationary pressure, the Washington-based multilateral lender suggested.
"This policy should be continued in the period ahead to safeguard the progress that has been made in establishing macroeconomic stability".
The IMF, however, recommended further increases in interest rate to bring inflation in line with other countries.
"Such a policy would also contribute to reducing pressures in the foreign exchange market," it maintained.
Disagreeing with the comments of the Governor of the Bangladesh Bank, the IMF team leader said there existed greenback crisis in the local market.
"The dollar crisis will not prevail for a longer period", he told a questioner.
With the government preparing the next fiscal year's budget, the IMF mission suggested that Bangladesh should address the issue of lower revenue collection on a priority basis.
As the revenue collection continues to trail the budgetary targets, the collection drive must be invigorated to finance the government's poverty reduction and development objectives, the IMF official insisted.
A fundamental review of tax incentives and exemptions is among the policy steps the government needs to undertake "to broaden the tax base and support the needed improvements in revenue", Rumbaugh said.
The lending agency lauded the reforms in tax administration and bank restructuring, but stressed on carrying on with the key structural reforms in these areas.
It suggested further strengthening of the operations of large tax payers units and improving collection and audit procedures.
In the same breath, the Fund listed a successful divestment of Rupali Bank and corporatisation of other state banks as the biggest near-term priorities of the government.
He said the IMF is expected to launch talks with Bangladesh in May next on the fifth tranche of its anti-poverty loan, provided the government keeps the policy reform momentum on track.
If the government continues to implement policies aimed at macroeconomic stability and advances key structural reforms, discussions for the fifth review under the PRGF arrangement could take place in May 2006, he added.
So far, the IMF has handed down US$ 409.1 million credit to Bangladesh under its PRGF arrangement. The total amount under the poverty-fighting programme stands at $578 million.
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