IMF asks Bangladesh to cut deficit by raising fuel prices

The International Monetary Fund (IMF) has asked Bangladesh to raise fuel prices to reduce the government’s budget deficit. Bangladesh has been importing oil products from world markets at higher costs than the prices set for the domestic market. This makes the government pay big subsidies to cover the difference. According to David Cowen, leader of the IMF mission that visited Dhaka, while it is difficult for an elected government to raise oil prices frequently, it has to strike the right balance between fuel prices and subsidies in order to avoid huge budget deficits. The IMF mission said that agreed fiscal targets will protect social spending by the government to lessen the impact of adjustments on the most vulnerable segment of the population.
After meeting with IMF officials, Finance Minister Abul Maal Abdul Muhith said that since winters in Bangladesh tend to be mild, it would be the appropriate time to raise oil prices, as fuel consumption is generally lower. An aide to the minister said that IMF officials had suggested the price increase could be implemented in December.
The IMF mission spent 10 days in Dhaka to discuss the first review under a three-year Extended Credit Facility (ECF), which was approved by the executive board of the IMF for a total amount equivalent to about US$987 million. The second release of about US$141 million will be released to Bangladesh upon completion of the review, in addition to the first release of the same amount since the approval of the ECF in April. (December 6, 2012)