IMF calls for fuel pricing formula by 2024

The visiting mission of the International Monetary Fund has called for a pricing formula for fuel, fertiliser, electricity and gas by next fiscal year and cut back on subsidy spending to efficient budget financing.

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

For long, the government has been subsidising the prices of fuel, fertiliser, electricity and gas -- an unsustainable practice that benefits both the poor and wealthy alike.

Thanks to the Ukraine war, the prices of fuel, fertiliser and gas shot up, prompting the government to hike their prices at home, in what felt like a jolt to the poor and the fixed-income earners.

Adopting a pricing mechanism that is tagged with the prices in the global market then would prevent such price shocks and help the government accommodate additional social spending.

The Washington-based multilateral lender called for a timebound plan on the pricing mechanism and pushed for its implementation by the next fiscal year.

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

"This is a transition period and hence not the right time for such moves," said an official familiar with the discussions.

The global coronavirus pandemic and the Ukraine war have disrupted the government's plans and there is the impending graduation from the least-developing country bracket to consider.

The mission also called for bringing down subsidy expenditure, whose allocation ballooned to a record Tk 82,745 crore this fiscal year.

Instead of extending subsidies, the IMF called for increased spending on social safety net, health and education. The team also sought the government's current plan for the three sectors.

It also called for a budget financing strategy for fiscal 2023-24 through to fiscal 2025-26 as well as a fiscal risk analysis.