Government and international financial institutions should coordinate among themselves while taking steps for price adjustment for fuel and energy. Speakers opined such in a dialogue on State of the Bangladesh Economy, IMF Supported Programme and Future Outlook, organised by CPD on 17 September 2012 at the BRAC Centre Inn, Dhaka. IMF Mission Chief for Bangladesh Dr David Cowen presented the keynote paper and discussed the reforms agendas under the Extended Credit Facility (ECF) of the IMF to initiate the discussion.
Dr Cowen underlined that, despite repeated hikes in prices and slide in subsidy for fuel, retail petroleum prices are still considerably low in Bangladesh. He suggested that Bangladesh should implement an automatic fuel price adjustment mechanism to offset economic risks that stem from volatile world oil prices. He posited that fuel price should be increased to contain subsidy costs and protect country’s foreign exchange reserve. He, however, noted that expansion of the planned subsidy schemes like diesel cards can help mitigate the impact of high fuel price on the most vulnerable. Dr Cowen highlighted the necessity of taking into account institutional inefficiency while controlling the costs of energy and termed quick rental power plants as unnecessary.
For maintaining macroeconomic stability Dr Cowen identified some near-term risks facing Bangladesh. These include intensification of Eurozone crisis, sharp rise in global food price, world oil price shock and pre-election pressures. He apprehended that balance of payments and inflation pressure could reemerge from heavy bank borrowing by the government due to pre-election pressure. Dr Cowen asserted, “Moderate fiscal consolidation and sound debt management will underpin macroeconomic stability and rebuild fiscal buffers.” IMF suggested greater exchange rate flexibility, fiscal easing associated with measured food imports, monetary tightening and strengthened financial sector governance as some of the pre-conditions for more growth-friendly business climate in Bangladesh.
Dr Akbar Ali Khan, Former Advisor to the Caretaker Government and Discussant of the session disagreed with IMF’s proposal of raising electricity prices and termed this as totally unjustified as poor people are already suffering too much. He suggested IMF to draw up a more realistic programme.
Discussant Dr Ahsan Habib Mansur, Executive Director, Policy Research Institute advised the government to conduct an independent and transparent audit for the state banks to assess the damage caused by the politically appointed directors to the banks’ financial health.
Dr A B Mirza Azizul Islam, Former Advisor to the Caretaker Government and Discussant opined that the public finance management would not improve only by formulating good rules and procedures, the process has to include the officials as an integrated part as well.
Dr Debapriya Bhattacharya, Distinguished Fellow, CPD also a Discussant of the session was critical about the fact that for its macroeconomic management Bangladesh has opted for external solutions with binding commitments. “it is really sad that we have invited international financial institutions to impose financial disciplines as we are incapable of doing so ourselves.”
According to Dr Bhattacharya, the recently exposed crisis in the banking sector indicates that the macroeconomic management and structural reform issues demand a greater understanding of the current development challenges of Bangladesh.
Speakers in the session debated that energy price hike as conditionality for a loan amounting to less than USD 1 billion to be disbursed over seven installments is irrational considering that the prices have been adjusted four times in a row during the year.