IMF again suggests hike in fuel oil prices, power tariff

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FE Report
The International Monetary Fund (IMF) has again advised the government to increase kerosene and diesel prices and power tariff to help reduce its subsidy burden.
It has also recommended for introduction of market-based price adjustment method for fuel oils in the domestic market.
The suggestions, incorporated in a report prepared and submitted to the government and the Bangladesh Bank by an IMF staff mission recently, have been made to help the government overcome the current fiscal challenges and stabilise the macro-economic situation, official sources said.
The report has mainly focused on issues of subsidies, power and energy prices, institutional constraints to ADP implementation and reforms in revenue-related regulations.
The IMF mission in its recommendations maintained that a large amount of subsidies is hindering growth of public investment, creating large fiscal liabilities and widening fiscal risks.
It has underscored the need for increasing the prices of diesel, kerosene and electricity tariff as their rates are below the import costs and cost recovery levels.
'Improved global prospects are likely to bring further fuel price pressures, with delays in domestic price adjustments potentially undercutting budget performance and diverting government resources from more productive uses, including the ADP,' the IMF said.
'Adopting an automatic pricing mechanism could contain growth in subsidies, while a scaling-up of targeted safety nets could mitigate the impact on the poor.'
The Fund said the government has to strengthen the capacity of line ministries to maximize the rate of Annual Development Programme(ADP) implementation. It underlined the need for strategic deployment of resources and addressing the institutional constraints to overcome the historic lacklustre performance in ADP implementation.
Lastly, it said the revenue related regulations; particularly those of Value Added Tax (VAT) should be updated and regulatory framework for revenue earnings must be streamlined.
'To this end, the government will need to undertake a substantial restructuring and modernization of VAT administration along with dedicated education and training both for administrators and taxpayers to ensure timely and orderly implementation,' reads the IMF staff mission report.