The delegation of the International Monetary Fund (IMF) has recommended increasing the prices of electricity, gas and fertilizers to reduce subsidies in other sectors to improve budget management.
The recommendation was made by the IMF mission to monitor the implementation of conditions under the loan program in a meeting with the budget division of the finance department on Thursday (April 25).
The IMF mission to Bangladesh also sought to know what action was being taken against willful defaulters. Besides, targeted reduction of NPLs, especially of government-owned banks, and urgent implementation of pending laws related to banks and financial institutions.
This information is known from the sources of the Ministry of Finance.
Sources said, part of the mission meeting with the Finance Department’s budget division on subsidies, welcomed the government’s adoption of a periodic formula-based price adjustment mechanism for petroleum products that would have reduced subsidies.
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However, to improve the overall budget management, it has recommended to increase the prices of electricity, gas and fertilizers to reduce subsidies in other sectors. In this context, the officials of the finance department said that the government will give adequate subsidy to agriculture for the time being keeping in mind the issue of food security. However, to reduce the subsidy on electricity and gas, the prices of these will be increased gradually.
The delegation, led by Chris Papageorgiou, head of the IMF’s Development Microeconomics Division, presented these observations in a meeting with the Financial Institutions Division of the Ministry of Finance.
Financial Institutions Department Secretary Sheikh Mohammad Salim Ullah led the meeting on behalf of the government. At this time, the MD of Sonali Bank along with the officers of the financial institutions department. Afzal Karim along with MDs of Janata, Agrani and Rupali Bank were also present.
Several senior officials of the Ministry of Finance present at the meeting said that the mission welcomed the government’s decision to merge the banks. However, it is advised to be careful that the financial condition of the bank does not deteriorate after the merger. For this, the officials of the delegation have insisted on completing the integration process in accordance with the internal standards without haste. Besides, the mission wanted to know what steps are being taken against defaulters, especially willful defaulters.
In view of this, the Financial Institutions Department said that the Bank Company Act has already been amended and punishments have been provided for willful defaulters. Based on this law, Bangladesh Bank has adopted Prompt Corrective Action (PCA) framework to bring order to the banking sector by reducing high non-performing loans, capital deficiency, solving liquidity crisis and ensuring efficient management.
Its implementation has already started, in the future it will be strengthened and the development of the financial sector will be reduced along with the reduction of non-performing loans. At the same time, in the meeting, the financial institution department presented the latest picture of six state-owned banks with bad loans, liquidity crisis in the banking sector, recapitalization given to banks and legislation related to banks and the financial sector.
According to the sources, it was informed in the meeting that the amount of non-performing loans in the last quarter of 2023 has decreased by about 10 thousand crore rupees compared to the previous quarter. At the end of December, non-performing loans in the banking sector stood at 1 lakh 45 thousand 633 crores, which is 9 percent of the total disbursed loans.
During this period, the bad loans of the state-owned banks are still 65 thousand 781 crores, same as the previous quarter. Which is 20.99 percent of the total debt. Non-performing loans of private banks have decreased to Tk 70 thousand 982 crore, which is 5.93 percent of their disbursed loans and last September was Tk 81 thousand 538 crore and 7.04 percent.
The picture of the six June-based banks presented by the Financial Institutions Division to the IMF staff mission last October has worsened in many areas over the course of six months. For example, six months ago the rate of non-performing loans in Basic Bank was 62.85 percent, at the end of December it increased to 63.76 percent. Agrani has increased from 24 to 25.89 percent, BDBL has increased from 42 to 42.46 percent. This rate of Sonali Bank, however, decreased slightly from 14.93 to 14.13 percent. Similarly, Rupali decreased from 19 to 17.81 percent and Janata decreased from 33 to 19.20 percent.
Under the IMF loan program, the non-performing loans of the banking sector should be brought down below 8 percent by June 2026. In this case, the aim is to bring it below five percent in private banks and below 10 percent in government banks.
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The mission has expressed concern over the non-performing loans of the state-owned commercial banks, although the total non-performing loans as of last December have decreased somewhat. At the same time, it has urged effective measures to reduce defaults, especially to reduce defaulted loans of state banks.
Meanwhile, the Parliament has passed the Bank Companies (Amendment) Act and the Finance Companies Act and the Acts have already come into force in line with the recommendations of the IMF. However, there are three other laws related to the financial sector which are in process of enactment and amendment. The IMF urged them to be completed quickly and packed.
The visiting mission also held a meeting with the Social Security Wing of the Finance Department. It has recommended its expansion by bringing under the target poor groups who should come under the social protection program, recalling the issue of high inflation. At the same time, due to various irregularities, educated beneficiaries also do not get allowances properly – he urged to ensure transparency in this regard.
In this regard, the Finance Department informed the mission that at least five and a half lakh new beneficiaries will be included in some programs under this program in the next budget. However, in the overall economic situation, the next budget will be very contractionary, so it is not possible to increase the rate of allowance.
Besides, a notification was issued on April 1 to ensure that the beneficiaries get the cash properly. It is said to all ministries and departments, to ensure transparency and accountability in receiving cash financial assistance of the government, the cash financial benefits of the newly launched social security program should be paid through the registered Mobile Financial Service (MFS) using the national identity card of the beneficiary. In case of existing beneficiaries, it should be confirmed by June 30, 2025.
It also said that currently many program allowances are provided through MFS but beneficiaries are often not registered with national identity cards. So there is a risk of misuse of money. However, this rule can be relaxed if a beneficiary cannot be fingerprinted or does not have a national identity card.
MAS/EA
Tags: IMF recommends increasing electricitygasfertilizer prices reduce subsidies
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