The delegation of the International Monetary Fund (IMF) has recommended increasing the prices of electricity, gas and fertilizers to gradually reduce subsidies in other sectors to improve budget management. The IMF mission to monitor the implementation of conditions under the loan program made this recommendation in a meeting with the budget division of the finance department on Thursday. The delegation, led by Chris Papageorgeou, head of the IMF’s Development Microeconomics Division, met with the Financial Institutions Division of the Ministry of Finance to present the recommendations. However, prominent economists of the country have mentioned the suggestion of reducing subsidy on electricity, gas and fertilizer as anti-people. According to them, Bangladesh is a low income country. Removal of subsidy will increase the prices, which will create financial crisis for the common man. They urged the government that their condition will not be accepted in any way.
A part of the mission, meeting with the budget division of the finance department on subsidies, welcomed the government for adopting a periodic formula-based price adjustment mechanism for petroleum products to reduce subsidies, sources in the finance ministry said. 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.
Consumers Association of Bangladesh (CAB) energy advisor Professor M Shamsul Alam said that the IMF’s recommendation to reduce subsidies on electricity, gas and fertilizers is unwanted and objectionable. Because they see commercial gain.
They don’t care about the public. If the subsidy is removed, the price of electricity, gas and fertilizer will increase. Inflation will increase. Common people will be in extreme financial crisis. He said that IMF’s suggestion to reduce subsidy on electricity, gas and fertilizer is against the people. Bangladesh is a low income country. Common people will not be able to bear the pressure if the price increases. The subsidy cannot be waived in any way. And he urged the government that their condition will not be accepted.
Meanwhile, in the meeting, the IMF mission to Bangladesh also wanted to know what steps are being taken against the willful defaulters. Besides, targeted reduction of NPLs, especially of government-owned banks, and urgent implementation of pending laws related to banks and financial institutions.
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, caution has been advised so that the bank’s financial condition does not deteriorate after the merger.
In view of this, the Financial Institutions Department said, in the meantime, the Bank Company Act has been amended and the willful defaulters have been notified and punishment has been provided. 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 institutions 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 in the last quarter of 2023, the amount of non-performing loans 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 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 come down to Tk 70 thousand 982 crore, which is 5.93 percent of their disbursed loans, and last September it was Tk 81 thousand 538 crore and 7.04 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 target is to bring it below 5 percent in private banks and below 10 percent in government banks.
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.
The IMF approved a $4.7 billion loan program for Bangladesh on January 30, 2023. At that time, among many other conditions, 5 laws including the Bank Company Act were given. Financial institutions department is responsible for making these laws. Other conditions include keeping the NPL ratio below 10 percent in state-owned banks and 5 percent in private banks. After the start of the loan program, Bangladesh received more than 1 billion dollars in two installments. The third tranche is expected to receive $700 million next month.
An official present at the meeting said that despite various initiatives of the central bank, the main reason for the deterioration of the reserve situation is the deficit in financial accounts. A fiscal deficit of $8.36 billion has been created as of February. The central bank said that the interest rate of foreign loans has increased a lot. Again, the dollar has strengthened against the rupee. That is why many private entrepreneurs are not interested in foreign loans. The pressure to repay the earlier debt has built up. Due to which there is no improvement in financial terms.
Former Bangladesh Bank Governor Salehuddin Ahmed said, “We have been saying what the IMF is saying and what it will say about the proper reform of the banking sector since a long time ago. But the government did not. He said that the Bank Company Amendment Act is a good thing. But the banks remain family-dominated. Bangladesh Bank has recently said that even if one company of an industrial group defaults, another company will get a loan, this is a terrible policy decision. The crisis in the banking sector is so deep that now attempts are being made to solve it by merging one bank with another. In this way, this sector will not be reformed, political will is needed.
