The International Monetary Fund (IMF) has recommended hiking power and fuel oil prices.
Bangladesh should keep tightening monetary policy to fight inflation pressures, the lender said as it warned that increased government borrowing would further fuel inflation.
It asked the government to contain subsidy costs to have more space for spending in social and annual development programmes and recommended raising fuel and electricity price gradually to cut subsidy.
The government has twice increased the price of fuel recently and in process of increasing gas, CNG and electricity price.
IMF resident representative in Dhaka Eteri Kvintradze made the suggestions at a press briefing at the Bangladesh Bank headquarters in Dhaka on Monday to discuss the economic situation of the country.
The fuel price adjustment is needed to contain inflation and with targeted benefits for the most vulnerable to mitigate the impact, Kvintradze said.
"And again the decision will be taken by the government and people. We are pointing out the trade-off but decision will be taken by them."
She said there is a price difference between price in Bangladesh and Kolkata and it might lead to smuggling of the product.
SUBSIDY
The Georgia-born Bangladesh mission chief said focus fell on the subsidy issue as the cost is too high.
If the present trend continues, the subsidy costs would reach Tk 315 billion against the budgetary estimation of Tk 19.1 billion, Kvintradze said.
If there is no price adjustment, the subsidy would reach 3.4 per cent of the GDP, she pointed out.
"What is the trade-off? Subsidy grows larger and larger and because of that there is less budgetary space for social and annual development."
CREDIT EXPANSION
The credit expansion is growing and it would put pressure on the banking system, the IMF official said.
"Some of the banks are also heavily exposed to stock market and it creates problems in the market," she added.
INFLATION
The IMF representative said due to government borrowing from the banking system, reserve money is growing and it would put pressure on inflation.
Inflation has reached double digits and in future, it may increase if the present trend continues, she said.
She said that the central bank prudently increased cash reserve requirement and statutory liquidity ratio to contain inflation and there should not be any move to undermine the authority of the regulatory body.
BoP PROBLEM
Kvintradze said Bangladesh is facing negative balance of payment for the first time in a decade.
"Import is growing faster than export and remittance flow growth is growing at a slower pace and it put pressure on the BoP."
Taka is depreciating at a rapid pace and it depreciated to Tk 76.5 against a dollar in Nov from Tk 71 level in January this year, she pointed out.
The central bank also sold $1.4 billion to the open market for gradual depreciation of taka, she added.
"Bangladesh must safeguard foreign exchange reserve to meet its import payment and it should allow gradual depreciation of taka," she suggested.
REVENUE COLLECTION
The IMF official said the good news is revenue collection is growing and ADP implementation situation is also good.
She said there should be continued improvement in tax administration and new business-friendly VAT and income tax laws should be introduced.
$1 BILLION IMF LOAN
She said it is a process and the negotiation is going on.
"We will have another round of negotiation soon.
Bangladesh should keep tightening monetary policy to fight inflation pressures, the lender said as it warned that increased government borrowing would further fuel inflation.
It asked the government to contain subsidy costs to have more space for spending in social and annual development programmes and recommended raising fuel and electricity price gradually to cut subsidy.
The government has twice increased the price of fuel recently and in process of increasing gas, CNG and electricity price.
IMF resident representative in Dhaka Eteri Kvintradze made the suggestions at a press briefing at the Bangladesh Bank headquarters in Dhaka on Monday to discuss the economic situation of the country.
The fuel price adjustment is needed to contain inflation and with targeted benefits for the most vulnerable to mitigate the impact, Kvintradze said.
"And again the decision will be taken by the government and people. We are pointing out the trade-off but decision will be taken by them."
She said there is a price difference between price in Bangladesh and Kolkata and it might lead to smuggling of the product.
SUBSIDY
The Georgia-born Bangladesh mission chief said focus fell on the subsidy issue as the cost is too high.
If the present trend continues, the subsidy costs would reach Tk 315 billion against the budgetary estimation of Tk 19.1 billion, Kvintradze said.
If there is no price adjustment, the subsidy would reach 3.4 per cent of the GDP, she pointed out.
"What is the trade-off? Subsidy grows larger and larger and because of that there is less budgetary space for social and annual development."
CREDIT EXPANSION
The credit expansion is growing and it would put pressure on the banking system, the IMF official said.
"Some of the banks are also heavily exposed to stock market and it creates problems in the market," she added.
INFLATION
The IMF representative said due to government borrowing from the banking system, reserve money is growing and it would put pressure on inflation.
Inflation has reached double digits and in future, it may increase if the present trend continues, she said.
She said that the central bank prudently increased cash reserve requirement and statutory liquidity ratio to contain inflation and there should not be any move to undermine the authority of the regulatory body.
BoP PROBLEM
Kvintradze said Bangladesh is facing negative balance of payment for the first time in a decade.
"Import is growing faster than export and remittance flow growth is growing at a slower pace and it put pressure on the BoP."
Taka is depreciating at a rapid pace and it depreciated to Tk 76.5 against a dollar in Nov from Tk 71 level in January this year, she pointed out.
The central bank also sold $1.4 billion to the open market for gradual depreciation of taka, she added.
"Bangladesh must safeguard foreign exchange reserve to meet its import payment and it should allow gradual depreciation of taka," she suggested.
REVENUE COLLECTION
The IMF official said the good news is revenue collection is growing and ADP implementation situation is also good.
She said there should be continued improvement in tax administration and new business-friendly VAT and income tax laws should be introduced.
$1 BILLION IMF LOAN
She said it is a process and the negotiation is going on.
"We will have another round of negotiation soon.
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