IMF asks Bangladesh to raise fuel prices to cut deficit

DHAKA Thu Dec 6, 2012 10:03am EST

DHAKA Dec 6 (Reuters) - The International Monetary Fund (IMF) asked Bangladesh on Thursday to raise fuel prices to reduce the government's budget deficit.

"It is very difficult for an elected government (to raise oil prices frequently), but still government has to make the right balance between fuel prices and subsidies," David Cowen, leader of the IMF mission visiting Dhaka, said.

"We had a meeting with Bangladesh's finance minister early this week, and he hinted about a rise in oil prices soon," David told reporters at a press briefing at the end of a 10-day visit.

Bangladesh imports oil products from global markets at higher cost than the prices set for the domestic market, with the government paying hefty subsidies to cover the difference.

"The beginning of winter is an appropriate time to hike price of oil," Finance Minister Abul Maal Abdul Muhith said on Monday after meeting with IMF officials. Winters tend to be mild in Bangladesh, and fuel consumption decreases.

An aide to the finance minister told reporters that IMF officials had suggested fuel prices should be raised in December.

"Further efforts will be made to contain subsidy costs, anchored by a fuel price adjustment formula," David said.

"To mitigate the impact of adjustments on the most vulnerable (of the population), agreed fiscal targets will protect social spending by the government."

Bangladesh last raised fuel prices in late December 2011 by up to 6.0 percent.

Bangladesh spent $6.17 billion on oil and oil product imports in the fiscal year to June 2012, more than double the level in the previous year, as it bought more fuel at higher costs for power plants in order to ease electricity shortages.

The IMF mission visited Dhaka from Nov. 27 to Dec. 6 to continue discussions on the first review under a three-year Extended Credit Facility (ECF).

The executive board of the IMF approved a three-year arrangement under the ECF in April this year for a total amount equivalent to about $987 million.

Upon the completion of the review, about $141 million will be made available to Bangladesh, bringing total disbursements under the arrangement to about $282 million, the IMF's Cowen said. (Editing by Anis Ahmed and Jane Baird)