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May 19, 2025

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MONDAY, MAY 19, 2025
Go slow on subsidy cuts

Analysis

Monzur Hossain
31 January, 2023, 10:10 pm
Last modified: 31 January, 2023, 10:15 pm

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Go slow on subsidy cuts

Monzur Hossain
31 January, 2023, 10:10 pm
Last modified: 31 January, 2023, 10:15 pm
Dr Monzur Hossain. TBS sketch
Dr Monzur Hossain. TBS sketch

The $4.5 billion loan programme by the International Monetary Fund (IMF) will certainly take some pressure off the country's forex reserve.

Though the amount is not very big, the IMF lending will provide a tonic to the economy since it incorporates two significant things. First, the lending indicates strength of the country's economy and, second, provides moral support to our economic management.

On the other hand, strings attached to the amount such as reducing subsidies and boosting revenue collection are to reinvigorate Bangladesh economy in the long run, which I think is also more crucial than the amount of the credit facility.

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Local economists and think tanks have been advocating for those logical financial reforms for a long time.

Having said that, I think the government should go a bit slow on a number of reforms such as phasing out the power and energy subsidies. We understand it is a tough choice for the government to remove the shock protection mechanism in the election year.

However, we noticed Bangladesh acted fast in raising the fuel, gas and power prices multiple times over the past couple of months in an effort to reduce the government's subsidy burden.

It's true that the government cannot continue those for an indefinite period, but it also has to be considered how much price shocks people can bear at a time when the world is facing tremendous inflationary pressure.

We will get some time for a slower energy price adjustment after the release of the first tranche of the loan.

Apart from the power and energy sector, we need reforms in tax collection including overhauling the national revenue board and the process of how revenues are collected. Unless we boost the tax-GDP ratio and manage more fiscal space, we will not be able to graduate to a middle-income country.

Unfortunately, there are no initiatives in sight so far for the tax reforms like the sharp subsidy cuts in the power and energy sector. It is not fair to implement some of the IMF conditions while leaving the revenue reforms and coverage largely unaddressed.

Monzur Hossain, research director of Bangladesh Institute of Development Studies

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subsidy / IMF Loan

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