The government is going to prepare a guideline by December on the automatic price adjustment of fuel oils on the local market, officials said on Saturday.
The government needs to ready the guideline as the International Monetary Fund has linked this to the US$1 billion loan under the recently approved Extended Credit Facility.
The IMF has tagged dozens of conditions, including this, to the credit to be released in seven installments over three years, they said.
By way of the new system, prices of petroleum products will be set at the local level in keeping with the prices on the international market.
‘We will move to an automatic adjustment formula by December 2012 to contain fuel subsidies,’ according to
a letter the finance minister, Abul Maal Abdul Muhith, wrote to the IMF in late March.
The government now sets prices of petroleum products, which are all imported, under a system called ‘administrative price adjustment policy.’
Experts said that prices of both fuel oils and power would become be costlier as the IMF has asked the government to keep budgetary subsidy on items at Tk 150 billion in the current financial year.
They said that people, especially farmers, would be hard pressed further as they are the main beneficiaries of the subsidised diesel oil.
Muhith told the IMF that a technical committee had been set up in January 2012 to monitor the Bangladesh Petroleum Corporation, the only state-owned fuel oil importer and distributor.
This was done to ensure regular budget transfers to cover subsidy-related losses and to enable it to buy foreign exchange from domestic banks to pay for petroleum import, he said.
Economist Anu Muhammad said that the government and the finance minister had allowed the IMF to impose the unnecessary burden of loans on the nation.
‘There is doubt that the government would able to fulfill the conditions,’ the Bangladesh Institute of Development Studies director general, MK Mujeri, said.
The IMF has for long been pressuring the government to introduce the automatic price adjustment policy. It earlier tagged the condition to the credit programme called the PRGF between 2003 and 2007, but it did not happen.
The finance minister acknowledged in his letter that effective steps were being taken to contain the growth in fuel, electricity, and fertiliser subsidies.
The overall size of the subsidies has grown rapidly in recent years because of rising import costs and inadequate cost recovery undermining the fiscal position and overall macroeconomic stability, he added.