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Energy Price Increase

IMF to discuss govt's hike plan

A mission of the International Monetary Fund (IMF) visiting the country next month will discuss with the government whether the pay hike in public service adds to private sector wage pressures and impacts on inflation.

It will also discuss how much increase the government plans in energy and fertiliser prices and electricity tariffs in efforts to reach break-even levels, and measures to perk up revenues.

Scheduled to reach Dhaka on July 2 and stay till July 15, the mission has lately sought the caretaker government's responses to a number of questions to make an overall economic review, said finance ministry sources.

It has wanted written answers to some of the queries while leaving some for discussions during its visit.

In the questionnaire sent to the ministry, the Bretton Woods institution asks, “What is envisaged for public pay and employment? How are the recent changes in wage policy related to the next Pay Commission that will start in 2009?”

The government has already declared 20 percent dearness allowance for the public servants and teachers of the non-government high schools and colleges under MPO (monthly pay order), and proposed formation of a Pay Commission in the budget for fiscal year 2008-09.

A finance ministry official said the government is trying to cushion the effects of unabated price hike of essentials by increasing wages since the possibility for any let-up in the price spiral is little.

“It wants the private sector too to follow suit,” he said, adding that the finance adviser has already given such signal.

This apart, the military-backed administration has taken a number of steps to contain the skyrocketing prices of essentials and will take more if necessary, the official noted.

The Fund wants to know how robust the growth rebound projection was in the second half of FY2007-08 and how international price rises and domestic inflation have affected economic activity.

Earlier in April last year, it forecast that the economy would grow by 5.5 percent, while the finance adviser projected it to be 6.21 percent for the outgoing fiscal year, officials concerned said.

In its questionnaire, the IMF seeks details of the pricing formula for petroleum products and monthly sales volumes for diesel, gasoline and kerosene. It asks how much of the poor performance of the state-owned enterprises (SoEs) is attributable to under-pricing of public services.

It further questions, “What is the level of subsidies required to eliminate losses in BPC (Bangladesh Petroleum Corporation) and other SoEs, including the funds needed to address depreciation of capital? What progress has been made in reducing the operating costs of BPC and other key SoEs?

“What has been the progress on SoE privatisation and closures, including the effect on employment?”

The Fund also asks the government for an update of tax policy measures since the FY08 budget and options being considered for the upcoming fiscal year. It also wants to know the status of tax policy unit and tax administration reforms.

Then it queries about the government's plans regarding sale of Rupali Bank, and asks if the interim administration sees any risk of deterioration in credit quality in near future due to recent surge in private credit.

In a report in May, the IMF said inadequate energy price adjustments have led to substantial losses over the last two years.

“The recent increase in CNG (compressed natural gas) prices is an important first step, but will need to be complemented by other price adjustments,” it observed.

It also made 23 recommendations relating to VAT, income tax and customs, to increase revenues in the next fiscal year.

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