The government however rejected an IMF plea for raising domestic energy prices immediately. Finance Minister M Saifur Rahman yesterday told IMF officials that the government would need time to carefully consider a rise in fuel prices.

Sources said the government may go for fuel price adjustments in January next year.

The IMF, which wrapped up discussions with the government on its Poverty Reduction Growth Facility (PRGF) yesterday, also forecast a GDP growth 0.3 percentage point less than last year's and 0.8 percentage point lower than the earlier projection.

"The combination of risks arising from the floods, the expiry of the Multi-Fibre Arrangement (MFA), and sustained high world energy prices have led the mission to revise its projection of growth slightly to 5.2 percent and of inflation to 6.8 percent in FY2005," said an IMF press statement released after the talks.

Earlier this year the IMF in its second PRGF review report projected 6 percent GDP growth and 5 percent inflation for the current fiscal year. The growth was 5.5 percent and inflation 5.83 percent last fiscal year.

"They [IMF] had a lot to say on energy prices because oil prices are close to $60 [a barrel]," the finance minister told reporters emerging from the final meeting with an IMF team at the Planning Commission yesterday.

The minister told the IMF that the government would not raise domestic energy prices at the moment as the country has gone through devastating floods this year.

The IMF officials have agreed with his argument and did not push further the government into a rise in energy prices, Saifur told reporters.

An IMF official also told the press at a briefing at the IMF office after the meeting that they have reminded the government of future adjustments of the domestic energy prices with the soaring international oil prices.

The six-member IMF team held a series of meetings with ministers, central bank governor and civil society from October 9 on the third PRGF economic review. Nissanke Weerasinghe, IMF's advisor for the Asia and Pacific, headed the team.

Bangladesh Bank Governor Fakhruddin Ahmed, Finance Secretary Zakir Ahmed Khan, National Board of Revenue (NBR) Chairman Khairuzzaman Chowdhury and IMF Resident Representative Jonathan C Dunn were present at the final meeting.

The discussions with IMF focused on reforms in the NBR and banking sector, energy prices, and lowering of savings instruments and bank interest rates, besides other issues.

Official sources said the IMF during the series of meetings said due to the absence of energy price adjustments, the Bangladesh Petroleum Corporation (BPC) would incur greater financial losses leading to a greater pressure on budget.

The IMF team also recommended the implementation of an approved government pricing formula for energy that would see energy price adjustments every six months in accordance with international oil prices.

The IMF team pushed the government to leave both savings instruments and bank interest rates to market forces. Savings instrument rates should be lowered to match market trends, the IMF team told the meetings, sources said.

The IMF officials said the central bank should not put pressure on banks to fix interest rates saying the market should determine the effective rates.

Given the continued strong macroeconomic performance to date and the understandings reached with the authorities to revitalise the structural reform agenda, the mission is hopeful to propose the completion of the third review to the IMF Executive Board in January 2005, said the IMF statement.

On post-flood reconstruction, IMF observed that the reconstruction assistance from donors in 2005 would "allow the budget to undertake flood-related spending while holding domestic borrowing at a prudent level in FY 2005."

The PRGF arrangement with a total lending commitment of $ 515 million to be disbursed in seven instalments was approved in June last year. The IMF has already disbursed three instalments and the fourth is likely to be released in January next year.

For releasing the fourth instalment of the PRGF loan, the IMF has tagged the condition that initiative must be taken to sell state-owned Rupali Bank by this year.

Another condition is to expand the Large Taxpayers Unit (LTU) of NBR with a 50 percent coverage of total VAT collection from the largest 100 VAT filers. The IMF also suggested expansion of audit programme to cover 1,000 large taxpayers.

The government has assured the IMF that it would fulfil the conditions by January 2005.

Official sources said the IMF also warned that it would not repeat 'waiver of performance criterion' in the third review in case of failure by the government to fulfil PRGF conditions, as it was done before the release of the third instalment.