Bangladesh should redirect subsidy money to help poor: IMF deputy

Black_cats · Jan 18, 2023

Bangladesh should redirect subsidy money to help poor: IMF deputy

Antoinette Monsio Sayeh visits Dhaka ahead of board decision on $4.5bn loan

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A woman collects garbage from a dump in Dhaka: The IMF's deputy managing director says Bangladesh should not be providing subsidies that benefit the wealthy. © Reuters

SYFUL ISLAM, Contributing writerJanuary 18, 2023 19:24 JST

DHAKA -- Bangladesh's government should cut a range of subsidies and redirect the money to more targeted assistance for the poor, the International Monetary Fund's deputy managing director said in an interview while visiting the cash-strapped South Asian country.

"A gradual reduction of fuel oil, electricity, gas and water subsidy is necessary to lower pressure on government spending," Antoinette Monsio Sayeh told Nikkei Asia this week. "These subsidies benefit rich people disproportionately more."

The deputy managing director's remarks show what the IMF expects as it weighs board approval for a $4.5 billion loan to Bangladesh.

Sayeh, who arrived in the country on Saturday, was scheduled to wrap up her visit on Wednesday. She held a string of meetings with the prime minister, finance minister, central bank governor and other top officials to assess the country's commitment to economic reforms before the loan is granted.

Sayeh said the IMF's board will consider approving the loan on Jan. 30.

Bangladesh was the third troubled South Asian country to approach the IMF last year -- alongside Sri Lanka and Pakistan -- amid a significant fall in foreign currency reserves and a swelling current-account deficit. Forex reserves stood at $32.5 billion in January 2023, compared with $48 billion in August 2021, and are showing little sign of recovery despite some positive glimmers in the economy at the end of 2022.

Sayeh said the money saved by reducing subsidies could create fiscal space for helping the poor, from mitigating the impact of inflation to spending more on education and health. In addition, the additional resources could be directed at infrastructure. All this could help Bangladesh navigate its challenges and create more jobs, she argued.

"Subsidies take up a significant part of the budget," Sayeh said, adding that Bangladesh also needs to increase efforts to generate revenue. She conceded that there may be some subsidy programs the government needs to continue for the sake of poorer segments of society, such as in the agricultural sector, but she stressed that Bangladesh should not provide a subsidy "that benefits the rich."

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IMF Deputy Managing Director Antoinette Monsio Sayeh speaks with Nikkei Asia in Dhaka on Jan. 16. (Photo by Syful Islam)
She said that the IMF focuses on how policies impact the poor, and that without its presence, countries would have no other source of funding and would only have to pare down spending even more drastically.

"So we are very much focused on making sure the reforms that we encourage the governments to implement have focus on the distributional impacts and are really seeking to achieve the objectives of the [lending] program without aggravating the situation of the poor and, ideally, improving it," the deputy managing director said.

She said the IMF emphasized such points when it reached a staff-level agreement with Bangladesh back in November, including raising revenue and looking at policies that do not necessarily help the poor, such as value-added tax (VAT) exemptions and other perks benefiting privileged segments and some businesses.

Sayeh said Bangladesh had been doing well and was not in a crisis but had been facing external shocks induced by the Ukraine war when it sought preemptive lending from the IMF.

On foreign debt, officials stress that Bangladesh's situation is under control and that with the help of the IMF and the World Bank, the Finance Ministry has updated its medium-term debt strategy. Sitting in on the interview with Sayeh, Rahul Anand, the IMF's mission chief for Bangladesh, said that all information on Bangladesh's bilateral government loans, including from China, is available publicly.

"Debt in Bangladesh is sustainable," Anand said, noting that the "overall external debt ratio is low and mostly concessional."

Sayeh said uncertainty is the order of the day not just for Bangladesh but for all countries as the war in Ukraine drags on, pressuring commodities markets. But she struck an optimistic note, saying, "Our expectation is that things could improve in the global economy next year, and Bangladesh should be able to resume its usual path [at] that time."

Bangladesh's central bank on Sunday unveiled a "cautiously accommodative" monetary policy statement for the second half of the current fiscal year, withdrawing a cap on bank deposit rates.

Sayeh said that this development is part of efforts to modernize Bangladesh's monetary policy framework and that it is very important for Bangladesh to implement a policy that takes account of the current environment.