Huge capacity payments to independent power producers (IPPs), which are creating a "hole" into Bangladesh's economy, came under query from the International Monetary Fund (IMF) in assessing the country's creditworthiness, sources said.
In two separate meetings with Power Division and Bangladesh Power Development Board (BPDB) Wednesday, the visiting IMF delegation also wanted to know government plan to end capacity payment, officials said.
According to the officials, the payments against installed capacity of rental power plants exceeded Tk 265 billion in the last fiscal year (FY2021-22).
Also, the visiting team, led by the agency's mission chief for Bangladesh, Rahul Anand, was learnt to have inquired about subsidy in power sector, the procedure of buying electricity from oil-fired power plants, and future plans for power-sector development.
They also asked the BPDB if they can take loan from commercial banks instead of taking subsidy from the government. The BPDB officials informed that bank borrowing would not be viable for them since they will have to pay interest as well against the loans.
Power division's officials informed the IMF team that oil-based power plants were set up in the face of huge electricity shortage and the capacity payments are given in line with the agreements.
But now the government has come out from the previous deals and presently the oil-based power plants are paid on 'no-electricity, no-pay' basis.
The IMF team also wanted to know about the prolonged load-shedding and how long the situation could continue.
The officials of the power division replied that lowering load-shedding depends on oil and gas supply by the energy division. "If the energy division can arrange required oil and gas, the load-shedding will end."
They also said due to high price of fuel oils and gas the government is importing those in lesser amounts and so load-shedding happens.
Sources said the IMF officials also wanted to know about government efforts for expansion of renewable energy.
The power division's officials informed the IMF team that due to land scarcity the possibility of enhancing renewable-energy generation is very meagre.
Asked, power division secretary Habibur Rahman told newsmen that the IMF team was enthusiastic to know mainly about renewable energy since a portion of the proposed budgetary support may come from its Resilience and Sustainability Trust (RST).
He, however, said the visiting team did not talk on other issues like subsidy and capacity payment.
Meanwhile, in a separate meeting with the ministry of commerce, the IMF team inquired about the country's preparedness for post-LDC-graduation regime and market access of export items to the European Union and the United States when the country will lose various trade preferences.
Commerce ministry's officials informed the IMF team that presently around 80 per cent of export earnings come from apparel sector. But the government is now giving emphasis on product and market diversification, including electronics, processed food, and leather sectors.
The ministry also mentioned that there is a high-level committee headed by the principal secretary to the Prime Minister which is working on post-LDC challenges. There are seven sub-committees working under them.
Also, the ministry informed that the government is working on the setting up of a national single-window platform by 2024 where 29 agencies will be added. "Once it starts functioning, various non-tariff barriers will go, facilitating faster trade."
On signing free-trade agreements (FTAs), the ministry said Bangladesh has been trying to strike such deals with various counties keeping in mind the possible tariff-preference losses in the post-LDC era.
They said Bangladesh and India are set to begin negotiations on the signing of an advanced FTA styled 'Comprehensive Economic Partnership Agreement (CEPA)'. Also are there moves to sign FTAs with a number of countries, including China, Indonesia, Brazil, Malaysia, Thailand, South Korea, Japan, and Australia.
Efforts for tariff rationalisation also came up for discussion in the meeting. The delegation was told that Bangladesh Tariff Commission is preparing country's first tariff policy wherein a target will be set on tariff rationalisation.
Meanwhile, Planning Minister MA Mannan said the expected loan from the IMF would build up a cushion against any risk for the Bangladesh economy.
"We need the money. But it does not mean that Bangladesh is in a crisis," he told journalists after a meeting with a team from the International Labour Organisation (ILO) at his office in the Planning Commission in Dhaka.
He explains: "I have Tk100 in my pocket. If anybody lends me an additional Tk 10, of course, it will help me a bit."
An IMF team is now visiting Bangladesh to assess the country's macroeconomic scenario and its necessary reforms.
About the high rate of inflation, the minister said the rate is not that bad for a low-income country like Bangladesh. "You should keep in mind that the current inflationary pressure is not for the market failure at home. Bangladesh is very much connected with global markets. So the impact of other countries will ultimately affect us."
He continued: "We've a high inflationary pressure. But it has not come overnight. You all go to the market. I am sure that the prices of essentials do not fluctuate overnight. As it is a Bengali month of Kartick, there will be a shortage of rice."
Mr Mannan, however, recognises that people's salary and wages have not increased commensurate with the higher rate of inflation.
About his discussion with the ILO team, headed by its SME Specialist Gunjan Dallakoti, the minister said the ILO suggested the government take steps for raising the wages of tea workers and fishermen in the coastal areas.
"We've increased the tea workers' wages recently. Now the fishermen deserve a wage hike."
