The government of Bangladesh has announced a new policy to curb electricity subsidies by restricting power purchase agreements to rates at or below the average tariff. This measure, outlined in a letter from the Power Division to the Finance Division dated October 6, aims to reduce the financial strain caused by the gap between the cost of electricity procurement and consumer prices. The policy also includes a decision to avoid extending the tenure of existing contracts that exceed the average tariff.

According to officials, the move aligns with most of the recommendations in the International Monetary Fund’s (IMF) three-year reform roadmap, reflecting ongoing efforts to stabilize the country’s economy. The government is also considering gradual reforms in the fertilizer sector, responding to suggestions from the World Bank to phase out price controls and transition to market-based pricing. Current data from the Bank shows that large farmers receive nearly half of government fertilizer subsidies, while small farmers obtain just 13% of the support, demonstrating potential inefficiencies in the existing subsidy framework.

These policy adjustments come ahead of a scheduled dialogue between Bangladesh and the IMF, with the United States holding veto power over the institution’s decisions. Finance Minister Amir Khosru Mahmud Chowdhury noted that Bangladesh has historically received less assistance from the US than anticipated but expressed hope that improved bilateral relations could lead to increased support. Discussions with US Treasury officials covered debt management and economic cooperation, with the finance minister pointing to ongoing trade ties, including aircraft purchases and soybean imports, as a foundation for deeper collaboration.

Prime Minister’s Economic Adviser Rashed Al Mahmud Titumir highlighted recognition from the IMF, World Bank, and US Treasury Department of the economic challenges inherited by the current administration, including high inflation rates exacerbated by the Middle East conflict. These institutions reportedly acknowledge the government’s earnest efforts to address these issues and have pledged continued support.

The government’s adoption of these fiscal measures and its engagement with international financial bodies underscore its commitment to economic reform amid ongoing pressures on Bangladesh’s economy.