The Government is set to commit to settling all accumulated power-sector dues by the end of this fiscal year, as it prepares for a crucial third review of the current International Monetary Fund (IMF) loan package next month. Officials warn that this significant financial undertaking could lead to a higher-than-expected budget deficit, potentially impacting various sectors, including the vital Ready-Made Garment (RMG) industry.
To address the massive debt, estimated to require Taka 450 billion or more in the coming seven months, the interim Government will seek consent from the IMF regarding a possible rise in the budget deficit. Currently, the Government’s budget deficit is aimed to remain within 5 per cent of the Gross Domestic Product (GDP), but the clearing of power dues may push it closer to that threshold.
Senior finance officials have highlighted concerns over a revenue shortfall, exacerbated by recent political turmoil that has affected revenue generation. As reported, the revenue target had already seen a Taka 307 billion shortfall as of October, and experts predict this gap could widen due to various economic factors, including tax cuts on essential items.
The implications of a rising budget deficit are particularly significant for the RMG sector. As one of Bangladesh’s key industries, any increase in power costs or supply disruptions—partially attributed to ongoing arrears and political instability—could escalate production costs and impact the industry’s competitiveness in international markets. The RMG sector relies heavily on stable and affordable electricity to power factories, and delays in payments to power suppliers, such as the Indian Adani Group, highlight the precariousness of this dependence. Adani recently reduced its electricity supply to Bangladesh due to outstanding payments.
Furthermore, experts have indicated that the public sector’s expenditure may not decrease as anticipated and could rise due to various factors stemming from the recent regime change. This dynamic could further exacerbate the budget deficit situation while limiting resources for crucial investment in infrastructure and support for growth in the RMG sector.
In response, the Government is considering a dual approach for clearing these dues—both through cash payments and the issuance of bonds. A bond issuance worth Taka 50 billion is expected to be launched soon, as the Bangladesh Power Development Board (BPDB) seeks approval from the finance ministry.
The IMF has been emphasising the need to reduce the backlog of power-sector dues under the terms of its US $ 4.7 billion lending program. Discussions surrounding the Government’s commitment to clearing these dues and negotiating an acceptable budget deficit will be a focal point during the IMF team’s upcoming visit to Dhaka from 3rd-17th December.
