The World Bank (WB) has attached a string of conditions including adjusting the prices of oil, power and gas to the $150 million fourth tranche of its Development Support Credit (DSC).

The Bank for the first time made the conditions public before disbursing the budgetary support. In an information note to media, the WB specified six of the recommended actions, with tabling the Procurement Law in the next session of parliament at the top.

The second action on the list is raising the prices of petroleum products and natural gas to "close the gap between local prices and import costs and to reduce the losses of the Bangladesh Petroleum Corporation".

The third action is adjusting household and reducing industrial power tariffs and improving the Power Development Board's billing and collection systems.

Then comes addressing the power crisis by bringing in private power producers through a "transparent and competitive bidding process laid out in the government's own regulations and guidelines".

The next action mentioned is selecting a strategic buyer for Rupali Bank through a "transparent and competitive process that meets Bangladesh Bank's 'fit-and-proper' criteria".

The last one is approving the organogram for the Bangladesh Energy Regulatory Commission "without which it cannot function".

So far the Bank has given $700 million in three installments of what it calls "policy-based credit". To decide about the DSC-4, a WB team visited Bangladesh from March 28 to April 6 to review the progress of DSC-related reforms.

"World Bank's DSCs are policy-based credits which support an agreed program of policy reforms, which may be sectoral or institutional in nature. The team concluded that while considerable progress had been made, sustained effort was needed by the government in a number of key reform areas supported by the latest credit, DSC IV," the information note reads.

According to the note, the Bank "sees governance reforms as crucial to improving the investment climate in Bangladesh and empowering the poor." So, the Bank has supported a broad reform agenda undertaken by the government through a series of DSCs, which it says are quick-disbursing funds going directly into the government's budget to finance the gap between revenue and expenditure.

EP Desk

Bangladesh to Face Further Fiscal Burdens for Hike in Oil Prices: ADB

Asian Development Bank (ADB) has said a further rise in oil price would intensify fiscal burdens on many countries, including Bangladesh, those did not fully adjust earlier price increases.

The bank warned if Asian central banks tighten policy to anticipate the inflation due to rising of energy cost, the impact of the latest oil shock could be worse.

"Although high oil prices have so far had only a moderate impact on Asian economies, a further rise in price could tighten constraints on growth," The Business Times quoted an ADB senior economist Cyn-Young Park as saying.

ADB estimates a further US$ 10 increase in the price above current level of around US$ 70 a barrel would cut Asia's growth by 0.2 percent in a full year, reduce the aggregate trade balance of the region by 0.5 percent and raise consumer prices by 0.5 percent, the economist said in a published report.

In Thailand, Taiwan, Malaysia, the Philippines and Singapore, growth slowed by more than 1 percentage point last year compared with 2004, partly as a result of higher oil prices, the ADB said.

On the downside, Cyn-Young Park warned countries that did not fully pass through earlier price increases to consumers, such as, Bangladesh, India and China, will now find themselves facing larger fiscal burdens.

Economists and donors are saying that Bangladesh's economy is facing tremendous challenges, mainly due to continued rise in fuel prices and a further rise could affect the economy badly.

"Any further rise in oil prices would aggravate the effect and could exacerbate global imbalances, possibly triggering their disorderly unraveling," Park was quoted as saying in a report in The Business Times, Singapore.

Asian currencies have appreciated against the US dollar (not in Bangladesh), making oil price hikes more manageable in local currency terms, and inflation has remained relatively low compared to historical levels, Park said. Interest rates are also low, so that there is room for further increases, Park said.

EP Desk