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Dhaka, Mar 9: The International Monetary Fund has asked aid-dependent Bangladesh to raise state-regulated fuel prices to ease pressures on the economy, although suggestions of such a move have recently sparked protests.

Both the IMF and the World Bank have been pressing impoverished Bangladesh to cut fuel subsidies -- meaning a rise in retail prices -- to free up funds to pursue development objectives and help the poor.

But even a slight hint of such a rise in prices from Finance Minister M Saifur Rahman last month set off widespread protests by farmers and opposition parties, which forced him to backtrack.

The issue was raised in a written statement, seen by Reuters on Thursday, from Thomas Rumbaugh of the IMF's Asia and Pacific Department, who led an IMF mission to Dhaka on March 1-8.

''The majority of the benefits from the fuel subsidy accrue to better-off households rather than to the poor. With an appropriate pricing policy, the government would have room to provide more services to low-income groups,'' Rumbaugh said.

Prices of petroleum products in Bangladesh were significantly below international levels, he said, and over the last two years Bangladesh had passed through only about a half to two-thirds of the world oil price increase to retail prices.

''The present policy entails considerable and growing economic costs, mainly benefits higher income consumers, reduces economic efficiency, and only delays the inevitable adjustment as losses continue to mount at the energy sector SOEs (state owned enterprises) and the financial position of nationalised commercial banks deteriorates,'' Rumbaugh said.

The inability of the energy companies to repay banks has also dried up liquidity in the money market, the statement added.

''Moreover, oil import growth remains strong in the absence of incentives to improve fuel efficiency and in the face of cross-border smuggling. This has also contributed to pressure in the foreign exchange market,'' Rumbaugh said.

Poverty Reduction: The IMF team was in Dhaka to discuss economic development and progress under a three-year IMF Poverty Reduction and Growth Facility (PRGF) that was approved in June 2003.

The facility initially covered lending commitments of some $493 million, which was increased by about $75 million to help Bangladesh cope with the removal of textile export quotas at the end of 2004.

The IMF has disbursed about $409 million to date.

Energy officials said Bangladesh's fuel import costs in fiscal 2004/05 (July-June) practically doubled to $1.56 billion.

In 2004/05 Bangladesh imported 3.5 million tonnes of crude and refined oil products.

It last increased prices of diesel, kerosene, petrol, octane and furnace oil in September 2005, by an average 16.66 percent, energy officials said.

Diesel and kerosene account for more than 80 percent of the petroleum products consumed in Bangladesh, where only 32 percent of the country's more than 140 million people have access to electricity, officials said.

Economists said any price increase would hurt farmers as they largely depend on diesel and kerosene for irrigation and other purposes. The population in general would suffer from a rise in public transport fares.

REUTERS