Modalities on financing the diesel price reinstatement cost

The government on November 3 hiked diesel price by 23 per cent to Tk 80 per litre on the ground that the crude price had soared in the international market. Crude has gained more than 60 per cent this year as the roll-out of Covid-19 vaccines lifted movement curbs and, subsequently, pushed up oil demand. An energy crisis is gripping major economies with no sign of easing even as big oil producers remain firm on restrained supplies. Countries like Bangladesh are feeling the heat of the soaring prices of imported crude petroleum. Our government has not endured the fiscal pressure out of the soaring fuel price in the international market as it passed the burden to struggling commoners and businesses. It has hiked transport fares and the transport owners have subsequently hiked bus fares way more than what was fixed.

On Wednesday, two local think tanks—CPD and SANEM—urged the government to reinstate the previous prices of diesel and kerosene to shield consumers and businesses from the price pressure hit. Terming fuel price hike unreasonable and a wrong political decision, Dr Fahmida Khatun, executive director of CPD, said, “Such price hike refers to an increase in costs of transportation, agriculture and electricity -- all contributing to the rise in overall costs of living that will hit end consumers hard.”

There is no denying that the cost of newly adjusted diesel price will have domino effects on Bangladesh’s consumers, agriculture and businesses. 

However, Finance Minister AHM Mustafa Kamal on the same day at another occasion said the government had to earn revenue to meet its huge expenditure. “Without revenue, the government won’t be able to implement development projects,” he added.

“The government does not print money. So, the burden of the increased fuel price in the international market has been shared with the public,” Kamal said after a meeting of the Cabinet Committee on Purchase on Wednesday.

The finance minister has obviously referred to resources to foot the bills of development projects and other government costs. Now question arises how much money the government has to count if reinstatement of previous oil prices takes place. 

According to a report published in this daily last week, the Bangladesh Petroleum Corporation incurred losses to the tune of Tk 1,800 crore from August to October, meaning a loss of Tk 600 crore per month for marketing diesel in the domestic market at lower than its procured rates. The government has to provide subsidies to the tune of Tk 7,200 crore for a year if rates are reinstated to the previous level. If the prices of crude goes beyond the current level and hits $85 per barrel, the extent of loss could be as high as Tk 10,000 crore a year.

We are forwarding a number of fiscal measures for the government that could be implemented to offset the Tk 10,000 crore in subsidy, as a result of reinstating the previous fuel price.

The current Annual Development Programme(ADP) involving 1,426 projects has a budget allocation of Tk 2,25,324 crore. Many of the projects included in the ADP will be implemented in three to five years. The government can either exclude some less important development projects, or extend their implementation period and easily divert a portion of resources for fuel subsidy.

Under the given situation of weakening economy, austerity measures could be undertaken, cutting expenditure on vehicle purchase for projects and lessening foreign tours of public servants. Increasing surcharges on wealthy people could also be considered to augment tax income. At the same time, a portion of salary cut on public servants for one year is not altogether a bad idea as they have been entirely immune from the financial shock arising from the Covid emergency in the country.

If the proposals are not acceptable to the government, it can borrow an additional Tk 10,000 crore from domestic sources. The amount will bloat the deficit size to Tk 2,24,681 crore, but would not stoke inflation further. The finance minister need not print money, as idle cash keeps piling up in the banking sector. To implement Tk 6,03,681 crore national budget for the current fiscal year, the government estimated Tk 2,14,681 crore as budget deficit. 

The government can borrow another Tk 10,000 crore to shield consumers and the struggling business community. Imposing extra financial burden upon all segments of politically muted life who are struggling to cope with the yet to be normal economy is not called good governance and cannot be termed good macroeconomic management.

We hope good sense will prevail.