Home ›› 08 Aug 2022 ›› Editorial
The year started out relatively well for Bangladesh, with the country’s economy showing gradual recovery from the Covid-19 shock, and export earnings displaying a promising growth when compared year-on-year.
However, the situation started going downhill after the Russia-Ukraine war began in February, triggering a series of geo-political crises and causing a ripple effect that would hit not only Bangladesh, but every corner of the world.
The high global inflation – a direct consequence of the war – caused the prices of essential commodities, especially fuel and industrial raw material, to skyrocket. But recent fuel prices showing a downward trend in the international market gave us hopes of a slight respite.
These hopes however were dashed completely when the government announced an unprecedented hike in fuel oil prices at a time when the struggling masses are already dipping into their savings to stay financially afloat. The fuel price hike will hit the people, agriculture, businesses and industries severely, by pushing their living and operating costs to new, never before seen heights, and affecting every aspect of the society.
Commuters across the country are the first to bear the brunt of this decision. Long-haul bus fares have already been raised by 22 per cent from Tk 1.8 per km to Tk 2.2, while the fares in Dhaka and Chattogram metropolitans rose by 16 per cent from Tk 2.15 per km to Tk 2.5.
Quoting economists, a report published by this daily on Sunday mentions that the fuel price hike might have been introduced to meet International Monetary Fund’s (IMF) conditions to avail the $4.5 billion fund, reduce pressure on subsidies and save foreign exchange.
However, this decision will have a major impact on inflation as the diesel price hike can set in motion a chain reaction, causing transport fares, agro and industrial production costs to rise significantly.
This will increase overall trade costs, and severely disrupt productivity. Bangladesh is already facing the pressure of inflation, and the abnormal increase in fuel prices will put the public in double jeopardy.
Previous experiences show that once the prices of fuel oil go up, the price of everything – from the transportation to electricity costs – will rise in an unreasonable manner.
Had the revenue gone up in proportion to the GDP, there would not have been a need for this drastic price adjustment. The tax-to-GDP ratio of Bangladesh is now lower than Nepal or Bhutan.
The key reason behind the energy price hike is to reduce pressure on subsidy. The government had allocated over Tk 82,000 crore subsidies in the budget for FY23, and of the figure, Tk 17,000 crore was for the energy sector.
Besides, the government may have also hiked the fuel oil prices as part of the preliminary preparation to avail the IMF loan.
Critiquing the drastic hike in fuel oil prices, a number of economists have recommended reducing the discrimination in the subsidy system. Those who use more fuel are getting more subsidies.
In other words, more subsidies are going to the rich, and Bangladesh needs to change this system. The Bangladesh Petroleum Corporation (BPC) says its losses will not go down even after hiking the fuel oil prices so much. This means there is a lack of transparency in the price increase. This is a serious issue, and the government should look into the matter as soon as possible. Moreover, the IMF has not recommended an increase in fuel prices but rather a revision of the pricing system. At the same time, the IMF also recommended reducing the debt of the power sector, finance ministry sources said.
If Bangladesh wants its middle and low income segments to survive the ongoing economic crises, and keep the dream of LDC graduation alive, the country should adopt formula-based pricing for setting fuel oil prices. The IMF too suggests this type of pricing system and it is a more transparent system.