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Don’t hike fuel, fertiliser, gas prices: CPD

Staff correspondent 
24 Dec 2021 00:00:00 | Update: 24 Dec 2021 12:28:43
Don’t hike fuel, fertiliser, gas prices: CPD

To cushion farmers, manufacturers and the general people from the colossal Covid-19 pandemic fallout, the Centre for Policy Dialogue (CPD) has urged the government not to hike fertiliser, gas and fuel prices.

The government is reportedly considering an upward adjustment of gas and fertiliser prices at one go to ease the subsidy burden. CPD called on the government for a downward adjustment to keep production costs low and minimise inflation rates. At a briefing on its review titled “State of the Bangladesh Economy in FY2021-22” revealed on Thursday at its office in Dhaka, CPD noted the macroeconomic stability is not in a comfortable state anymore.  

‘Further fuel price hike unwise’

It said the government should reduce diesel prices to curb a spike in production costs. The recommendation came from the think-tank when farmers started preparing to cultivate Boro rice, which contributes more than half of the total rice production. 

CPD said the government increased diesel prices by 23 per cent to Tk 80 per litre and added that the use of petroleum was widespread in agricultural production, transportation and milling of rice. As a result, rice production and marketing costs are likely to go up.

The independent think-tank also suggested a re-estimation of the annual national demand for rice. 

Hence, a cost-driven rise in harvest price of upcoming Boro rice would further create inflationary pressure in the coming months, said CPD Executive Director Fahmida Khatun.

“With the prevailing economic situation, it would not be wise to hike the prices of gas, fertilisers and fuels in line with the upward trend in the global markets. This is because of ensuring protection for farmers and manufacturers as price hike will send the cost of production,” CPD Distinguished Fellow Mustafizur Rahman said.   

On the other hand, in 2022, the prices of gas, fertiliser and fuels would be very challenging due to the Covid-19 pandemic impacts. If the government increase prices to adjust with the global market, it would hit the people hard. 

The government can use the previous earnings to reduce subsidies, Rahman added. 

Earlier, the government took Tk 45,000 crore surplus from BPC. If it hadn’t been taken, the government could have used it now, said Rahman. 

Though the government’s revenue collection increased, the tax to GDP is declining, making it challenging to create fiscal space, he added. 

‘Revitalise lost reform, good governance agendas’

Fahmida Khatun, in her keynote presentation, said high food inflation in the domestic market during the pandemic,

particularly during the later phase (in 2021), is likely to be influenced by structural weaknesses in the rice value chain.

The global market’s price trend influences the local market to a certain degree primarily for the imported commodities, she added.

The government must revitalise the lost reform and good governance agendas to address the newly emerging challenges, the CPD recommended.

It said the government should take the necessary steps on the competition commission’s role needs to be strengthened, particularly for the market for essential consumer goods. Bangladesh Security Exchange Commission, Bangladesh Bank and other key government organisations need to be strengthened.  

Fahmida Khatun said their findings indicate that Tk 2,500 is insufficient to sustain one household for one month, even when considering only the cost of food.

Disbursement of the government’s Covid-19 liquidity support for small businesses, farmers, and low-income professionals should be expedited immediately, CPD said.

The banking sector’s fundamental flaws will make it difficult for the government to deliver the considerable amount of liquidity support it pledged in response to Covid-19. Furthermore, the delivery of stimulus packages through the banking system has opened up new opportunities for corruption and fraud, CDP noted.

‘Recovery not sustainable’

In the coming days, repayment of loans supplied through stimulus packages may become a concern which could worsen weak banking governance.

The 2 per cent cash incentive on inward remittance should be continued and investment in wage earners’ bonds should be encouraged to dissuade transfer of money through informal channels given the widening gap between official exchange rate and curb market rate, it said. 

CPD Research Director Khondaker Golam Moazzem said that Covid-19 is seeing changes in economic recovery in the near future but this recovery is not sustainable. Many sectors already had weaknesses, including the macroeconomy, inflation, and the stock market. 

The country GDP growth is positive. However, the policy can be wrong if there is no correct information on people’s income, employment, and consumption, said CPD senior research fellow Towfiqul Islam Khan.

He said big business had received incentive support well due to lack of information. “The small businesses did not get it due to institutional weakness. This will have to be emphasised in the forthcoming budget to provide additional incentives for the proper recovery of the economy,” he noted.

‘Macroeconomic stability not in comfortable state’

During the early months of FY22, the economy was on a recovery trajectory, led by export-oriented sectors, but the macroeconomic stability is no longer comfortable. 

“The trends of key macroeconomic correlates during the early months of FY2022 evince that many of these are in a recovery trajectory, led by export-oriented sectors,” Fahmida Khatun. 

Within the external sector, robust growth in export earnings and import payments and the rise in overseas migration depict clear signs of recovery, she said.

Although the remittance inflow has been exhibiting negative growth compared to the very high benchmark of the preceding year, it is still higher than the corresponding period of the pre-pandemic year, said the think-tank.

“Consequently, policy space for tackling the prevailing and emerging challenges has become comparatively limited.”

It said trends in recovery, emergent risks and the available policy space should receive due cognisance while designing and implementing policy responses. “The government needs to opt for a focused and targeted expansionary fiscal policy reinforced by accommodative monetary policy,” CPD said.

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