Fuel price hike to push up transport and production costs, worsen inflationary pressure: Selim Raihan

The government's latest fuel price hike will further pressure inflation by raising transportation, production and supply costs, economist Selim Raihan warned today (21 September).

The government yesterday increased the retail prices of diesel, octane, petrol and kerosene by Tk20 per litre, with the revised rates taking effect from today. 

In a Facebook post today, Selim, executive director of the South Asian Network on Economic Modeling (Sanem) and professor at the University of Dhaka's Department of Economics, identified three major concerns facing the country's economy.

On the fuel price hike, he said the higher prices will increase transportation, production and goods-supply costs, creating fresh pressure on inflation.

He stated that the government's strategy for containing the resulting inflationary pressure remains unclear. 

There is no discussion about institutional weaknesses in the energy sector and the excessive tax burden on the sector, Selim said. 

Selim also warned that government expenditure and borrowing pressures are increasing.

He said government spending on areas such as social protection and salary increases is not keeping pace with the growth of government revenue and its sources. 

As a result, the revenue deficit will widen, increasing the government's dependence on borrowing to finance the gap, he added. 

He said no clear plan is visible to address the growing pressure. 

Selim also pointed to stagnation in private investment, warning that it may create significant uncertainty over future economic growth and employment. 

He attributed the weak investment environment to both economic and non-economic factors, including political instability, mob culture, uncertainty over government and policy continuity, law and order, administrative complexities and bureaucratic barriers.

The economist also cited weaknesses in governance and institutions, social instability and labour-related issues as factors discouraging private investment.

Private investment is not increasing and there are no visible signs of improvement in the situation, he said. 

As a result, Selim warned, significant uncertainty has emerged over the country's future economic growth and employment. 

Notably, this is the second time the BNP government has raised fuel prices since assuming power in February this year. The previous hike came in April.

Under the revised rates, diesel has been raised to Tk135 per litre from Tk115, a 17.4% increase.

The price of octane has increased to Tk165 from Tk145, equivalent to a 13.8% hike.

The price of petrol has been raised to Tk160 per litre from Tk140, or a 14.3% rise.

Kerosene will cost Tk155 per litre, up from Tk135, a 14.8% increase.