Reduce fuel oil price by Tk5-10 a litre: CPD

The Center for Policy Dialogue (CPD) has urged the government to reduce fuel oil prices by Tk5-10 per litre.

Towhidul Islam Khan, senior research fellow at CPD, stated at a programme, titled "Economy of Bangladesh 2022-23: Third Interim Review", on Saturday that a reduction in fuel oil prices would lead to a decrease in power prices and the required budgetary subsidies.

He also highlighted the point that a monopoly market lacks efficiency and emphasised the need for the Bangladesh Petroleum Corporation (BPC) to supply fuel oil at competitive prices.

At the event, the think tank emphasised that the upcoming budget should prioritise the restoration of economic stability and the establishment of a fair distribution system.

The organisation also presented an analysis of the current state of different sectors of the economy and put forth several recommendations for the future.

Mentioning that Bangladesh's economy is currently experiencing the most critical phase in recent history, it said that the objectives of the macro and financial framework should be established with a consideration of the current realities in mind.

Fahmida Khatun, executive director of CPD, said that policies should be formulated considering the needs of small and medium entrepreneurs as well as the general public.

She stressed that any reforms should prioritise the national interest while also considering the conditions set forth by the International Monetary Fund (IMF).

She said that in the current state of the economy, the biggest challenge is to bring stability to the overall economy in the next financial year. If the necessary initiatives for stabilisation are not taken and properly implemented, the situation will worsen.

She underscored the importance of controlling inflation and external pressures, along with fostering coordination between fiscal and monetary policies. Additionally, she stressed the need for legal reforms to mitigate the issue of non-performing loans in the banking sector.

Fahmida Khatun mentioned that the revenue collection target for the current financial year will not be achieved, leading to a projected deficit of 75,000 crore for the National Board of Revenue (NBR).

In light of this reality, she emphasised the necessity for the NBR to explore new avenues for revenue generation. She further advocated for specific measures to address these concerns in the budget for the upcoming financial year.

On subsidy, inflation and remittance

According to the CPD analysis, subsidy management should consider the broader economic context. Abrupt reduction of subsidies in a particular sector can have repercussions on the overall economy. The CPD emphasised that agricultural subsidies should not be withdrawn, as such a measure would jeopardise food security.

The CPD recommended a phased withdrawal of subsidies in the export sector, considering it necessary. It also highlighted the high level of subsidies in the energy sector, often resulting in inefficiencies and wastage. The CPD further stressed the need for a more rational approach to fuel oil pricing.

Addressing the need to identify the root cause of inflation, the CPD stressed that prices of numerous products in the international market are actually declining. By solely attributing the liability to imports, one may overlook internal issues. Certain opportunistic business groups are taking advantage of this situation while the common people bear the brunt of the problem.

Additionally, to combat inflation, there is a need to raise the interest rate in banks. However, in Bangladesh, the interest rate is fixed. When the interest rate is set at 9% and inflation surpasses that rate, loans become more affordable. Several countries, such as the USA and India, have successfully managed inflation by adjusting interest rates, noted the think tank.

The CPD highlighted the decrease in remittances as a concerning factor, noting that it does not correspond to the significant number of people migrating abroad for work. Consequently, there is a need for thorough monitoring and in-depth analysis of this issue.

'Unprecedented challenges in economy'

During the question and answer session at the programme, Professor Mustafizur Rahman, distinguished fellow of the CPD, said the present economic situation is characterised by unprecedented challenges, with the lowest GDP growth in the past eleven years (excluding the year impacted by the Covid-19 pandemic), accompanied by the highest inflation rate in the last decade. Additionally, foreign exchange reserves have reached their lowest point in seven years.

"It is crucial that the upcoming budget prioritises equitable distribution and the restoration of economic stability as its guiding principles in response to these circumstances," he said.

He said that Bangladesh would need to maintain foreign exchange reserves at $24.46 billion in the IMF's accounting system by June. Consequently, effective reserve management has become a critical concern. In light of this fact, it is crucial to transition towards a market-based exchange rate system.

Khondaker Golam Moazzem, research director of CPD, laid stress on the fact that the macroeconomic crisis is severely impacting the fundamental aspects of the economy.

"The current policy instruments employed by the government have proven ineffective, and persisting with these measures could result in a further entanglement and exacerbation of the macroeconomic crisis," he said.

He stressed the importance of including economic reforms in the election manifestos of political parties for the forthcoming national elections to address and mitigate the crisis.

He said that the government should stop the capacity payment of power plants. A 'no electricity no pay' clause should go into the new contracts.