Fuel price hike will impede economic development

The recent announcement of the government to increase fuel price has created dissatisfaction among general people. This kind of sudden price adjustment is inconsistent with the integrated strategy of government to make Bangladesh a developed country.

Government has been engaging 360-degree effort to eradicate poverty from Bangladesh. Poverty declined to 13.8 percent in 2016/17 while it was 44.2 percent in 1991 (Source: World Bank). Such journey of progress got halted last year due to unprecedented outbreak of Novel Corona Virus.

Since 2020, the emerging economy of Bangladesh has been experiencing a sluggish movement in various macro-economic parameters which includes GDP growth, private credit growth, export, import, FDI etc. WB estimated that a 7% more people would again enter into the poverty zone as a result of lockdown state of last year.

Revenue and cash flow of commercial enterprises sharply declined last year which forced them either to shut down or squeeze their production facility due to low amount of demand. As a consequence, they had couple of choices: reduction of worker's pays or cutting jobs. Any of the choices is forcing marginal people to struggle in managing their livelihood.

On top of that, price of most of the essentials at kitchen market has taken an upward trend since July 2021. Middle and lower income group are experiencing unseen sufferings for the reduction of income and price hike of essentials. Amid this vulnerable state, the decision of price revision of fuel undoubtedly demands a review.

It's true that oil price in world market is experiencing an upward trend recently after coming out of sharp decline in 2020 (Brent oil price per barrel: $37.46 in Oct 2020, $84.38 in Oct 2021). Bangladesh Petroleum Corporation (BPC), a state owned enterprise imports oil for all sectors of the country. Hence, any kind of subsidy on account of oil import generates cash deficit for BPC.

We never believe in "loss financing" while this is not the right time for BPC to reduce or recoup loss. The rise of oil price will provoke the price-rise of essentials, production cost of export products including RMG and other local commodities, transport cost.

After a sharp decline of export business last year, Bangladesh is now obtaining more orders from RMG buyers. If the price of the export products increases due to higher production cost, it is likely that other exporting countries will grab the export business from Bangladesh.

Diesel is comprehensively used in irrigation for paddy cultivation. The price hike of diesel will increase the price of the staple food of Bangladesh. In fact, price hike of fuel will increase the production cost of all products and services intended to be consumed inside Bangladesh. Therefore, profit of both quoted and unquoted firms will go down.

It will have a negative impact on stock market also. In a nutshell, oil price hike is expected to slow down all local economic activities and may adversely affect GDP growth rate.  To get back to previous momentum, government should take initiatives which will increase the economic activities to vibrate the economy.  

One of the most critical challenges of Bangladesh economy is inflation. Oil price-rise may wipe out the advantages of economic growth. Bangladesh has been demonstrating a tremendous performance in keeping inflation rate within a target range (5-5.5%). This ongoing impressive trend of inflation and poverty reduction rate must be uninterrupted to achieve different milestones set by the government.   

Mohammad Zahid Hossain is a management consultant. He can be reached at: mohammad.z.hossain@gmail.com