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The government should not raise fuel prices in the current fiscal year despite their record spike in global markets to give some respite to the people buckling under pressures for rising costs for essentials, said the Centre for Policy Dialogue (CPD) and economists yesterday.
They argued that since there is fiscal space for the government to absorb the international price shock, it would not be tough for Bangladesh if it decides not to adjust the fuel price in line with the global markets.
“The government should not take the risk of raising the prices of fuels in the current fiscal year as people are under pressure because of the price hike of essential goods,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.
“The government has enough fiscal space to absorb the shock emanating from the global market volatility.”
He spoke at a media briefing on Bangladesh’s economy in the changing global scenario, organised by the CPD at its office in the capital.
If the government doesn’t increase the prices, Hussain explained, it would need to take an additional subsidy burden of Tk 35,945 crore.
He said though the budget for 2021-22 was expansionary when it was unveiled, it became a contractionary one in the first six months owing to slow implementation.
Taking the budget implementation and the experience of the previous fiscal year into consideration, the fiscal space might be a maximum of Tk 94,900 crore and a minimum of Tk 28,500 crore, according to a calculation of Hussain.
“Therefore, it will not be difficult to absorb the extra burden at least in the current fiscal year.”
Crude petroleum prices were creeping up even before the conflict in Ukraine. The Russian invasion of Ukraine sent crude oil prices rocketing close to record levels of $140 per barrel before falling to $107 last week.
And Hussain described the oil price surge as abnormal, saying it would come down.
“If the price keeps upward trend, the government can think of adjusting it in the upcoming fiscal year.”
The economist also called for formulating a mechanism on how the price adjustment would take place.
This is because if a mechanism is put in place to adjust the oil price in line with the global market, businesses will be happy since it would help them make an informed investment decision as the price movement is a major concern.
M Tamim, a professor of the Department of Petroleum & Mineral Resources Engineering at the Bangladesh University of Engineering and Technology, blamed the managerial error for the disproportionate price hike of fuels in Bangladesh compared to international markets.
“The bus fare has also risen disproportionately to the price hike of fuel in the country. We are now suffering owing to the higher fuel price because of mismanagement, not because of the war between Russia and Ukraine.”
Fahmida Khatun, executive director of the CPD, said any hike in the fuel prices would have multiplier effects on inflation so the government should not pass on the cost to consumers now.
“A price hike now may increase the production cost and stoke inflationary pressure,” she said, adding that Bangladesh is already suffering from increased prices of essentials compared to that of the international market.
Apart from oil, commodities such as aluminium, coal, copper, natural gas, nickel, tin, wheat and zinc have hit historic highs on supply fears globally.
The struggle for the poor and the low-income groups began with the outbreak of Covid-19 in early 2020 and the situation has now worsened for the unabated rise in the prices of essentials, said the CPD.
In Bangladesh, there is a tendency to blame external factors for higher prices even if certain commodities don’t have any connections with the global demand, said Fahmida.
The prices of rice, edible oil, egg, beef and sugar increased more in Bangladesh than in international markets, she said.
“A litre of milk is now more expensive in Dhaka than in Ostrava of the Czech Republic or Malaga in Spain. A dozen of eggs in Dhaka are now more expensive than in Dayton of the US and or Cyberjaya in Malaysia.”
“However, our average monthly income is much lower than in those countries.”
Although the prices of essential items have risen, the inflation rate is, surprisingly, not depicting the real scenario, according to Fahmida.
“This is because the weight of the measurement of inflation has remained the same since 2005. Time has come to change the food basket to calculate the inflation.”
Towfiqul Islam Khan, a senior research fellow of the think-tank, blamed manipulation and lack of efficiency as potential factors for the higher prices of essentials in Bangladesh than in global markets.
“The government should focus on it as inflationary pressures will hamper a sustainable and inclusive recovery from the pandemic since the real purchasing power of many people will erode, widening inequality.”
“Considering the more adverse impact on the vulnerable and marginalised groups, all available policy tools should be used to control food inflation.”
Khan called for curbing tax evasions to generate resources for priority expenditures.
The CPD recommended beefing up the market monitoring so that commodity prices remain under control during the fasting month of Ramadan, which is less than two weeks away.
It also suggested expanding the operations of the open market sale of essential commodities under the state-run Trading Corporation of Bangladesh and managing the distribution of the products efficiently so that only eligible people can access the subsidised items.
“The government should provide direct cash support to the poor and extend stimulus packages to small businesses to help them survive in this difficult situation,” said the think-tank.
Prof Mustafizur Rahman, a distinguished fellow of the CPD, and Shah Md Ahsan Habib, a professor of the Bangladesh Institute of Bank Management, also spoke at the media briefing.
(TDS)
