Soaring Prices in the Crunch Time May Impede Economic Recovery Ahmad Bhuiyan

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The recent price hike of fuel & essentials in Bangladesh has dealt a double blow to the poor and low income classes. On top of their sufferings, they are also finding it increasingly difficult to meet their daily necessities. From transportation to commodity markets, ignition is everywhere. The Covid-19 Pandemic has halted economic activities and quite understandably, affected livelihood as well. The South Asian Network for Economic Modelling (SANEM) reports that 42% of the population has fallen below the poverty line during the span of the pandemic.
After the second wave of Covid-19, confidence among businesses has begun to regain in the country. Comparing to June this year, businesses started to function well in September-October. Communications, light engineering, tourism, textiles, readymade garments, information technology industry were doing well to recover. But spiked price in fuel & the essential commodities may delay their economic recovery.

The path to economic recovery is not smooth. They have to move forward after overcoming many obstacles. The first major obstacle in the way of economic recovery was the restrictions imposed on the control of covid. Traders also blamed declining export orders, rising raw material prices, collapse in supply chain and declining demand, despite the easing of restrictions. Consumer could buy local onions at Tk40 per kg, now it costs tk. 60-65. Despite there being no festival or occasion, the price of broiler chicken has reached 170-180 per kg, which is between Tk120 to Tk140 in usual times.

The price of coarse rice in the market has reached tk. 50 and medium quality costs 54-58 a kg. If the price of an item goes up, its effect on the lower class is several times higher. When the prices of essentials become incompatible with the financial well-being of the people, there is no end to the misery of the poor and ultra-poor families.
The Ministry of Food collects grains every year. Its main objectives are to build strong food security stocks and to assist farmers to get fair prices. But the grains collection targets were not fulfilled most of the time because of the middlemen who sell the grain to the government, not the farmers and they charge higher prices. Farmers have no choice but to sell the crop quickly to pay off the debts incurred for the cost of production.

In the interest of the farmers, the government procures paddy and rice from the domestic market at a higher price than the market price through subsidy. But regrettably, this subsidy does not benefit the farmers; full benefit goes to the pockets of the rice mill owners, middlemen and peddlers. In order to keep the grains within purchasing power, grains need to be collected directly from farmers. And the related administrative process needs to be easier for them.
Moreover, the economy, trade and commerce have not yet fully recovered from the impact of the pandemic. Among them, the prices of fuel oil and LPG have been increased. According to media reports, the price of diesel and kerosene has been increased by tk. 15 per liter. The price of 12 kg LPG cylinder has been increased by Tk 54. Not only that, there are reports of increase in the price of auto gas. This increase in fuel prices in difficult times will put more pressure on business and public life.
The country’s fuel market is import-dependent. Rising prices in the international market have adversely affected our energy sector. The world market has been volatile for some time. Fuel prices are rising there. Naturally, the government’s losses are increasing due to the subsidized sale of imported fuel products. In this context, the price of fuel has been increased in another phase, adjusting with the international market.

At present, all the countries around the world are engaged in economic recovery. Respective governments are fighting hard to get their economy back on track by recovering from the epidemic. In this situation, the continuous rise in the fuel price in the world market has become a cause of serious concern for many countries, especially the import-dependent countries. Some countries have already taken steps to adjust the prices of fuel products to keep pace with the international market. But in this case, the issues of economy, trade and public interest are serious concern.
The repercussions of rising fuel prices are multifaceted, not one-sided. Concerned parties say that raising the price of diesel will directly increase the cost of transportation. Indirectly, the cost of production of agricultural products of all products will increase. 16 percent of fuel oil is used in agriculture. As a result, the cost of irrigation will go up. It will also have a negative impact on power generation. Oil is still 32 percent of the country’s power generation capacity. Expenditure will increase there too. Again, the increase in the price of kerosene and LPG will increase the cost of cooking fuel in rural and urban areas. At the same time, the increase in the price of auto gas will also increase the fuel consumption of private cars as well as small public transport.
In the meantime, it is being reported that bus fares have been increased arbitrarily due to the rise in fuel prices. The transport owners have stopped the movement of public transport and freight vehicles across the country demanding official increase in bus-truck fares. In the end, the government was forced to increase the rent under the pressure of the owners. That being said, the impact of rising fuel prices will be even more oppressive on people of all classes and professions, especially the poor.

The latest increase in fuel prices was in 2013. Since then, the price of fuel oil in the world market has been declining. It was argued that BPC has been a loss-making company for a long time. From March-April this year, the price of fuel oil has started rising in the world market. The question is, in these few days, the company’s profits have been exhausted, for which the price had to be increased? Is it necessary to increase the price of fuel only when people are disoriented due to the volatile situation and rising prices of daily necessities? Instead of increasing the price, many are saying that BPC’s profit should be given as a subsidy to the people in difficult times. This will bring some relief to the economy and livelihood. At the same time tariffs can be reduced like in India and other countries. At present, about 34 percent tariffs and taxes exist on energy products in the country. If it is reduced a little, it will be much more comfortable for the consumer, business and commerce. Therefore, considering all the aspects, the government’s prudent and effective initiative is the demand of the time.
Fuel is a strategic product. If its price goes up, it has an effect on the price level. Due to this, there is a risk of declining purchasing power and standard of living of people with fixed income. The whole economy is under pressure. That is what is going to happen at the announced new price. Above all, the ongoing economic recovery may be hampered.
Without raising the price of fuel oil, the government could have given the same incentives in the case of fuel as it did at the beginning of the Corona epidemic. If subsidies were given instead of increasing prices, its benefits would reach people of all walks of life. It remains to be seen how traders will adapt to the fears of rising raw material prices in various industries.
Therefore, it is important for the state leadership to reconsider the issue of inflation and to subsidize the fuel or to evade tariffs on imported fuels.
The writer is an independent analyst on international & economic affairs.