Bangladesh feels the heat of Ukraine invasion
The far-reaching implications of an ongoing rally in oil prices amid Russia's invasion of Ukraine have already descended on Bangladesh as the state-owned Bangladesh Petroleum Corporation (BPC) is losing Tk 19 crore per day.
Before the war in Europe even began, oil prices were already lodged in an upward trend as demand for the fuel outpaced production after global economies started to rebound from the Covid-19 pandemic.
But with Russia, one of the largest oil suppliers in the world, now engaged in battle with Ukraine, the threat of supply disruptions has only made things worse.
With oil topping $110 a barrel, economists said the subsequent impact on Bangladesh's economy can be seen in rising import payments, fall in export receipts, pressure on the exchange rate, rising commodity prices and soaring inflation.
BPC Chairman ABM Azad told The Daily Star that the way fuel prices are increasing in international markets is a matter of concern.
"We are monitoring the global situation and informing the government about daily updates," he said.
Azad informed that the higher authority has instructed them to continue working on keeping fuel supplies normal.
Octane prices reached $114.28 per barrel on March 1, up by about 11 per cent from $102.73 on January 31, according to Platts Asia Pacific/Arab Gulf Marketscan.
The price was $90.04 on January 3.
BPC officials said not only diesel, but also the price of all types of fuel is now in an upward trend in international markets.
Due to such price hikes in the global market, BPC is incurring losses of Tk 13 per litre when selling diesel and Tk 6 per litre when selling octane.
As such, BPC's daily losses have now reached Tk 19 crore.
"We already raised the oil price but the latest hike is alarming for Bangladesh as once the oil price grows, so too does the price of gas, fertiliser and other commodities," said Prof Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
Besides, the cost of other imported products is also rising, he added.
On November 3 last year, BPC raised the price of diesel by 23.1 per cent to Tk 80 per litre.
Due to an increase in the cost of imported products, there is a big pressure on import inflation and it could intensify further.
Such a situation will cause uncertainty and aggravate the difficulties of economic management, especially macroeconomics, Rahman said.
He went on to say that macroeconomic management in the country will face a number of challenges and for that, fiscal measures such as adjusting or waving tariffs is important to rein in the unbridled commodity prices.
The failure to properly manage the situation is also responsible for the soaring inflation. As a result, consumers are having to buy products at higher prices.
"So, market monitoring and intense negotiation over bringing products from the global market at competitive prices has become important," Rahman added.
According to Zahid Hussain, an eminent economist, the pressure on external balance and the exchange rate will deepen due to the rising fuel costs.
"The external current account deficit in the first half of fiscal 2021-22 had already reached a record high of over $8 billion due to a steep increase in import payments and significant deceleration in remittance," he said.
In addition, increases in global commodity prices in the aftermath of this crisis will fatten the import bill further.
"There may not be any major impact on remittance assuming migrant workers in the war-affected part of Europe will not face any complications in transferring money, but the persistence of a high current account deficit implies continued pressure on the exchange rate," Hussain added.
Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said the war is not being waged only on Ukraine's soil as it is in full throttle in the economic front with various sanctions and other measures.
The implication of these sanctions on global trade and commodity prices are high as prices would go up, and there will be pressure on Bangladesh's balance of payments.
"As a small open economy, Bangladesh is a taker since we have to bear the implication. It appears that the war on the economic front could be prolonged, even if the military operations ends," Khan added.
He said the global commodity prices are on the rise and this will increase import bills, inflation and the cost of production. The second issue is that foreign aid and foreign direct investment will also be affected.
Strengthening microeconomic strategies is important as it is now threatened by rising inflation, deterioration of the balance of payments, and instability in the foreign exchange market.
"It is important for us to control prices to support the purchasing power of middle and low income people, and the government should broaden the reach of the Trading Corporation of Bangladesh to supply subsidised products to marginal, limited income and poor people," Khan said.
"Also, international commercial transactions and business dealings should be carried out with utmost caution now so that they can avoid difficulties for violating sanctions", he added.