Experts warn negative impact on Bangladesh govt finance, exports

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The rocketing international price of oil will have a negative impact on Bangladesh, hitting government finances through increased subsidies and weakening the buying power of the country's major export markets, experts warned yesterday.
On Wednesday the oil price hit US$100 a barrel for the first time, providing a new jolt to oil-dependent economies, particularly the United States.
However even in less developed countries such as Bangladesh the impact of high energy prices will be felt, economist, bankers and exporters told The Daily Star.
Centre for Policy Dialogue Executive Director Professor Mustafizur Rahman said due to the latest oil price hike in the international market the government subsidy for importing oil will increase significantly, as the government re-fixed the domestic oil price in April last year when the price was $ 55 a barrel in the international market.
Even before the latest price hike it was estimated that the government would have to spend Tk7568 crore as subsidy on diesel and kerosene in the 12 months from July 2007 to end June 2008, the current fiscal year, according to a report by finance ministry experts.
Mustafizur Rahman said government borrowing from domestic sources will increase, creating more budgetary pressure.
“Thirdly, if the oil price continues to rise or remains at the present level in the international market, the government may need to revise the oil price in the domestic market,” he said.
“However, it is not the right time to adjust the domestic price of oil in line with the international price, since the government is already reeling under inflationary pressure,” he added.
A senior banker seeking anonymity said the hike in oil prices will not only create a pressure on foreign exchange reserves but also create an extra burden on the government due to the increasing cost of subsidies.
The Balance of Payment, which is already negative, will be pushed further into the red, he said.
However, he said the healthy level of foreign reserves and the steady inflow of remittances meant the country could manage.
“Now the question is how long the government will subsidise without re-fixing the oil price or what will be the price when the government decides to adjust it,” he said.
He also feared that the taka may depreciate against the greenback if there is a huge outflow of dollars because of the increases in costs of imports.
He said there is a positive impact of the oil price hike as it "will now focus attention on alternative source of renewable energy."
Annisul Huq, a garment exporter and former president of Bangladesh Garment Manufacturers and Exporters Association, said if the increase results in substantially higher fuel costs for consumers in the USA and Europe, it will affect their buying power.
Bangladesh garment exporters will feel the pinch of less consumer spending in key export markets.