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Roundup: Soaring Oil Prices Bring Trouble to Bangladeshi Economy By Zhu Feng

Posted on: Thursday, 18 August 2005, 09:00 CDT

Roundup: Soaring oil prices bring trouble to Bangladeshi economy

by Zhu Feng

DHAKA, Aug. 17 (Xinhua) -- Soaring oil prices in the global market have already started biting the economy of Bangladesh, with economists and business leaders calling on the government to act promptly to cope with the situation.

They suggested the government go for austerity measures to cope with the negative impact of soaring oil prices, which touched the highest ever 67 US dollars a barrel last week.

They also felt that the government should extend the weekly holidays to two days and change the office timing as immediate measures and suitable steps that will cut fuel cost as there is a prediction that oil price would go up to 75 dollars a barrel.

Authorities of the Bangladesh Bank, the central bank, are anxious as the surging oil prices are eating up its foreign exchange reserve, which was 2.83 billion dollars on Aug. 13, a central bank official told Xinhua Wednesday.

Two state-run commercial banks are in trouble as they are not getting back their loans from Bangladesh Petroleum Corporation ( BPC), also a state-owned body with the task of importing fuels, which owes 272.72 million dollars to those banks. The BPC is now at a staggering loss of 409 million dollars last fiscal year (July 2004- June 2005).

The BPC annually imports 3.7 million tonnes of petroleum products. Its annual import bill of petroleum products has jumped to around 2 billion dollars from 1.5 billion dollars earlier.

Sonali Bank, one of two commercial banks, has been paying around 200 million dollars a month for import of petroleum products, which was around 150 million dollars before the oil run.

Meanwhile, Bangladesh's commercial banks are in a serious dearth of dollar, which is hampering opening of LCs (Letter of Credit) for import of raw materials needed for consumer goods.

The prices of consumer goods have soared to a great extend, which has become a political issue of the opposition political parties.

In an unprecedented step, Finance Minister M. Saifur Rahman on Tuesday slashed tariff rate of 3,352 items between 7 percent and 15 percent to apparently in a bid to reduce the prices of consumer goods and meet the World Bank's conditions that tariff protection has to be lowered to get more aid. Release of aid is immediately required to better the foreign exchange reserve.

Bangladesh's exporters and people working abroad are watching the situation thinking that taka will be more weaker against the greenback resulting in a lower flow in the remittances.

Bangladesh Employers' Federation (BEF) President Syed Nazrul Elahi in a statement Tuesday said the rising global prices of petroleum products posed a serious challenge to the economy of this South Asia nation with a population of 140 million.

"The increasing import bills for petroleum and shrinking demand for exports not only threaten the balance of payment, but also dislocate the overall economic development," a BEF leader said.

"The threat underlines the need for drastic measures like austerity," he said. As the first step, the BEF suggested week-end holidays might be two days in all government offices, which Finance Minister Saifur Rahman Tuesday said the government can consider.

Dr Debapriya Bhattercharjee, Executive Director of the Center for Policy Dialogue (CPD), said the government is still not recognizing as a whole the problem posed by the oil price hike.

"We haven't developed any energy conservation plan," he pointed out.

"We need to line up oil on more concessionary finances, we have to put a brake on fuel use too."

The economist identified a number of measures that needed to be taken immediately, including energy saving, advancing office hours and augmenting gas supply to substitute fuel. In a critical situation, filling stations can ration fuel supply.

He also suggested that the macroeconomic issues such as exchange rate, interest rate, inflation, import regulations and public expenditures have to be improved or cut to tackle the situation.

Source: Xinhua News Agency - CEIS

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