Bangladesh has also been facing the heat of this global economic turmoil. Import cost has already soared due to hike of prices of all types of products including fuel and food stuff. The remittance earning has decreased. Deficit in current income is USD 1869.70 crore (over 18.69 billion), which is the highest in the last 50 years. This means the dollar crisis has appeared as income of foreign currency has decreased. As a result, the value of taka is decreasing. All of these have been hitting the forex reserve hard. The inflation rate is rising because of all of these. In this context, the government has hiked the prices of fuel oil from 42 to 51 per cent.
Decision at a wrong time
Before the onslaught of coronavirus, China devalued its currency by a large margin to retain its export capacity. China devalued Yuan by 33 per cent between 2015 and 2019. Because of that decision of China, competing countries were also forced to take the same path. That was termed as currency war. Bangladesh was the exception. Though the economy was at a better condition, Bangladesh Bank retained the value of taka despite calls from the exporters. The central bank, however, was forced to devalue the taka but at a rather tough time. In the last seven months, taka has been devalued against each US Dollar by Tk 8.90. Still the crisis persists. The current crisis would not have been hit with such a magnitude if the money was devalued little by little, the economists said.
The oil price dipped to the lowest point in history in 2014. The price was less than USD 50 per barrel. Until 2020, the price was low. The oil price started rising when the economies started rebuilding process following the Covid-19 infection. But the real crisis started after the break out of Russia and Ukraine war on 24 February. Almost all the countries felt the shockwave when the prices of fuel oil, metallic goods, food stuff and fertiliser started rising. At a stage, oil price rose to USD 120 per barrel. Then the government said the price of oil will not be increased for now.
Finally, the government hiked the oil price at such a time when price of almost all types of goods including oil is decreasing fearing recession globally. The oil price decreased to lowest point on Friday since February, almost USD 95 per barrel.
In a report ‘Global Commodity Insights’ Standard and Poor's said for now the price explosion in fuel, agricultural and metallic goods has ended. The price will go on dipping because of the symptoms of recession. Just at that time, this price hike of fuel oil up to 51 per cent has astonished all and the general people have become panicked. Though some people have acknowledged the rationale of increasing the oil price taking the global situation into consideration, none has been saying the rate of hike as tolerable. The entrepreneurs have have expressed their concerns. The question is why the government had to take this path?
The government is cash-strapped
The government is actually cash-stripped. On the one hand, the income of foreign currency has decreased, and on the other, the income in local currency has not increased too. The income tax-GDP ratio in Bangladesh is among the lowest in the world. That means, though GDP has increased, the income of the government has not increased. Though people’s per capita income has been rising, the income tax is not rising. As a result, the earning is almost being finished in paying salaries and allowances, interest of loans, subsidy and grants. Some of the remaining money is being used in development projects. Amid this, the government falls in extremely critical situation whenever expenses in any one sector shoot up suddenly. That has happened now.
In the budget of 2021-22 financial year, the allocation in subsidy was Tk 420 billion (42,000 crore). But, the expenses rose to Tk 660 billion (66,000 crore) as cost of import in power, fuel and other sectors increased. The subsidy allocation in the current 2022-23FY budget is almost Tk 830 billion (83,000 crore). The financial year has started just now but the government does not want to bear the subsidy cost at this moment. As a result, the people who have been passing days in high inflation rate will have to bear the whole burden of loss in fuel oil. The government is not even relaxing the 32 per cent of duty the National Board of Revenue (NBR) gets from oil import as the income from duty is low. The Bangladesh Petroleum Corporation (BPC), however, made a huge profit of Tk 430 billion (43,000 crore) between 2014 and 2020 by buying oil at low price and selling that to the people at high price.
Regarding this, distinguished fellow at Centre for Policy Dialogue (CPD) Debapriya Bhattacharya told Prothom Alo that hiking the fuel oil price or taking such a step is symptom, not the disease. The disease is the government has increased growth but could not increase the collection of revenue. The government is actually in crisis of cash now. It can be said that a poor government of a country with high growth rate that does not have money to spend. The main reason for this is inefficiency in revenue collection. So, either the high income that has been talked about was illusory or could not show efficiency in tax management. Because, it could not collect income tax from the persons, the coterie and organisations that made huge profit due to the government’s patronisation, rather, they have been given opportunities to whiten their black money or the money they laundered.
Day of cheap money is over
Bank for International Settlements (BIS), the organisation of all the central banks of the world, said availing money has become easier and cheaper for the last few years. Almost all the countries decreased interest rate. Stimulus packages provided during the time of Covid was also cheaper. All are trying to curb that supply of money to decrease the pressure of inflation rate. That’s why so far 75 central banks have increased interest rate. That means almost all are using monetary policy to curb the inflation rate.
Only Bangladesh is the exception. New governor of Bangladesh Bank, Abdur Rouf Talukder said he will not bring changes in interest rate. That means, the interest rate that was made 9 per cent under pressure from the businesspeople will remain so. Though it has been seen that a large portion of the loan, taken at a low interest rate, has become defaulted. As a result, the government has been providing new benefits.
Interest rate is globally recognised as main weapon to curb inflation rate. Besides, some duty policies are also taken. For example, increase the tax rate, controlling import, decreasing the government’s budget. The government is adopting these measures. The experts, however, have questions on how far this would be effective. Because, almost everyone apprehends inflation rate would increase because of the margin at which the fuel price has been hiked. As a result of this, though the government’s expenses will decrease a bit, people’s expenses will soar. Earlier in 2012-13FY, the inflation rate increased up to 12 per cent following hiking the price of fuel oil.
In the preceding years, Bangladesh focused on achieving high growth rate. But it did not take sufficient steps to increase the income tax-GDP ratio. The financial sector is under the grip of influential people, no reform was carried out in the sector. Money laundering has not decreased. Amount of foreign investment is negligible. Export income is mostly dependent on one type of product. The central bank could not come up with an effective monetary policy to control the inflation rate. Though power generation has increased, primary fuel required for the sector is almost wholly dependent on import. The country could not increase its efficiency in energy sector. The fallout of these structural problems was not felt much during the better days. But everything has become sources of danger during this time of crisis. Experts think the governments actually have not carried carried out any reform almost in the last 18 years. The economy has been bearing the brunt of all these. In this context, the crisis will not be over unless large structural reforms are made.
* The report, originally published in the print and online editions of Prothom Alo, has been rewritten in English by Shameem Reza