Fuel price to drag down Bangladeshi economy

The fuel price rise following global oil price increase has started biting the economy of Bangladesh as consumer prices have already soared several times.

Economists and financial experts here fear that negative impact of the oil price hike has started effecting the economy and the fuel price rise will further fuel the inflation rate, which might rise to 10 percent.

Debapriya Bhattacharya, a noted economist of the country, said fuel price rise will cause inflation and production cost of industrial goods will go up. Bhattacharya also said the rise in fuel price will also have negative impact on the agricultural sector, the mainstay of the economy.

He said the fuel price rise will stiffer the price line of essential items, which will ultimately hurt the low income group people.

"Rise in prices of petroleum products will reduce the loss of the government in the sector, but there is a question of how the government will face all negative impact on the economy," Bhattacharya said.

He said, as a result, the real income of the consumers and workers will come down. The agricultural sector will be in trouble as the prices of agricultural goods will not come down.

But the pressure on the government in regard to foreign currency payment will ease, he said.

Bangladesh Petroleum Corporation last year suffered a loss of 415.38 million US dollars for petroleum products alone.

Salehuddin Ahmed, governor of Bangladesh Bank (BB), the central bank of the country, said the second oil shock traumatized by hurricane Katrina, which raised the oil price by more than 40 percent to around 70 US dollars a barrel, has at least threefold impact on Bangladesh's economy: making thin the foreign exchange reserve of the country, putting pressure on fiscal stance and fueling inflationary situation.

Import payments for petroleum products augmented drastically by 62 percent in fiscal year 2005-06 against only 29 percent in last fiscal (July 2004-June 2005), which has caused additional payments of more than half a billion dollars, squeezing foreign exchange reserve position.

Industry sources have expressed concern that the latest rise in prices of petroleum products will increase the production cost of major export items and basic industrial goods by 10 to 12 percent.

This would reduce the competitive edge of Bangladeshi export products and harm the country's overall industrial growth.

They said the oil price rise will surely cause a dominos effect in transportation, power generation, house rent and employee allowances, which will result in high production cost.

Source: Xinhua