Though most market-based economies including the neighbouring India fix fuel prices in sync with the day-to-day trends in the international market, in Bangladesh it is government-administered and, of course, in most cases, subsidised. However, economists and experts in the relevant field as well as the multilateral lender IMF which granted loan worth US$4.7 billion early this year, have advised against the existing fuel pricing policy and suggested the government to do away with the burden of subsidy to increase fiscal space in the budget. From the earlier pronouncements of the state minister for power, energy and mineral resources, it appeared, the IMF-recommended fuel pricing system was going to be implemented from next Friday, September 01. But according to a report published in this paper on Monday last, the government seems to have temporarily abandoned the idea, to all appearances, on populist grounds, especially with an eye to the upcoming general election.
If the dynamic fuel pricing mechanism ---as it is called--- that responds to the real-time market situation (demand and supply of fuel in the domestic market, its price trends in the international market etc.) is introduced, it might then lead to further escalation of fuel price impacting negatively the consumers who also constitute the entire electorate. Also, to avoid any backlash against the move from the petrol pump operators and the everyday consumers of fuels, the government has slowed down the process, so goes the report. Ostensibly, from similar concerns, it refrained from a monthly power tariff hike by 5.0 per cent, though the government had actually followed this practice between January and March this year.
It may be recalled at this point that the government hiked the prices of fuels between 42.5 per cent and 51.7 per cent, a historic high, in one go in early August last year much to the dismay of the same stakeholders and consumers of fuels. The fear that fuel price would go up in a market-driven automated system is also not well-founded. It may also go down as it did some months back and, in that case, consumers could amply benefit from a fall in the fuel prices in the international market if there were an automated pricing regime in place. One may recall here that as a result of the existing government-dictated fuel price regime, between 2014 and 2021, when the fuel price in the global market was low, the domestic consumers could not derive any benefit from it. On the contrary, the government agency, Bangladesh Petroleum Corporation (BPC), that imports, distributes and markets fuels made windfall profits to the tune of Tk420 billion during that period. So, the question arises about the practicability of earmarking a huge sum of money as subsidy for fuel, which was around Tk 820 billion in the previous fiscal (FY23). However, except an allocation of subsidy amounting to Tk1.1 trillion for power, fetiliser and food, there has been no direct allocation for fuel in the current budget (FY24).
Whatever the case, the government's backtracking on its plan to initiate an automated, market-dictated system that would fix domestic fuel prices on a quarterly basis taking into account the ups and downs in the global fuel market and later, switch to a monthly pricing regime based on an international benchmark, risks raising more questions than it answers. Notably, the government in its Memorandum of Understanding (MoU) signed with the IMF agreed to go for zero subsidy policy on fuel. In any case, the government would do well to focus more on the long-term benefits of the consumers than on any short-term one driven essentially by expediency while deciding on an issue as sensitive as fuel price.
