The government should hike prices of petroleum products in phases, local private think-tank, CPD, said Wednesday, calling for interventions to lessen the "relative impact" on the transport sector.
"The government adjusted oil prices in April 2007, although diesel subsidies continued," executive director of Centre for Policy Dialogue (CPD) Mustafizur Rahman said Wednesday.
"Since then oil prices in the international market have rocketted to US$132 a barrel. At least the government can raise the prices of octane and petrol without hiking those of diesel and kerosene. This should be done in the upcoming budget," Rahman added. He was speaking a press briefing to disseminate findings of the CPD's annual interim review of the country's economy.
The CPD executive chief, however, noted that the government must intervene in a way so that the 'relative impact' of price hike does not unsettle the transport sector.
"Mechanisms will have to be designed so that marginal farmers and low-income people get the necessary transfers to offset the adverse incidence of any such price adjustments," the CPD chief said.
He said support given to farmers this year to adjust to diesel prices could serve as 'a reference point' in this context.
Oil prices, which were about $70/barrel at the beginning of the current fiscal, rose to $132 in May 2008, resulting in a 52.4 per cent rise in import payments for crude petroleum.
His comments come just weeks after the finance adviser Mirza Azizul Islam hinted that the government is ready to spike the petroleum prices in the foreseeable future. "It's just a matter of time to announce the hike," Islam said.
Calling the upcoming financial year 'a threshold' one, Rahman said the next elected government should run the country in a way so it cannot imperil the country's economic management.
"The interim government will implement the first six months of the next fiscal while the elected government will be responsible for implementing the rest of the fiscal 2009. So this time is challenging for the economy," he added.
Rahman said inflation control and investment promotion are the two major challenges as the economy approaches the new fiscal year.
He said a bumper boro crop of about 17 million tonnes has ensured that the crop losses of 2.0 million tonnes would be largely offset and total foodgrains availability will be at levels similar to those of FY 2007.
"This is likely to have positive impact on food prices and inflation, albeit only insignificantly," he added.
He suggested that the government give urgent attention to timely availability of fertiliser, electricity, diesel and good quality seeds to boost food production.
As the fiscal deficit is set to cross the 5.0 per cent mark, he said addressing the growing gap is another major challenge facing the economy.
He said high fiscal deficit of 5.0-6.0 per cent of GDP can be tolerated in view of global inflationary pressure and higher public expenditure.
But given the future expenditure burden, the deficit will have to be 'carefully managed.'
He warned that cost of doing business in the country would rise with double-digit inflation remaining unchanged in the fiscal 2009.
Although ADP (annual development programme) implementation rate remains sluggish, Rahman said any drastic cut in the size of the upcoming development budget would affect public investment.
To ensure energy security, the CPD executive director said the interim government should approve the coal policy so that democratic government faces no setback.
He said the government should take necessary measures to set up coal-fired power plants as it plans to install 30 plants across the country.
