Financial meltdown, a boon for consumers, power contenders?

FE Team | Published: December 24, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

Shamsul Huq Zahid
The decline in commodity prices in the global market has been sharper in the last quarter than the rise in the three previous quarters of 2008, thanks to the ongoing global financial meltdown.
Notwithstanding the possible ill-effects of the meltdown on some major areas of the Bangladesh economy, including exports, remittance and aid flow, it (meltdown) is seen more as a blessing by millions of poor and low income consumers.
The prices of food items, fuel, construction materials etc., have marked a decline, though not as sharp as it is being witnessed in the international market, for the last three to four months. However, a section of unscrupulous businessmen is blamed for this lower than expected response of the domestic market to the developments in the international market. But they, too, would be compelled to give in if the ongoing downtrend in commodity prices persists, which seems to be a real possibility.
The fall in prices of food and fuel items has pushed the rate of inflation (point-to-point) down to 6.12 per cent, lowest in last 22 months, in November last. Predictions have it that inflation might go down further to 5.0 per cent by the end of the current fiscal.
For all types of consumers, particularly the poor and low-income ones, the price situation would be a less worrying factor, at least, in the future months. The government, too, is a beneficiary of the meltdown, though the benefits have come too late to enjoy. The incumbent caretaker government, to be honest, earned people's disfavour because of the soaring prices of essentials despite the fact that the former, though was caught unprepared initially, did its best to stabilise the situation.
Whichever of the two major parties - Awami League (AL) or Bangladesh Nationalist Party (BNP) - comes to power through the December 29 general elections would have reasons to feel comfortable as far as price situation is concerned. The global commodity market will be, largely, taking care of that particular issue.
Both AL and BNP have put the price issue at the top of their respective election manifestos. At least, the people would find the new government successful in fulfilling its one of the main election commitments within a very short time.
The global meltdown and its impact on the commodity market, at least, for the current financial year, apparently, have made fiscal management on the part of the government rather easy. For, the decline in the prices of some items, petroleum products and fertilizers in particular, has saved funds worth taka several billion that the government has earmarked in the national budget as subsidy.
The government has cut prices of fuel oils domestically on a couple of occasions. But the reduction is much less compared to the fall in the prices of crude oil in the international market, from $ 147 a barrel in July last to $ 39 last week.
Similarly, according to a news report, a drastic fall in the prices of urea fertilizer in the global market would help the government save Tk. 50 billion. The government would have been required to spend the said amount as subsidy had the urea price stuck to its peak price level-- $815 a tonne, of July last. But the price of urea which started going up since the early part of the current calendar year plunged to $247 a tonne last week.
The country imports nearly 1.3 million tonnes of urea (0.5 million tonnes from Karnaphuli Fertilizer factory) every year out of its estimated requirement of about 3.0 million tonnes.
The government, meanwhile, in June last had raised the retail price of urea by over 100 per cent, to reduce, at least partially, the rising amount of subsidy it provides to the item. Now that the price of urea has hit the rock bottom, the government is, reportedly, considering diversion of the subsidy fund to other development purposes.
But, will it not be fair to reduce the financial burden that was imposed on the poor farmers earlier in the wake of abnormal rise in cost of procurement from the international market?
The government policymakers do need to follow the present rice price situation closely. Despite a record Aman rice harvest this year, the prices of rice have not come down to a noticeable extent because the farmers cannot afford to sell the same at lower prices. Their cost of production has gone up substantially due to the 100 per cent hike in fertilizer prices.
The political parties are free to pledge to bring down the price of rice at Tk. 15 or less. But that, in all practical purposes, amounts to day-dreaming. For, at the current price of fertilizers, seeds, pesticides and diesel, growers are not in a position to sell rice below the existing price level.
So, making available farm inputs at lower prices (the drop in fertilizer prices in the international market has created a scope for doing so) can help the rice prices to go down to some extent.
The major political parties in their election manifestos have promised to provide higher subsidy to the agriculture sector to increase production and help the food price to come down. The next government, hopefully, would be in a better position to avail itself of the opportunity created by the global financial meltdown to accomplish its mission of raising farm production.