Energy price hike not a prudent policy

Ten dollar rise in the price of oil produces a half a percentage point fall in the global GDP. At a time when oil prices are tumbling in the international market there is no rationale to justify a hike in the price of gas and electricity by the Bangladesh authorities. Approval of the policy pending before the oil and gas authorities of Bangladesh will contribute to an increase of Tk.10 per cubic meter of the price of compressed natural gas (CNG), used as an alternative fuel for transportation.
Fuel price hike will have enormous consequences on the nation's export competitiveness by increasing the cost of transportation of goods. At the primary level, an increase in the price of fuel and electricity will produce a rise in the cost of living - wages, housing, healthcare, food prices, consumer goods and transportation.
Impact of higher cost of living will increase the demand for salary and wage increments. Goods and services produced by the private and public sector are expected to rise commensurate with the increases in wages, transport fares and energy prices.
Hike in fuel prices will increase the cost of transporting raw materials and finished products to and from the ports and factories. Higher cost of labour and raw materials and production costs will erode the export competitiveness of the nation.
During the last couple of years the government has increased the price of petroleum - such as, octane, petrol, kerosene, furnace, oil and diesel, and compressed natural gas. Gradual increases in the price of fuel have been announced periodically to avoid drawing public attention to a much greater scheme to do away with the subsidy on fuel prices. Reducing subsidy on fuel, electricity, and gas for residential use has been justified by the government on grounds of the higher prices prevailing in the region. Better results could be achieved by an effective policy to plug the holes that drain out funds from the national exchequer.
This would relieve the pressure on the budgetary allocation for development expenditures - such as, the rental power plants and multi-billion dollar investments in the energy and infrastructure sectors. Although energy prices may be about the same or a bit more in the regional economies, consumer prices are a lot lower and are more reasonable across the region.
This gradual reduction of the fuel subsidy has been largely prompted by the multilateral agencies - especially, upon advice from the International Monetary Fund and the World Bank, International Bank for Reconstruction and Develop-ment. Rise in the price of gas and electricity acts as a threat to the country's competitiveness. Attrition of the competitiveness is bound to cause a drastic decline in the export revenue. A fall in export earnings will inevitably lead to an increased dependence on external assistance and depress economic growth.
A gradual withdrawal or phase by phase reduction of the subsidy may have been more effective in dealing with the need for reducing governmental subsidy. Escalating energy prices is a threat to economic well-being and stability of Bangladesh. Withdrawal of subsidy only hastens the realisation of laissez-faire - espoused by the multilateral institutions. Withdrawal of subsidy will have an adverse impact on the economy by fomenting unrest and political instability.
Although Bangladesh is politically leaning towards a more self reliant economy, the loss of competitiveness will only worsen the economic conditions and push the country into further indebtedness and delay the attainment of the 2021 vision of becoming a middle income economy.  

The writer is Senior Advisor, ENERTECH International Inc.
rsheikh5@aol.com