Kazi Zahidul Hasan :
Crude oil prices have shot to a five-month high settling at US$74.51 dollar per barrel on Thursday. The price increase has been driven primarily by the prospect of a decline in oil supply from OPEC and other top exporters.
Officials and Economists say that the rebounding oil prices could take a bite of Bangladesh’s economy by widening fiscal and current account deficit.
“The upward spiral in international crude oil prices would push up Bangladesh’s oil import bills renewing pressure for oil price subsidy,” a high official of the Energy Ministry told The New Nation yesterday asking not to be named.
Crude oil prices have increased over 30 per cent since the beginning of 2019 and now it reached over US$70 dollars per barrel from US$47 in June 2017 and below US$30 dollar in 2016.
“The recent rise in crude prices, if sustained,” oil import would become more expensive putting additional burden on the national exchequer,” said the Energy Ministry official.
BPC spent $3.67 billion for importing 68 lakh tonnes of petroleum products in last fiscal year.
The State-owned corporation is set to import 75 lakh tonnes of oil in the current fiscal year (2018-19) with an estimated cost of US$4.85 billion.
“BPC is now incurring Tk 12-15 crore as day losses from oil trade in domestic market,” a BPC official told The New Nation adding that if the domestic oil prices are not revised upward, it will widen BPC’s losses further. The BPC already sought Tk 8,500 crore as subsidy from the Finance Ministry to foot oil import bills for the current fiscal year. “The rising oil import bill can exacerbate the country’s fiscal and current account deficit and thereby pose challenges to various macroeconomic fronts,” former Finance adviser to the Caretaker Government Dr AB Mirza Azizul Islam told The New Nation on Friday.
He said it might also weigh on already weakened local currency, which is expected to depreciate further as a result of balance of payment pressure caused by rising oil import bills.
“A sustained period of oil price increase may force the government to hike the domestic oil price which may fuel inflation,” added Mirza Aziz.
He cited that international crude oil prices have started to trend up after remaining fairly stable for much of the last two years. This along with rise in the prices of other commodities could exert inflationary pressure and have the potential to adversely impact on the economy. “Bangladesh is a net importer of oil. The price volatility will make oil more expensive creating various macroeconomic imbalances,” Lead Economist, World Bank’s Dhaka Office Dr Zahid Hussain told The New Nation.
He said that the recent hardening of oil prices would have negative impact on the country’s overall trade position and current account. The local currency is expected to continue to face depreciation pressures reflecting several factors including widening current account deficit.
