Oil fallout and austerity measures

The World Bank has also been pressing the government to raise fuel prices for "rationalising their price levels" in the domestic market. The Bank tagged this as a precondition for disbursing the $200 million development support credit. The government spends about $2 billion for importing fuel per year. Last year the government spent an extra $7 million for importing fuel. Besides fulfilling a set of conditions to get the third installment of World Bank's Development Support Credit (DSC), the government has been compelled to raise the fuel price. The visiting six-member World Bank team led by its South Asia Sector Director Sadiq Ahmed, conveyed this condition to Finance Minister M. Saifur Rahman on August 30 during a meeting with him.

It also ought to be mentioned that the prices of kerosene, petrol, octane, and diesel have been increased eight times since the BNP-led four-party alliance government came to power in October 2001. In fact, the price of kerosene has been increased by 100 percent during the period of this alliance government, which is a record for price hiking. Presently 68 percent people of the country living in the rural areas depend on kerosene for lighting their houses (electricity has not yet reached). The prices of diesel and kerosene have so far been increased 22 times since the independence of Bangladesh.

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The recent price hike of diesel and kerosene will raise the cost of both irrigation and transport, leading to hike in prices of agricultural products and increase in transportation fares. Diesel and kerosene account for over 90 percent of petroleum products consumed in the country, making it easy for the government to generate huge revenue by slightly hiking their price. According to an informed source, 20 lakh metric tons of diesel were sold during the 2003-04 fiscal year and the agricultural sector shared some 60 percent of the total diesel consumed in the country. There are seven hundred and fifty thousand pumps for irrigation across the country, of which nearly 70 percent are powered by diesel. Energy Ministry source said that 36 lakh metric tons of petroleum products are consumed in the country in a year, of which 18 lakh metric tons are diesel and 3 lakh metric tons are kerosene.

Transport is another sector where diesel is widely consumed. Most of the public transports are diesel-driven. The owners of the diesel-driven buses, minibuses, and trucks are now seriously planning to raise fares indiscriminately, violating the existing rules and regulations, against the backdrop of the recent price hike of diesel. The bus and truck fare is like to rise by 20 to 30 percent as the government has very little control on the transport sector. Increase in the transportation fares is sure to push up the prices of all essential commodities which already were showing an upward trend.

Bangladesh is already facing a high inflation rate of nearly 10 percent. The annual rate of inflation calculated on the basis of consumer price index, has increased to 7.35 percent by the end of September 2004, according to the latest available statistics with the Bangladesh Bureau of Statistics. The rate of inflation was 4.13 percent at the end of September 2003, just a year back. Food price was increased by 9.98 percent, while such increase was only 2.89 percent just two years ago. Officially, inflation is running at 7 to 8 percent, but a more realistic estimate is 10 plus. The inflation will be further fuelled by the recent price hike of diesel, petrol, and kerosene, and the suffering of the common people of the country is likely to be intensified.

It is true that in recent times fuel prices have gone up tremendously in the international markets, affecting the global economy. While the oil price in the international market has shot up beyond $70 a barrel, Bangladesh would have to bear at least $200 million subsidy a year if the fuel prices were not raised. But that is only one side of the picture. The other side, which is the hard reality, is that such a raise would hit hard the poorer section and hamper cereal production. The recent fuel price hike would deal a severe blow to both the marginal and big farmers as the cost of crop production will rise further.

India has also raised the price of diesel and petrol by nearly 7 percent on September 6 to bring them more in line with global oil prices. It raised the price of diesel by 2 rupees a litre and petrol by 3 rupees a litre. Prices of kerosene and cooking gas were left unchanged. Analysts in India said the price rise was expected but did not match the increase in global rates. India's biggest left party, the Communist Party of India, said it would oppose the price hike and ask the Prime Minister to reconsider the move, as the price hike will hit consumer spending, and people now will have to shell out more money for fuel rather than spending on other items.

High oil prices have become a "national security threat" in the Philippines due to increased inflation and the opposition using the issue to agitate against President Gloria Arroyo. "If the price of oil goes beyond $50 a barrel, that is a serious problem already and it should be discussed as a national security threat." The comments came from the Finance Secretary Margarito Taves, who announced plans to abolish excise taxes and trim tariffs on imported oil products to mitigate the impact of record-high crude prices.

The recent fuel price hike is likely to affected the economy of the general masses very hard. The leading economists of the country suggested the government take austerity measures to face the oil shortfall. They felt, as immediate measures, the government needed to switch off the billboards, extend weekly holiday to two days, and save daylight by changing office hours. The government has now declared two-day weekly holiday aimed at energy conservation and keeping 17 percent government motor vehicles off the road. The decision was taken at a cabinet meeting with Prime Minister Begum Khaleda Zia in the chair on September 5. The meeting also fixed the office hours of the government, semi-government, and autonomous bodies from 9am to 5pm on working days. Converting all petroleum-based power plants into gas-fired plants within the next five years to meet the economic crisis was another step.

Soaring oil prices are eating into the foreign exchange reserves of the country and have heavily strained the balance of payments position. The country's oil bill is likely to rise to around $2 billion this fiscal year, up from $1.5 billion, marking a 54 percent increase over the previous fiscal year. To address the fuel crisis, the government has decided to go for austerity. The government is expecting to save around Tk 160 crore a year as fuel consumption in the transport sector after introduction of the two-day weekly holiday. According to the Energy Ministry, the daily consumption of octane on week-days is 390 tons, petrol 394 tons, and diesel 1,600 tons, on average. According to the power division, during the weekends, power consumption shrinks by around 200 MW from the usual rate of 3,100 to 3,300 MW. They estimated that around Tk 40 crore can be saved because of the additional 52 weekly holidays. The government is also considering cutting unnecessary expenditure to save more than Tk 6 billion as part of its austerity measures in the wake of downward adjustment of customs duty and oil price-hike in the international market. It will also save money by stopping purchase of new cars and utilising contingency fund for making up revenue losses.

The extravagant way in which the government and autonomous bodies have been working over the last many years has frequently been a cause of embarrassment for the nation. For a resource-constrained country, it often becomes a matter of shame when a big delegation travels abroad as entourage to the Prime Minister. Austerity ought not to be confined to the matter of restrictions on the foreign visits of high government officials only. Ministers' visits outside the country also call for review, as the high expenditures incurred by our foreign missions by way of providing protocol facilities to them often make a mockery of our economic conditions. The government functionaries use vehicles beyond their allotted number and time. Even members of their families liberally use the government vehicles. This should be stopped forthwith in order to curb the misuse of fuel. Therefore, the challenge for the government is to adopt proper policies for managing the clandestine economy and strict enforcement of austerity measures to whittle down all unnecessary expenditures.

The author is a freelance contributor to The Daily Star.