The government’s decision to raise fuel prices will hurt all sections of society

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The mad rush to the gas station at 11:45 p.m. after the government suddenly announced a fuel price hike. PHOTO: PRABIR DAS

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The mad rush to the gas station at 11:45 p.m. after the government suddenly announced a fuel price hike. PHOTO: PRABIR DAS

It is very difficult to find any logic behind the government’s sudden decision to raise fuel prices, especially as global oil prices are starting to fall – this week US oil prices fell below 90 USD per barrel, compared to USD 120 just two months ago. The government justified its decision by referring to previous global price hikes, as a result of which Bangladesh Petroleum Corporation (BPC) incurred losses amounting to around Tk 8,000 crore. However, it should be remembered that when the price of oil was generally low in the past, prices in Bangladesh were not reduced. At the time, the government saved a significant fund from the profits earned – around Tk 47,000 crore over a few years. Why, then, has the government not adjusted for this discrepancy with the funds it has saved from past profits, which only exist because people have paid more than was necessary for fuel what did they use?

Whether IMF conditionality is a reason behind this price hike is not something we can confirm with certainty, but it is certainly a possibility. Whenever the IMF lends to countries, it almost always comes with common conditions and some style of crisis management. The same straitjacket applies to all countries. One of the main aspects of this situation is an increase in the prices of public services such as gas, electricity, oil, water and sometimes even education and health, however important the reasons. why the government is investing in these sectors, or how much of the impact price increases might have on ordinary people. These conditionalities are imposed in the name of eliminating budget deficits, but the objective is to protect various global capitalist interests. It is therefore not illogical to assume that the government of Bangladesh is taking this dangerous decision under pressure from the IMF.

Before raising prices in response to global changes, consider the consequences. In a country where inflation is already high and the prices of basic necessities are soaring, high oil prices are sure to have a ripple effect on almost all other goods, as well as the costs transport and rents. Ordinary people have already reduced their consumption and their debts have started to pile up. With this background in mind, there are a number of alternative paths the government could have taken.

One was to use the profit the government received when it imported oil at low prices and sold it to the people at high prices. Another alternative would have been to simply lift the duty levied on imported oil, which would have lowered prices. Moreover, last week the Prime Minister shared the information that we have sufficient stock of octane and gasoline in Bangladesh as by-products of gas extraction. If so, why should global market volatility impact us? Since the costs of producing by-products are zero, why aren’t prices falling? There are a lot of inconsistencies that people deserve answers for.

As a long-term policy, Bangladesh also had the option of safe and cheap gas exploration for greater energy sovereignty. The agreement with the American multinational ConocoPhillips is an example of the state of this sector. In 2009, we opposed a gas exploration and production contract with ConocoPhillips because it contained provisions for export. We argued that we should reserve the extracted gas for our own needs, but the government argued that the need to extract gas was so urgent that no consideration could stop it. Our protests were dispersed, often violently, the deal was done, and the value of ConocoPhillips shares rose. They then gave a subcontract to another company, which after a while changed its mind and left. And for the past 13 years, this gas has remained unexplored.

At the time, the alternative model that we proposed looked a bit like that of Padma Bridge. We could work with foreign companies in areas where we have limited expertise, but we opposed any contract that would give them authority or ownership over our resources. We wanted to build our own national capacity, not only in terms of gas extraction, but also in terms of exploiting renewable energy sources. I believe that if the government had chosen this path, the situation in Bangladesh would be completely different at the moment. Instead, the government played into the hands of interest groups in favor of importing LNG, and their attention also shifted to coal and nuclear power. The country has become dependent on imports, foreign loans, and foreign companies for our energy needs, creating an unsustainable system that not only made us vulnerable, but also contributed to environmental destruction.

What happened in Sri Lanka is a warning to us. There are some similarities between our two countries, such as taking on mega projects without due process, dependence on loans, lack of transparency in decision-making processes, monopolization by a few groups, lack of accountability, etc. Bangladesh’s main advantages are high remittances and export earnings, which keep us afloat despite capital flight and widespread corruption. However, policy makers continually fail to address the root causes of the crisis we currently face.

It is dangerous to be so dependent on imports when the pressure on foreign exchange reserves is so strong. But what created this pressure in the first place? Capital flight, or money laundering abroad by influential people, now amounts to around Tk 70,000-80,000 crore, according to international estimates, although some independent analysis suggests the amount could be twice as high. Stopping it or at least controlling it should have been a priority for us. Yet, in the latest budget proposal, the Minister of Finance gave a green signal to these money launderers by making a provision to legalize money laundered out of Bangladesh in exchange for a tax of only 7-15%. High-cost imports for megaprojects are also putting pressure on foreign exchange reserves. In this scenario, stopping unnecessary imports, controlling unsustainable megaprojects that operate without transparency, and controlling capital flight should be the government’s top priorities.

If the government takes the IMF loan and continues on this path, the crisis we are facing will not be resolved. Without a solution to the corruption and excesses and with increasing deprivation and commercialization, it is the people of this country who will bear the brunt of the government’s bad choices. The negative impacts will be powerful for the vast majority of the country, including informal workers, many of whom have fallen further into poverty during the pandemic. This vast and extremely vulnerable population will be forced to reduce household spending, which will then have wider impacts on nutrition, education and health, especially for women and children. Ultimately, the government’s irresponsible, illogical and wicked decision to raise fuel prices will hurt people in all walks of life and ultimately hurt economic productivity as well.

Anou Muhammad is Professor of Economics at Jahangirnagar University. This article is the result of an interview by a member of the Daily Star editorial team.

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