Saving on oil to slightly offset foreign earning dip
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FRIDAY, JANUARY 27, 2023
Saving on oil to slightly offset foreign earning dip

Energy

Jebun Nesa Alo
29 April, 2020, 09:55 am
Last modified: 29 April, 2020, 12:42 pm

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Saving on oil to slightly offset foreign earning dip

This will reduce the pressure of import payment on state-owned banks which mostly settle oil import bills

Jebun Nesa Alo
29 April, 2020, 09:55 am
Last modified: 29 April, 2020, 12:42 pm

As the foreign exchange market faces pressure from the declining trend of remittance and export earnings, an anticipated 40 percent fall in fuel price is expected to help the Bangladesh Bank keep the forex market stable through reduction of subsidy cost. 

The fall in oil price by 40 percent is expected to save the government expenditure of around $2.66-$3 billion – or around Tk25,000 crore in 2020.

At the same time, it will reduce the pressure of import payment on state-owned banks which mostly settle oil import bills. 

The World Bank, in its April Commodity Markets Outlook report, anticipated that oil price will decline to $35 per barrel in 2020 from $61 in the previous year, amid a sharp drop in worldwide demand due to the Covid-19 pandemic.

The bank suggested that policymakers in both commodity-exporting and commodity-importing emerging and developing economies should take advantage of these shifts to reduce commodity prices. This is particularly true for energy markets, and the plunge in oil prices is an opportunity to eliminate subsidies.

Oil prices have plunged since January, and prices reached an historic low in April, with some benchmarks trading at negative levels. 

Bangladesh spends $6-$7 billion every year for oil import, which makes up 10-12 percent of the total import cost, according to central bank data.

In the fiscal year 2018-19, the government's expenditure for oil import was $6.66 billion out of the total import cost of $55.43 billion. 

In another report, the World Bank projected global remittance to fall by 20 percent in 2020 due to the worldwide economic crisis. 

The projection has already reflected in Bangladesh's remittance earnings as remittance inflow declined by 12 percent year-on-year in March as the coronavirus hit the global labour market.

Garment exports fell drastically, by 83.74 percent in the first 15 days of April, compared to the same period last year, according to data by the Bangladesh Garment Manufacturers and Exporters Association.

However, the inter-bank exchange rate still remained stable at Tk84.95 due to the low import expenditure. 

"Although the downward export and remittance earnings are of great concern, the foreign exchange holdings of banks are still in comfortable positions due to low imports," said Md Arfan Ali, managing director of Bank Asia.

He said the forex market is expected to remain stable after the pandemic due to a fall in oil and commodity prices in the global market.

Fall in oil price will partly offset losses of export and remittance earnings, said Ahsan H Mansur, executive director of the Policy Research Institute, Bangladesh.

He said the foreign exchange market will come under pressure, but it will not be a major concern due to a fall in commodity prices – particularly oil price. 

Dollar price may rise by Tk1 or Tk2, which is a normal fluctuation, he added. 

"As an oil importing country, Bangladesh will gain due to the oil price shock," said Fahmida Khatun, executive director of the Centre for Policy Dialogue.

"Resources saved from low oil prices in the international market can also be another source of fund at this moment," she added. 

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