Fuel price hike feared to trip up recovery
- Businesses take hit as supply chain disrupts following countrywide transport strike
- Goods delivery hampered in sea and land ports
- Uncertainty over transport movement
With no sign of a quick resolution of the transport strike in the aftermath of the 23% hike of diesel and kerosene prices, business leaders and economists fear the double whammy of increased fuel prices and supply chain disruptions is going to add to the inflationary pressure already putting the economy under serious strain.
The shock to the post-pandemic recovery comes when a solid increase in consumer spending, and almost all sectors steaming towards pre-pandemic levels in terms of production and sales as reflected in the government's 20% revenue collection growth in July-September this fiscal year, signalled an optimistic path to recovery.
Exports had also made a strong rebound with a record growth in the last couple of months, thanks to increased apparel shipments.
Businesses reported taking a hit owing to supply chain disruptions following the countrywide indefinite transport strike enforced on Friday protesting the fuel price hike.
Rizwan Rahman, president at Dhaka Chamber of Commerce and Industry says the sudden hike in fuel prices will impede the economic recovery from pandemic-induced losses.
The government could have kept fuel prices under control if it wanted to by subsidising. The economy could have dispelled pandemic shocks if fuel prices had remained stable for at least six months, Rizwan added.
The government hiked diesel and kerosene prices by Tk15 to Tk80 per litre on Wednesday, citing a volatile global market for crude oil. In response, transport owners and workers called an indefinite nationwide strike, demanding either a rise in fares or a reversal of the hike.
Meanwhile, sellers at commodity markets say the impact of the fuel price hike in prices of different daily essentials products might be felt from Saturday.
They said prices of vegetables and other kitchen items, including chicken, eggs, onion, oil, and lentils remained unchanged on Friday.
Mahfuz Alam, proprietor of Fatema Rice Agency in Karwan Bazar, said, "The price of rice has not increased over the last 10 days. But we now fear that the price may increase in the coming days owing to the hike in fuel prices."
Exporters to feel the pinch
Exporters say the sudden hike in fuel prices will negatively affect exports, imports and local markets.
Md Shahidullah Azim, vice-president at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard, "We are already under pressure because of rising costs of raw materials. The sudden hike in fuel prices will put us into deep trouble."
Yarn prices have registered a 92% year-on-year rise in October.
For example, a Tk5 hike in fuel prices gives a Tk40 rise in transport costs. Besides, many machines run on diesel. The current fuel cost of a medium-sized apparel factory amounts to Tk2.5 lakh per month.
Mohhamad Hatem, executive president at Bangladesh Knitwear Manufacturers and Exporters Association, said when global fuel prices dropped, the government did not reduce the prices. So, hiking fuel prices in keeping with the global market is in no way acceptable.
A single-day strike causes a halt to at least $135 million worth of exports. If the ongoing transport strike protesting the fuel price hike prolongs, there will be pressure from buyers to ship goods by air freight that costs 55% of an export product. In failure to do so, orders might get halted or cancelled, he added.
The delivery of imported goods was significantly disrupted in the sea and land ports, including Chattogram, Mongla and Benapole, owing to the nationwide transport strike.
Chittagong Port Authority Secretary Md Omar Faruq said many vehicles, such as trucks and covered vans which arrived to take deliveries, could not enter the port due to obstruction from striking workers.
"The loading and unloading of containers at the port jetties may slow down if the strike lingers," he added.
A big blow for agriculture
The country's agricultural sector will suffer the most from the diesel price rise and the subsequent nationwide strike.
Economists say costs of both production and supply will increase for farmers who contribute about 14% to the GDP. As a result, many Covid-hit marginal farmers will go broke.
Agriculture Economist Professor Dr Jahangir Alam Khan said the agriculture sector, which was making a turnaround from pandemic-caused losses on the back of stimulus support, will now go into shock owing to the sudden diesel price hike.
The agriculture sector accounts for 65% of diesel and kerosene consumption. The latest rise in fuel prices will lead to a rise in production cost as well as individual spending. Eventually, farmers will reduce cultivation, he added
Dr Selim Raihan, executive director of South Asian Network on Economic Modeling (Sanem), told The Business Standard that the fuel price hike is going to cancel out government measures, such as the stimulus support.
The latest hike will add to rising prices of daily essentials, putting limited-income people in a tighter corner, he said, adding that the fuel price hike will not only fuel inflation but also will alter patterns of consumer spending.
The manufacturing sector will now see production costs go up while people will have to tighten their purse strings further slowing the ongoing economic recovery, he pointed out.
People will again resort to either curtailing their savings or dipping into their savings as they had previously done during the pandemic-led crisis, he also said.
Inflation posted an upward trend in Bangladesh in previous months owing to rising prices of food and non-food items, fuelled mainly by global price hikes.
Uncertainty over transport movement
There is hardly any possibility of lifting the ongoing transport strike across the country soon, which will lead to continuation of public suffering.
Bangladesh Road Transport Owners Association Secretary General Khandaker Enayet Ullah, said, "Public bus and goods transport owners called the strike. We will meet with the government on Sunday over fixing bus fares.
On the other hand, launch owners said they will not go for tougher action until 8 November, but have temporarily hiked fares by Tk20.
Badiuzzaman Badal, vice-president of Bangladesh Inland Waterways Passenger Carrier Association said, "The fare will be finalised after a meeting with the Bangladesh Inland Water Transport Authority (BIWTA) on 8 November."
They have demanded that the BIWTA increase fares by 100%, he added.
Meanwhile, commuters suffered immensely as roads in the capital and other parts of the country were largely empty of public transport during the nationwide strike protesting the fuel price hike.
As buses stayed off the road, exam candidates struggled to reach centres on time for entrance tests of seven Dhaka University-affiliated colleges and recruitment tests of different government jobs.
Buses of only two-three companies and state-owned Bangladesh Road Transport Corporation were seen on city streets. However, many private cars, rickshaws, CNG-run auto-rickshaws and motorcycles were seen plying the roads.
