Asian Development Bank Warns Bangladesh on Fuel Price, Inflation

Strategic Insights -

The Asian Development Bank (ADB) has urged Bangladesh to reassess its fuel price policy to reduce its dependence on public borrowing, which exacerbates inflation. At a press briefing, ADB country director Hua Du highlighted the steep margin between wholesale and retail prices of essential goods, causing immense hardship for ordinary citizens. The ADB also emphasized the need for the benefits of the petrol subsidy to reach the poorest people in Bangladesh, acknowledging that the current system may not be targeting those most in need.

Key Takeaways:

  • The Asian Development Bank (ADB) has suggested that Bangladesh reassess its fuel price policy to reduce its dependence on public borrowing, which contributes to inflation.
  • The ADB has expressed concern over the significant margin between wholesale and retail prices of essential goods, causing immense suffering to the common people.
  • The ADB has highlighted the need for the benefits of the petrol subsidy to reach the poorest people in Bangladesh, as the current system may not be targeting those most in need.
  • The Quarterly Economic Update for June of FY 2006 revealed that the losses incurred by Bangladesh Petroleum Corporation (BPC) totaled US$1.5 billion, or 2.4 per cent of the GDP.
  • A chapter on the "underpricing of energy products" in the update estimated the magnitude of implicit subsidies on selected energy products in FY 2006 at Tk 73.398 billion (US$1.06 billion), 1.76 per cent of GDP.
  • The update report warned that the under-pricing of energy products poses considerable risks to fiscal sustainability and suggested that a more appropriate energy pricing policy would free up government resources for infrastructure development and enhance social safety nets for the poorer segment of the population.

Statistics:

  • The losses incurred by Bangladesh Petroleum Corporation (BPC) totaled US$1.5 billion, or 2.4 per cent of the GDP.
  • The magnitude of implicit subsidies on selected energy products in FY 2006 was estimated at Tk 73.398 billion (US$1.06 billion), 1.76 per cent of GDP.
  • The agriculture sector rebounded sharply, growing 4.5 per cent in FY 2006 compared to 2.2 per cent in FY 2005.
  • The industrial sector registered a growth rate of 9.6 per cent, while the manufacturing sector surged by 10.5 per cent and the services sector expanded 6.5 per cent in FY 2006.

Sources:

  • The Asian Development Bank (ADB) Quarterly Economic Update for June of FY 2006.
  • Speech by ADB Country Director Hua Du at a press briefing.