US sanctions will spell disaster for Bangladesh

While imposing sanctions on Russia's oil, the United States has committed to release oil from the strategic reserve as part of ongoing efforts to lower prices and address a lack of supply around the world. But the US oil stock is much lower than what Russia supplies, so such an announcement will not be able to calm soaring fuel prices.

The price of crude oil surged to over $130 per barrel and such rising oil prices will have a ripple effect on different commodities. Bangladesh is not shielded from its cascading effect either as it depends on the global market for many products. So, higher import costs can cause trouble for the country's economy with more inflationary pressure.

The prices of various products are already on the rise in the country. In this situation, limited income-people cannot afford to bear an extra burden caused by a fresh hike in commodity prices. It will also be very difficult for the government to deal with the crisis and safeguard the people from the commodity price shock.

The US announcement of banning all imports of Russian oil and gas will spell disaster for Bangladesh in the days to come.  

At the moment, the government can provide temporary relief to consumers as well as entrepreneurs in manufacturing and export sectors with a rebate from import duty and VAT.

From the import stage to reaching out products to consumers through retail shops, we have many problems, such as syndication, extortion and wastage. In addition to solving all these problems, the monitoring system needs to be improved to keep the market stable.

The future oil prices in our country's market depends on the administrative decision of the government's part. If prices are not raised, the subsidy pressure on the government will go up. 

Bangladesh Petroleum Corporation (BPC) does not have much capacity to stock up on oil as the government takes the company's profits to its exchequer. 

Even if the BPC has stock till June, it may have to sign an agreement to buy oil of course at an extra cost in the next few weeks. 

Oil prices have risen in the domestic market a few days ago. If prices rise again, production costs in our industrial sector will go up because of increased transportation costs. As a result, domestic consumers will take a hit and foreign trade will face a blow too.

All in all, macroeconomics will face big challenges in the days ahead. At the same time, exchange rate management, import payments and forex reserve management will be much more difficult.

The policy of keeping the exchange rate stable for the protection of consumers may have to be maintained for a few more days. If the dollar rate rises too much, so will the costs of imported goods.

We have to avoid unnecessary imports if any and focus on import substitution. We also need to look at if it is possible to delay imports of goods for any projects in the infrastructure sector. We should give importance to the implementation of projects which are nearing completion. And, we will have to wait until the situation improves to start work on the newly-approved projects.

Dr Mustafizur Rahman is Distinguished Fellow, CPD

Dr Mustafizur Rahman spoke to TBS Senior Reporter Jahidul Islam over the phone.