War-driven oil shock jolts economy
Bangladesh’s already fragile economy is facing renewed strain as the ongoing conflict in the Middle East adds further pressure to fuel prices, foreign exchange reserves and overall economic stability, raising concerns among policymakers and business leaders.
A recent central bank assessment, based on global fuel price trends and exchange rate movements, warns that a prolonged Middle East conflict could push the economy into a more severe crisis by intensifying existing vulnerabilities.
The report suggests that continued instability in the region would weaken the taka against the US dollar and drive up fuel prices, placing additional pressure on inflation and imports.
According to the assessment, inflation could rise from the current 8 per cent to around 12 per cent by December, while foreign exchange reserves may fall from $31.12 billion to $24.24 billion due to higher import costs and energy-related expenditures.
Finance Minister Amir Khasru Mahmud Chowdhury told parliament on Friday that volatility in global energy markets, triggered by the ongoing US-Israeli war on Iran, has already increased Bangladesh’s power and energy subsidy requirements by Tk 36,000 crore.
The rising subsidy burden is expected to further strain the national budget and public finances.
Economist Dr Zahid Hossain told the New Nation that domestic fuel prices should be adjusted on a monthly basis to reflect international market trends.
He noted that Bangladesh did not revise fuel prices in April despite increases in neighbouring India, creating a price gap that is encouraging smuggling.
He cautioned that cost-cutting measures alone would not be effective at a time when global transport and commodity prices are rising.
Stressing the need for structural reforms, Dr Hossain urged the government to align domestic fuel pricing with international markets to reduce subsidy pressure and prevent market distortions.
He warned that delays in price adjustments benefit vested groups and smugglers, and called for greater private sector participation beyond reliance on the Bangladesh Petroleum Corporation to ensure long-term stability.
The government is also facing growing fiscal pressure as borrowing continues to rise. Officials say the government has already exceeded its annual borrowing target and is now seeking $3.15 billion in foreign financing to meet budgetary needs.
Revenue collection remains weak, with the National Board of Revenue missing its target by about Tk 71,472 crore in the first eight months of the fiscal year, while other sources of revenue have also underperformed.
Public debt has climbed to around Tk 23 lakh crore, including approximately Tk 11.5 lakh crore in foreign loans, with the remainder sourced domestically through banks and savings certificates. A significant portion of government expenditure is now being used to service interest payments.
Bank borrowing has also surpassed projections. With three months still remaining in the fiscal year, government borrowing from banks has already exceeded the target of Tk 1,04,000 crore, reaching Tk 1,06,510 crore by March 30.
Authorities have announced a special auction to raise an additional Tk 10,000 crore to meet further financing requirements.
Business leaders have expressed concern over the impact of the global energy shock on industrial production.
DCCI President Taskin Ahmed said the acute gas crisis has reduced ready-made garment production capacity by nearly 50 per cent, while cement production costs have increased by Tk 25 to Tk 30 per bag.
Container freight charges have also risen by 20 to 40 per cent, adding between $500 and $4,000 per container, he said at a DCCI roundtable on the global energy crisis and its implications for Bangladesh.
He warned that the global energy shock could add an annual burden of Tk 610 billion on the economy.
Meanwhile, the Bangladesh Vegetable Oil Refiners and Vanaspati Manufacturers Association has demanded a Tk 12 per litre price increase and warned it may set new prices independently or halt supply if approval is not granted, raising concerns among consumers.
The Commerce Ministry is expected to meet traders on Sunday to address the issue.
Rising prices and supply uncertainties are already affecting ordinary people, as households struggle to cope with increasing living costs and growing economic uncertainty.
