BANGLADESH economy is close to a difficult situation, if not to a crunch. It may be deferred by a strategic option, but it is unavoidable. If deferred, the effects will be more severe, at least two-folds more virulent than one if the government went head-long to face it with some courage when the oil prices began showing mercurial upward tendencies.
Lately, the government refrained itself from adjusting the domestic prices of oil with that in the world market in apprehension of inflation receiving a stimulus, cost of domestic production of industrial goods going upward, market prices showing further erratic tendencies, export items losing some competitiveness and, above all, adverse public reactions as a result of any such step. The government adopted the deceptive policy of keeping the market prices of oil relatively low taking the risk of subsequent financial difficulties. The government was definitely led by a consideration that in its terminal year in power, prior to a general election, the ruling alliance should keep the public happy as far as practicable.
A recent report indicated that the Bangladesh Petroleum Corporation (BPC) would suffer a staggering financial loss of Tk 25.93 billion in the current fiscal year alone for not adjusting the domestic prices of oil in conformity with the procurement prices. If the world market prices of different fuels go further up, which is not unlikely because of the tension now building up surrounding the nuclear programme of oil-exporting Iran, the corporation may suffer a far greater amount of financial loss. The energy ministry is said to have requested the government to allocate Tk 67.75 billion as subsidy to the BPC to meet the increased import price of oil. On the other hand, the state-owned Sonali Bank has requested the government to give it in cash or investible bond Tk 52.30 billion in repayment of its outstanding dues from the BPC, earlier advanced as loan to finance oil import. The nationalised commercial bank (NCB) is said to be in dire straits with this stuck-up huge loan, which, according to reports, accounts for a third of its outstanding loan. The bad position in which the bank is will definitely be another justification for the World Bank and the International Monetary Fund (IMF) to press the government some days later for immediate privatisation of the Sonali Bank.
The heavy amount of loss cumulatively suffered by the BPC will leave the next government with two options. Results of one option will be painful for the people and harmful for the state in both short and long terms. This option will require the government to meet all BPC losses from the revenue budget and proportionately reduce the development budget. But less money for development will mean less development activities, which in turn will mean two engines of growth -- consumers' spending and government spending, will be slowed in the pertinent fiscal year to adversely impact upon the over-all national economic growth. Once this option is exercised, the people of this country will feel the adverse effects of slow growth both immediately and in long term. The government will be at its wit's end in augmenting revenue to meet the state expenses, as a squeeze in development may trigger shrinkage of growth of all sectors to reduce the tax base.
The other option may be in the form of pricing oil taking all BPC costs into account including its repayment obligation of outstanding bank loans along with interest. The recovery of losses from profit from its future oil sale may be planned over a long period of time. A long period of recovery will require lesser upward adjustment of oil prices. However, the oil prices will have to be increased, and increased quite significantly, to generate funds to meet all BPC obligations under this option. This will enable the government to leave the development budget unaffected. The increasing BPC obligations to its creditors, which are now rising because of the non-adjustment of the domestic oil prices as dictated by world market oil prices, and its continuing dependence on bank loan, will subsequently require the corporation to enhance the oil prices by a significant margin after the next elections. The high margin of price enhancement at that time will subject the economy including the industrial and agriculture sectors to severe shocks. Effects of such a marked oil price adjustment, which are dreaded now, will become evident with greater intensity. If the oil prices could be adjusted as and when dictated by the procurement prices, the economy could gradually absorb the shock as the margin of adjustment each time would have been small enough for industries and other production sectors to be able to significantly reduce its impact on their cost of production by raising their efficiency. But our industries are in no sound position to be able to respond with greatly enhanced efficiency to a steep rise in domestic oil prices in one-go after the impending elections. So an economic crunch after the next general election cannot be ruled out.
Unless the government provides the BPC with funds for repaying all its bank loans and for meeting its subsequent expenses for at least one year including the capital for financing oil import, the sick oil corporation will always remain in a black hole and continue to be in red. But to provide it with adequate capital, the government will have to allocate about Tk 250 billion in one budget provision for the BPC, which is practically impossible. Will anyone in the country ask the government to privatise the BPC or off-load a part of government shares in the corporation through the stock market?
All governments in this country were compelled to opt for political management of the economy because of persistent bad politics. Had the present government adjusted domestic oil prices in conformity with the procurement prices without consideration of its immediate adverse effects, its political opponents would have spared no time to take full advantage for a public relation campaign castigating the government for supposed inefficient management of the economy and unleashing miseries upon the people. The game would have been same whichever party was in power and whichever party was in opposition. Some civil society members, who have recently formed a committee for making efforts to have honest people elected to the parliament, should take this aspect of our political problem into account and do something to bring this kind of harmful politics to an end.
The World Council of Churches, which cares much for the advancement of Christians and Christianity, did a lot to tackle such problems in Latin America in the 1970s. The Council promoted a culture of scrutinising public statements of political leaders. It used to buy electronic media time in the volatile countries, perhaps to leap through illiteracy, and used to broadcast short political plays to awaken public consciousness. One such play was: a political leader addresses a public meeting in a town; and, at one stage, promises, " If I am elected, I will construct a bridge for you in this town". The audience responded with enthusiastic handclaps. After a long while when clapping was still continuing, suddenly from the audience one asks: Senor(Mr) candidate, why do we require a bridge, we don't have any river in the town ?" The embarrassed candidate fumbled for while in trying to articulate a defence. The play ends. Did any of us ask the opposition what would have their response to the oil price hike in the world market and how they have managed the effects of their response? In the advanced countries, no leader can make a statement of public significance without taking the risk of being thoroughly questioned by the media about the validity of that statement and confronted with counter points. Can we promote such a culture to bring sense in politics? Otherwise, organisations like the BPC will continue to pay penalty for the bad politics, which is our historical inheritance, and the nation will always suffer.