Current account deficit makes a record
Ending oil subsidy reaches no accord. |
Current account deficit crossed $7 billion ,creating panic on the power corridor. As both the export earnings and remittances fall,current deficit keeps widening.
Oil and gas consumption, which requires huge subsidy,is subject of govt scrutiny. Consumption is being heavily regulated as oil price reached $130/barrel.
Back in July,Bangladesh Petroleum Corporation (BPC),with an annual revenue of TK 250 billion,asked the govt for a subsidy of $2 billion. Frequent power outages are indication that powerplants are running below their true capacity,result of a drastic measure govt took to cut subsidy. Strong dollar complicated the problem by raising the import cost.Currently Bangladesh produces 12500 megawatts of electricity daily against the demand of 14500 megawatts. (Source: Daily Prothom Alo,Jalani Sonkot Berechhey,Sorboccho Load shedding(Energy Crisis Deepens,Power Cut Becomes Awful ),Mohiuddin Ahmed,P-1,October 11,2022).While visiting IMF team asked BPC how it was financing the BPC operation, head of BPC said that it made do with the savings it salvaged when oil price was below $70/barrel.It might continue to do till December. So the point is current account deficit reached the record $7 billion without giving BPC a cent.What will happen in future when BPC runs out of money?
Prior to 2015,BPC regularly incurred loss. Govt handed out huge subsidy to BPC between 2009 and 2015. The subsidy was Tk 13557.83 crore in 2013. Back then crude was selling at US$ 108.41/barrel. On average govt provided Tk4512.204 crore of subsidy between 2009 and 2015.Since 2015,subsidy declined to zero and it lasted till 2021.In this period ,govt treaded along the profit-making path(Source:BER 2019,Make Good Use Of BPC,April 30,2020)1.
Once I gathered data from 2010 to 2020 to see what impact volatile oil price left on current account balance.During the last leg of this period oil price was below $70/barrel. However, current account deficit deteriorated when the crude oil price increased. Check the price rise when $86/barrel became $107/barrel in 2011, $53.72/barrel rose to $55.71/barrel in 2017 and $55.71/barrel increased to $66.87/ barrel in 2018. Two things became clear: first, increase in crude oil price evidently hurt current account balance; second, price below $70/barrel did not always generate a current account surplus(Source: Oil,Price & Current Account Balance,March 22,2022)2.
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(Source:Bangladesh Bank & Macrotrend)
As oil price crossed more than $100/barrel, woe about current account balance deepened. Moreover, govt's development expenditure widened in the last five years. So did the budget deficit. It would be interesting to take a look at the size of external debt at the time a regime takes power and at the time of its departure,starting from 1991.In 1991 when BNP assumed power, external debt was $13 billion. In 1996,when it left the power,the external debt was $15 billion.In 1996,the time when AL came to power,external debt stood at $15 billion. In 2001,the time it stepped down,the debt rose to $17 billion. Then BNP again came to power. In 2006,when BNP left the office,external debt became $20 billion. In 2009,when AL formed the govt debt stock was still $20 billion. In 2014,at the end of third term of AL,it rose to $24.3 billion. At the end of 2018, after the completion of AL's fourth term ,debt stock became $38.5 billion.And in 2022(Feb) it became $55.6 billion2.Bangladesh Bank stats put the figures very high. According to Bangladesh Bank,debt stock in 2022 is $89 billion.The debt has almost doubled in the last 5 years. And the last two terms of Awami League do not fall into the category of representative regime. And what we see here is that external debt stock rises rapidly under regime that is not truly representative of most of the people(Source: Woe Called External Debt,July 01,2022)3.
Many countries put an end to energy subsidy.Contrary to the perception that such move may deteriorate cost of living standard or food production situation,it barely affects the living standard. For instance, India took away subsidy on oil long ago.Even the country levied duties on oil price to generate revenue(Source:"Bangladesh Goes To IMF",Cut The Clutter #1047,The Print,August 01,2022)4. Such move did not provoke widespread antagonism or affect public life in a country where a little increase in public transport fare would call for wide protest. As soon as nuclear power comes to national grid ,we should stop subsidy on oil and gas and we need to impose duties on oil and gas to generate revenues for the government. As oil prices are coming down govt should reimpose Tk 5 subsidy it curtailed earlier.[*There are examples that subsidy money falls into wrong hand. BPC automation software for transaction record was deliberately delayed.Earlier it took 10 months to record oil transaction! Bangladesh Inland Water Transport Authority(BIWTA) run water bus project sustained TK 70 million loss per month. Monitoring and surveillance mechanism is also weak.Or perhaps there is willful negligence. Bangladesh made a huge database of biometric IDs for its citizens.But it has failed to identify the shallow and low-lift pump operators who scattered across the country. These pumps are diesel-intensive and require huge subsidy during irrigation time.A proper database and surveillance is likely to stop the leakages here.What is interesting consumers are less bothered by the idea of getting rid of oil & gas subsidy.Strongest protest is being heard from the quarters who have all these years taken fulll advantage of it.]
[Updates: This piece has been updated on November 06,2022 at 9:55 am Bangladesh Standard Time(BST).
Updates include [*...] part and reference to withdrawal of oil subsidy in India.]
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