Written by: Zara Mustafa and Sajjad Hosen
There seems to be no respite from miseries, particularly for the low-income earners in Bangladesh. While striving to stay afloat in times of the post-pandemic economic crisis and high inflation, they are now faced with the additional burden of fuel price hikes which are imposing severe threats on meeting their basic subsistence needs. On Aug 5, 2022, the Government announced the highest fuel price hike in the history of Bangladesh. Previously, the prices of diesel, kerosene, petrol, and octane were respectively Tk 80 per litre, Tk 80 per litre, Tk 86 per litre, and Tk 89 per litre. After the hike, prices have changed to Tk 114 for diesel, Tk 114 for kerosene, Tk 130 for petrol & Tk 135 for Octane (Record Hike in Fuel Prices ( The Daily Star, 2022). The reason provided to justify the hikes completely ignores the fact that the greatest consumers of diesel and kerosene are low-income earners.
Fuel is crucial to every sector of the economy; therefore, the extortionate level of price hike is going to have a trickle-down effect that will cause the overall inflation in the economy to soar. Due to the substantially high variance between the increase in nominal income and the increase in inflation, the living standard of the middle class is likely to fall. However, the biggest impact will undoubtedly be on the low-wage and fixed-income earners who are now compelled to cut back on current consumption and savings. In many cases, they are likely to be forced to dis-save, which means they would need to use up their accumulated savings or take loans in absence of savings. Dissaving increases the vulnerability of low-income earners to entering a poverty trap.
Impact on the RMG Sector: Poverty Alleviation Obstacles
The impact on the RMG sector is vital, as the labor-intensive sector employs staggering 4.22m workers in Bangladesh. According to the World Bank, it used to be the major contributor to poverty reduction. (Sources: WDI for GDP, National Statistical Offices for National Poverty Rates, POVCALNET as of April 2022, and Global Monitoring Database for the Rest, 2010) The unprecedented hike in fuel prices has been soaring up the cost of utility and transportation at a time when there are several other disruptions contributing to the soaring cost of production.
With the ongoing electricity crisis and load-shedding, massive dependence on diesel-run generators is created. The current hike of 42.5% in diesel cost is a cumbersome burden on the utility cost of the factories (M. Haque, 2022). Considering the situation and the emerging losses of the RMG factories due to higher expenses and rigid export prices, the president of BGMEA has expressed deep concerns over the likelihood of many factory closures- in case no government incentives are provided. This will cause a large number of lower-income people to be out of employment (Fuel Price Hike Will Negatively Impact RMG Export Growth: BGMEA President, 2022). According to labor force survey data for 2021, 57% of the households pertaining to employment in this sector have no additional income source. (A. K. E. Haque & Bari, 2021)
RMG Workers: Purchasing Power and Bargaining Power
Actual levels of inflation, not accurately represented by BBS (Bangladesh Bureau of Statistics) data, have been further increasing exorbitantly due to fuel price hikes. This has reduced the real incomes of garment workers significantly, just like other segments, which is why they have resorted to demonstrations. However, they are at greater vulnerability under the hands of the employers who can misuse the loopholes in the law, particularly Section 13(1) of the Labor Act, 2006- which permits them to shut down a section without paying workers in case of illegal strikes and disruptions caused by workers. ( Wage for RMG Workers, 2022)
Impact on Agricultural Sector: Largest Composition of Low-Income Earners
According to ILO data, the agricultural sector employs the greatest number of lower-income workers in Bangladesh. The agricultural sector is one of the largest consumers of diesel which is vital for irrigation, cultivation, and separation processes. Over 70% (15lakh) of machines of this sector rely heavily on diesel for operation.
With the abrupt rise of diesel price by 42.5%, Dr. FH Ansarey, the managing director and CEO of ACI Agribusinesses has estimated a rise in the cost of production by more than 40%. To note, such a burden fell on the farmers, right after a major rise in the cost of fertilizers that too in a dry monsoon. (Dr. Ansarey, 2022)
The rise in fuel prices increases their cost of production, however, they do not benefit from higher prices of the end product as the capitalists and middlemen do, making them prone to severe losses. The vulnerability of the farmers to fall back into poverty has drastically increased as a consequence. If survival demands them to sell off their assets, they are likely to fall in a poverty trap for losing their means of earning.
Forced Changes in Consumption and Malnutrition
The TBC data shows that prices of very essential goods and food items have soared since the onset of the fuel price hike. The increase has been as follows: eggs-31%, broiler chicken-29%, onions-25%, atta-10%, sugar-10% just to name a few.
According to the Business Standard’s report, the consumption of necessary goods has significantly fallen in the last two weeks as a result of this. Cutting back on nutrition is not only detrimental to individuals but also for the development of the country in the longer term.
In 2012, a case study was conducted on the impact of fuel price hikes on the lower middle class of Dhaka and Sylhet, which revealed that the sample cut back on their spending on healthcare greatly (Shakib, 2012). In current times, a similar forecast has been made by economists. Dr. Selim Raihan has asserted that low-income earners will cut back on education and healthcare (Gupta & Noyon, 2022).
SME entrepreneurs suffering after fuel price hike
Courier and logistic service-oriented companies set the new parcel rate due to high transportation costs. Numerous job candidates have to submit applications using a courier, small online shops deliver the products to the customer via courier services. However, a good percentage of offices, employers, retailers, and wholesalers depend on courier services. Small and Medium Enterprises (SMEs) are facing severe troubles as the carrying cost went up due to fuel prices. There are so many entrepreneurs involved in food production & delivery, construction & engineering, tourism, restaurants, etc.
A large number of employees work in the SME sector and contribute to the nation’s GDP. But due to fuel price hikes, this sector is facing hardships as their production costs are high and other necessary materials are scarce in the market. There are 800 automobile workshops in Jessore that have a monthly income of Tk 100 million. But the amount of production is drastically reduced due to load shedding and fuel price is one of the major causes (Ahmed, 2022). SMEs played a major role in employment In Bangladesh and the sector employs about 24 million people, 23% of whom are engaged in manufacturing SMEs (Hossain, 2021). Entrepreneurs request the Bangladesh Govt. to reduce the fuel prices, saying the unprecedented spike in the rates of petroleum products is hurting businesses and will go on to hamper job creation and hit the whole economy (Entrepreneurs Demand Fuel Price Cut | The Daily Star, 2022)
Impact on the transportation sector
The transportation sector vastly depends on diesel, petrol, and octane. We have to use the bus, car, and other vehicles for our routine travel to go to the workplace, school, or university. According to a new decision, passengers will be charged Tk 2.20 per km on long routes by bus, which is Tk 0.40 or 22% more on long routes. The authorities raised bus fares by Tk 0.35, or 16.27% to Tk 2.50 per km in Dhaka and Chattogram city areas (Bangladesh Raises Bus Fares as Much as 22% after Record Fuel Price Hike, 2022). Some passengers use ride-sharing apps for saving time and traffic jams in the city. On the other hand, 1.2 million bikers transport 5 million passengers in Bangladesh (Azad & Islam, 2022). We have seen that a good number of people purchase food for their families by earning from bike-sharing apps. After increasing fuel prices most of the passengers will switch to more affordable transportation options such as CNGs and rickshaws for their budget cuts, which will indirectly reduce the income of bike riders.
After assessing the severe impacts of fuel price hikes on the marginalized sector, it can be highly asserted that the government must revise its policy in order to ease their suffering.
Featured Image Courtesy: The Business Standard
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- Sources: WDI for GDP, National Statistical Offices for national poverty rates, POVCALNET as of April 2022, and Global Monitoring Database for the rest. (2010). www.worldbank.org/poverty