Bangladesh Increases Electricity Prices by 5 Percent - 3rd Time In A Year

Key Takeaways:

  • The government of Bangladesh has increased the electricity price by 5% as part of its commitment to the International Monetary Fund. 

  • Consumers will now have to pay Tk 1,050 for the same amount of electricity that previously cost Tk 1,000. 

  • The rise in electricity prices comes at a time when fuel and energy prices are declining around the world. 

  • The hike in electricity is part of the government's commitment to the IMF to reduce subsidies on gas and electricity. 

  • The inflation rate in Bangladesh has been above the budgetary target of 5.6%, and the increase in electricity prices will further burden ordinary people. 

  • Experts argue that the government should focus on reducing the “illogical expenditures” in the power sector, rather than increasing electricity prices.

Bangladesh Increases Electricity Prices for the Third Time:

The Bangladeshi government has increased electricity prices by 5 percent, marking the third such hike this year. The new prices come at a time when fuel and energy prices are declining globally. The weighted average price of electricity has risen from Tk 7.13 to Tk 8.25 per kilowatt-hour, with a consumer previously paying Tk 1,000 a month now having to pay Tk 1,050 for the same amount of electricity. This hike adds to the elevated inflation already being experienced by ordinary people in the country, which averaged 8.7 percent in the first seven months of the fiscal year, well above the budgetary target of 5.6%.

Electricity Prices Increased to Fulfill IMF Commitments:

The rise in electricity prices is in line with Bangladesh's commitment to the International Monetary Fund for its $4.7 billion loan program. The IMF has argued that subsidies for gas and electricity should be reduced as they largely benefit richer people who use cars and air conditioning. Speaking in New Delhi last week, Krishna Srinivasan, director of the IMF’s Asia-Pacific department, stated that these subsidies are not justified in a country experiencing a fiscal problem.

Bangladesh Increases Electricity Prices by 5 Percent Despite Decreasing Global Energy Prices:

The Bangladeshi government has raised electricity prices by 5 percent, marking the third hike in 2022 despite declining fuel and energy costs across the world. From March 1, consumers will pay Tk 1,050 for the same amount of electricity that previously cost Tk 1,000 per month. The weighted average price of electricity will now be Tk 8.25 per kilowatt hour, up from Tk 7.86, and up significantly from Tk 7.13 before January. The hike in electricity prices comes in line with a commitment made to the International Monetary Fund for the $4.7 billion loan program.

Government Commitment to Reduce Subsidies:

In December 2021, Bangladesh Bank Governor Abdur Rouf Talukder and Finance Minister AHM Mustafa Kamal submitted a letter of intent to the IMF, committing to adjust electricity prices to reduce subsidies. The budget subsidies for natural gas and electricity are expected to rise significantly in fiscal 2022-23 but remain relatively contained at 0.9 percent of GDP.

Monthly Electricity Price Adjustments:

The state minister for power, energy, and mineral resources, Nasrul Hamid, told The Daily Star in January 2022 that the government will adjust electricity prices every month. However, there has been no explanation as to why the electricity price is being raised at a time when global fuel prices are declining.

Alternative Ways to Reduce Subsidy Burden:

While the IMF has called for lessening subsidies, the Centre for Policy Dialogue’s research director, Khandaker Golam Moazzem, has suggested that the government reduce the subsidy burden by cutting back on “illogical expenditures” in the power sector, such as overcapacity, excessive capacity payments, and corruption. Consumers are already facing rising prices for all kinds of products in the past two years, and the increase in electricity prices will only add to their financial burden.

Impact of Electricity Price Hike:

Inflation in Bangladesh has averaged 8.7 percent in the first seven months of the fiscal year, far exceeding the budgetary target of 5.6 percent. The electricity price hike will have a significant impact on ordinary people already struggling with elevated inflation. Moreover, the government's decision to raise electricity prices at a time when global energy prices are decreasing is likely to face criticism.

In Conclusion:

The government's hike in electricity prices is an additional burden on ordinary people already facing high inflation. The IMF had asked the government to reduce subsidies but did not prescribe doing so by raising prices every month. The government should reduce subsidies by cutting back on illogical expenditures in the power sector rather than burdening consumers. The government's decision to raise electricity prices at a time when energy prices are declining in the international market is unjustified. This price hike will do little to increase the dollar reserves needed to import fuel for electricity.