For businesses, energy is not just an utility, it is a primary raw material. In the current hike of global prices of petrol and gases, the local industrial production costs reportedly have increased by as much as 20%.
The Bangladesh government has increased prices of fuels, although many nations around the world are reluctant to raise prices because consumers are already under pressure. Demand is also weakening.
Bangladesh's fuel crisis is not only affecting transport and goods delivery, but also disrupting factory operations and business cash flow.
Manufacturers are unable to pass higher costs on to buyers. The power situation is worse in rural areas due to biased distribution of load shedding. In Bangladesh, factories are facing 2-3 hours of daily power cuts and up to six hours in some areas. Many factories are operating at only 50-60% capacity.
Production, supply, and cash flow are affecting the total business sectors. As a result, profit margins are shrinking rapidly. In the export trade, Bangladesh finds it harder to compete with rivals like Vietnam or India, potentially leading to order cancellations and, in the most vulnerable factories, job losses.
It has been projected that the RMG sector -- facing a projected $4.8 billion surge in its overall fuel import bill -- risks losing its competitive edge in the global market.
Diesel is the lifeblood of Bangladesh, and its price movement dictates the pace of the entire economy. Diesel is directly linked to agricultural activities, the transport sector, freight movement, manufacturing, and the livelihoods of the public.
In contrast, octane consumption is relatively limited and primarily concentrated among higher-income groups.
Bangladesh's logistics network almost entirely depends on diesel-powered trucks and vans. The increase in costs used to be passed directly to consumers, inflating the price of every essential commodity.
The immediate hike in transport fares and commodity prices following the adjustment of fuel prices has had a direct impact on the public.
Agriculture, the backbone of our economy, now faces a critical input crisis at the worst possible moment. The Boro season alone contributes nearly 55% of the country’s total rice production. Of the 1.6 million irrigation pumps in use, a dominant share is diesel operated. Higher fuel costs will squeeze farmers directly unless offset by policy support.
Like many developing countries, Bangladesh subsidizes the consumption of electric power and natural gas. On the other hand, tax on fuel is a major source of revenue for the national exchequer.
By imposing taxes and giving subsidies for fuels, it is a complex balancing act for the nation. The Bangladesh government has increased the retail price but kept the tax burden unchanged and increased the subsidy.
Major economies in the region, including India and Pakistan, slashed fuel oil taxes to lower price shocks on the people. India marginally increased the price of premium-grade oil but kept the prices of the most-consumed diesel and petrol unchanged.
Though Pakistan raised oil prices, it exempted or slashed taxes for diesel and petrol. The country also introduced free bus services in cities along with cash subsidies for bikers and farmers.
The consumer price of electricity is set at a level much below its long-run marginal cost of production. This is a direct (budget) subsidy to the Bangladesh Power Development Board (BPDB), the state-owned electric utility responsible for supplying electricity in the country.
The electricity sector is not only subsidized directly by the government through budget transfer, but also indirectly because the price of natural gas is at a level below its cost. The gas sector receives a direct subsidy from the government.
Natural gas, which is also a primary fuel for generating electricity, also enjoys the subsidy. The price of gas is simply fixed while ignoring the production cost and global market price. The domestic retail price of natural gas should be the weighted average price of domestically produced and imported gas.
The reserve of natural gas is depleting very fast. Over time, the gas mix used in Bangladesh will tend towards being 100% imported, so the weighted average price of gas will approach the price of imported gas soon (by 2030).
Although subsidies are intended to benefit low-income households, they often miss their target with a major share of benefits accruing to high-income households.
Based on global prices in March 2026 and the current exchange rate, the import cost of octane is Tk105.73 per litre. After the latest price hike -- driven by supply constraints and rising global prices -- it is being sold at Tk140 per litre to the consumers.
The calculation is that consumers are paying Tk34.27 more than the import cost per litre. Of this, Tk27.57 goes to the government as import duty, VAT, development surcharge, transport costs, and margins for state-owned distributors. The government collects Tk27.57 per litre in taxes and charges, while also providing a subsidy of Tk11.61 per litre.
The International Monetary Fund (IMF) has advised Bangladesh to withdraw all forms of tax exemptions, covering income tax, value-added tax (VAT), and customs duties, starting from the next national budget (FY2026-27). Alongside ending tax exemptions, the IMF has also pressed for the reduction of supplementary duties imposed at the import stage.
Balancing loss and benefit of tax and subsidy is very complex. It hides the inefficiency and corruption of government departments while the monopoly of state corporations for import and distribution also potentially causes inefficiencies and excess cost of import and sales.
Reforms or removals of energy subsidies have been considered in many countries, with some successes and many failures. At the present situation, the government should not withdraw subsidies abruptly and instead, eventually, the withdrawal of subsidies may be compensated through a direct cash transfer to the poorer section of society.
MS Siddiqui is CEO, Bangla Chemical and a legal economist.
