The ongoing conflict in Iran is exerting economic strains on Bangladesh, impacting sectors like fuel, fertiliser, freight, and foreign exchange, according to a report. Despite the geographical distance, Bangladesh’s interconnected economy is swiftly feeling the repercussions, particularly through disruptions in the Strait of Hormuz, a vital route for global oil and LNG transportation. This disturbance is affecting energy supplies, shipping, and fertiliser, crucial for the country’s agriculture.
Global markets are reacting to the situation, witnessing a surge in oil prices surpassing $100 per barrel, delays in LNG shipments, and escalating freight expenses. The rise in fertiliser prices also poses a threat to food production. Bangladesh is facing a convergence of challenges as higher energy costs elevate electricity and transport charges, while increased fertiliser expenses add to agricultural costs, as highlighted in the report.
The surge in freight costs is amplifying import expenditures, raising concerns not just about price hikes but also the availability of essential commodities. Shortages in fuel, fertiliser, or shipping could potentially disrupt the economy more than mere price escalations, the report suggests. The country’s balance of payments is under strain due to escalating import costs and potential impacts on export earnings and remittances if Gulf labor markets weaken.
The government is grappling with fiscal pressures as it tries to mitigate the impact of soaring global fuel prices by subsidizing part of the external shock. However, limited tax collection restricts the capacity for additional support, according to the report. The anticipated rise in energy and fertiliser prices is likely to translate into increased transport and food expenses, leading to classic cost-push inflation. Monetary policy alone may not suffice to address this issue, leaving the government to navigate between inflation risks and slower growth.
The financial sector could also face repercussions, with concerns that weak bank balance sheets may deteriorate further if economic activities decelerate, the report warns.
