How a fuel crisis is threatening Bangladesh’s reform goals: ‘it hit our citizens hard’

A fuel crisis is a sharp disruption in the supply or affordability of energy. It matters because fuel powers transport, electricity, farming, and industry. When prices surge, households and businesses face higher costs across the economy.

Bangladesh’s immediate shock followed US and Israeli attacks on Iran, which sent oil and gas prices upward. The country imported about 65 per cent of its energy needs last year. That dependence made global price increases quickly become a domestic problem.

The crisis was worsened by the previous government’s failure to build sustainable energy-security infrastructure. Bangladesh has strong solar potential, but it had not developed enough capacity to cushion the shock. The result has been power cuts, petrol queues, and higher prices for transport and food. The new government is responding while also attempting broader economic reforms.

Bangladesh’s energy dependence is high: about 65 per cent of its energy needs came from imports last year. This matters because international price increases pass directly into the country’s fuel, electricity, transport, and production costs. Importers have less protection when global energy markets become unstable.

Rashed Al Mahmud Titumir, an adviser to Prime Minister Tarique Rahman, estimated that Bangladesh had spent US$4.1 billion in additional costs from late February to the time of his comments. The spending covers more than buying oil. Energy affects gas, fertiliser, transport, electricity, and many other parts of the economy.

The figure shows why the government is seeking outside financing and hoping to renegotiate its IMF loan. The World Bank and Asian Development Bank have provided hundreds of millions of dollars. The IMF has dispersed nearly US$3.6 billion since 2023.

The fuel crisis has made daily life more difficult by disrupting electricity and raising the cost of movement and food. These effects matter because energy is a basic input for households, businesses, farming, transport, and public services. A price shock can therefore spread well beyond petrol stations.

Bangladesh has experienced power cuts and long queues at petrol stations. Higher energy costs have also increased the prices of transport and food. The government has spent hundreds of millions of dollars each month to shield people from surging prices, while borrowing has helped cover part of the energy burden.

The wider economy is weakening. The IMF cut its 2027 growth projection to 3.2 per cent, from 3.6 per cent this year. It expects inflation to rise to 10.9 per cent next year, from 8.7 per cent this year. These pressures complicate reform and investment.

The government is spending on energy support because global fuel prices have surged while Bangladesh depends heavily on imports. Without assistance, higher energy costs would hit households through transport, food, and electricity prices. Support is intended to cushion people while the government manages a wider economic crisis.

The World Bank and Asian Development Bank have loaned hundreds of millions of dollars to ease the government’s energy burden. The IMF has dispersed nearly US$3.6 billion since 2023. Bangladesh’s new government hopes to renegotiate that IMF loan at the summit in Bangkok.

This financing provides temporary room, but it does not remove the underlying exposure to fuel shocks. IMF managing director Kristalina Georgieva urged governments to protect fiscal space and offer temporary, targeted support to the most vulnerable. Bangladesh must balance immediate relief with debt, reform, and investment needs.

Reforms need money, functioning institutions, and public trust. Bangladesh begins with banks filled with bad loans, indebted businesses, and a weakened welfare state. High inflation further reduces household purchasing power and raises the cost of government support. Together, these problems make long-term change harder to finance and explain.

The government has already brought five banks into state ownership after fears of a bank run. It wants to restore discipline and then provide finance for investment and expansion. At the same time, it is paying heavily to soften energy prices and dealing with power shortages.

Inflation makes the trade-off sharper. The IMF expects it to reach 10.9 per cent next year, while growth is projected at only 3.2 per cent in 2027. Reform may improve future stability, but near-term pressure can limit fiscal space and delay investment in skills, infrastructure, and energy.

Bangladesh can reduce fuel-shock exposure by building sustainable energy infrastructure, especially solar power. The country receives intense sunlight, and the article says its solar potential could have absorbed some of the crisis. Less reliance on imported oil and gas would make domestic energy costs less vulnerable to global turmoil.

The key mechanism is diversification. Solar generation can supplement imported fuels, while temporary and targeted support can direct scarce public money toward people most affected by rising prices. IMF managing director Kristalina Georgieva specifically advised governments to protect fiscal space and support the most vulnerable rather than offer unlimited subsidies.

These measures are not yet a complete solution. The previous government failed to build sufficient sustainable energy security infrastructure. Bangladesh now needs to combine energy investment with fiscal discipline, while also developing infrastructure and skills for manufacturing, technology, and future growth.

Energy is a basic input throughout an economy. When an importing country pays more for oil and gas, the higher bill affects transport, electricity, fertiliser, factories, and food distribution. Businesses may pass those costs to customers, while households have less money for other needs.

Bangladesh shows this chain clearly. After oil and gas prices rose, the country experienced power cuts and petrol queues. Transport and food became more expensive. The government then spent heavily to shield citizens, while borrowing from international institutions helped cover the energy burden.

The same shock can slow growth in two ways. Higher prices reduce demand, and government spending on subsidies or relief leaves less fiscal space for infrastructure and reform. Bangladesh’s IMF growth forecast for 2027 fell to 3.2 per cent, while inflation is expected to rise to 10.9 per cent next year.