Bangladesh’s new democratic government led by Prime Minister Tarique Rahman has so far held the line on fuel prices, resisting increases even as many countries have already adjusted domestic rates in response to global energy shocks. Officials insist there is no immediate plan to raise prices.

For a new administration, the logic is straightforward. Higher fuel costs would ripple quickly through transport, food, industrial outputs and household expenses, stoking inflation and eroding public goodwill at a politically delicate moment.

Yet the same restraint that offers short-term political cover is fast becoming an economic liability. Bangladesh is now confronting a convergence of pressures — rising import costs, swelling subsidies, currency strain, and widening regional price gaps —that make the current pricing policy increasingly untenable. The government may be avoiding inflation today only to invite a more destabilising version of it tomorrow.

The arithmetic is unforgiving. Bangladesh is expected to spend an additional $4.8 billion on fuel imports this year alone, a sharp escalation for an economy already navigating tight foreign exchange conditions.

To cushion consumers, the state is absorbing a subsidy burden of roughly Taka 40,000 crore ($3.7 billion), a figure that will climb if global prices remain elevated. Subsidies of this scale are not merely a fiscal inconvenience, they are a structural drag. Every taka spent holding down fuel prices is a taka not invested in infrastructure, social protection, or economic resilience.

Sustaining such a policy risks widening deficits and deepening reliance on external borrowing, with the country’s debt stock already hovering around $113 billion.

Pressure is also building through the currency. With the real effective exchange rate estimated way higher than the current exchange rate of Taka 122 against $1, the taka appears increasingly misaligned with market realities.

Artificially low fuel prices stimulate demand for imported energy, which in turn drives demand for dollars, tightening liquidity in foreign exchange markets. The longer prices are suppressed, the greater the eventual adjustment required — likely through a combination of currency depreciation and sharper inflation.

If fiscal and currency dynamics were not enough, geography adds another complication. Bangladesh’s fuel prices are now significantly lower than those in neighbouring regions. In Calcutta, petrol and diesel hover around Taka 140 (about $1.20), in Assam, petrol is roughly Taka 135 (about $1.15) and diesel Taka 125 (about $1.05); in Myanmar, diesel is Taka 155 (about $1.30) and octane as high as Taka 170 (about $1.45). By contrast, Bangladesh sells diesel at about Taka 100 (around $0.85) and octane at Taka 120 (about $1.00). Such disparities create textbook arbitrage opportunities.

Fuel purchased domestically can be smuggled across borders for immediate profit, a leakage that no enforcement regime can fully contain when price gaps are this pronounced. Even India, with its own oil production and biofuel capacity, maintains higher retail prices, underscoring how far Bangladesh has drifted from regional parity.

Market psychology compounds the problem. Expectations of future price hikes are already shaping behaviour. Consumers and intermediaries anticipating higher prices tend to stockpile fuel, not for immediate use but for resale at a profit.

This hoarding distorts supply, fuels artificial shortages, and intensifies price volatility. The paradox is that delaying price adjustments can actually accelerate the very disruptions policymakers seek to avoid.

When expectations of increases persist, panic buying becomes rational. Removing that expectation — through a credible, timely adjustment — is often the only way to restore equilibrium.

Underlying these immediate pressures is a deeper structural issue in Bangladesh’s energy mix. The country now relies on imports for roughly 40 per cent of its gas demand, exposing it to global price swings and supply uncertainties.

International lenders, including the IMF, are pushing for domestic energy pricing to better reflect global benchmarks, further narrowing the government’s room for manoeuvre.

Past policy choices have compounded the challenge, leaving the current administration to manage a system where costs are rising but prices remain politically constrained.

The global context offers little comfort. Countries facing similar pressures are already taking drastic measures. The Philippines has declared an energy emergency, while Pakistan and Sri Lanka have curtailed working days to manage fuel shortages.

Bangladesh has not reached that point, but the trajectory suggests that postponing adjustments will only raise the eventual cost of correction.

None of this diminishes the political risk of raising fuel prices. Inflation remains the most immediate concern for households, and any increase will be felt quickly and broadly. But the alternative — continuing to subsidise consumption at unsustainable levels — risks a more disorderly outcome, marked by currency instability, supply disruptions, and sharper price spikes down the line.

There is, however, a narrow path forward. A gradual and clearly communicated price adjustment could ease the transition, especially if paired with targeted support for vulnerable groups. At the same time, addressing inefficiencies in domestic supply chains could help offset some inflationary pressure.

The fact that a vegetable priced at Taka 5 (3 cents) at origin can sell for Taka 50 (40 cents) in Dhaka speaks to systemic distortions — informal payments and entrenched intermediaries — that inflate costs independently of fuel prices. Tackling these issues would not eliminate inflation, but it could mitigate its impact.

Energy conservation also remains an underused lever. Reducing consumption by even 20 per cent is within reach with proper guidelines and enforcement, though the credibility of monitoring systems remains in question. Without stronger governance, even well-designed policies risk being undermined in execution.

For now, the government’s reluctance to raise fuel prices reflects a rational political instinct. But economics is closing in. The longer prices remain out of sync with both global markets and regional realities, the greater the distortions — and the harder the eventual adjustment.

Bangladesh is approaching the point where holding the line is no longer a sign of stability, but a source of risk.