Time to strategise the long-term cost of energy stability

Amid the ongoing Middle East crisis, Bangladesh has so far largely avoided an energy shock. Supply has been maintained through imports and stock management, enforcement against hoarding has been visible, and prices have remained stable. This is not incidental but the reflection of a deliberate effort by the government to contain immediate pressure and keep conditions manageable, and for now, it is working. But stability under these conditions comes with trade-offs, for it is not being secured; rather, it is being financed, deferred, and redistributed across the system.

The current approach reflects a calculated choice. Supply and price stability is being prioritised. The last major price adjustment in 2022 moved quickly through transport, production and household budgets. Inflation followed and lingered. That experience has left a lasting imprint on the economy, its rippling effects still visible in prices and household budgets. There is limited space for another abrupt correction.

The country’s energy system depends, in part, on imported liquefied natural gas (LNG). When global prices rise, the cost of securing supply rises with them. Maintaining continuity under those conditions requires additional intervention, and that carries a cost of its own. It is absorbed within the system, including through external financing.

Bangladesh is under a programme with the International Monetary Fund (IMF) amounting to roughly $5.5 billion, disbursed in phases, aimed at supporting external balances, fiscal stability, and policy reform. In addition, the Asian Development Bank (ADB) and other partners have also extended support, including policy-based loans. While these are not designed to finance energy imports directly, they create fiscal constraint at a time when energy-related costs are rising. More recently, the government has sought over $2 billion in additional financing linked to fuel and LNG purchase.

Bangladesh continues to rely on the spot LNG market to meet part of its demand. Spot purchases are volatile: prices move quickly during supply disruptions and cargoes secured at higher rates add to the cost. External financing can only absorb that pressure for a certain period. It lingers in the shadows of crisis management, gathering weight over time until it emerges unannounced in forms the system is not designed to absorb.

Foreign exchange reserves, the gross amount standing at around $30-35 billion as of February 24, 2026, provide some room. But that room provides buffer space only while inflows, particularly from exports and remittances, keep pace with external payments. Energy imports are among the first to draw on it. Part of that cost is absorbed within fiscal space, sometimes through subsidies, sometimes through state-linked entities carrying losses. These don’t always appear immediately in headline figures, but they build gradually. What is changing is how that pressure accumulates and is distributed through the system.

Per a recent report by this daily, fuel prices have been kept unchanged for several consecutive months even as import costs have risen sharply. In March alone, the government covered over Tk 5,000 crore in subsidies, with diesel import cost rising to Tk 198 per litre, nearly double the retail price of Tk 100. That gap will not disappear, but will eventually move into public finances, and from there into the taxation system.

One may recall that exports have softened in recent months, with Bangladesh recording a 1.9 percent year-on-year decline in export earnings during the July-January period of the current fiscal year, alongside weaker RMG shipments to key EU markets—around four percent—during the same period.

At the same time, logistics disruptions linked to the Middle East crisis have affected cargo movement through key routes. More than half of the country’s air cargo is routed through Gulf hubs, leaving it exposed to interruption involving major regional carriers. As capacity has tightened, freight costs have risen sharply. Air freight rates from South Asia to Europe have increased by up to 70 percent, reaching around $4.37 per kg, with some exporters reporting even higher costs as shipments are rerouted or shifted from sea to air. Shipping lines have also introduced fuel surcharges and war-risk premiums, while longer diversions have extended delivery timelines. For a system built on cost discipline and reliability, that matters.

Part of the pressure is already embedded within the system. Payments for installed power capacity that is not always utilised continue to add to the overall burden. Recent estimates suggest that, taken together, these overlapping pressures—from energy imports to structural costs within the power sector—are adding hundreds of millions of dollars in monthly obligations. The same set of pressures is now working through both sides of the external account. Higher import costs increase demand for foreign currency. Softer exports and rising logistics costs weaken inflows. Remittance flows from the Middle East carry their own uncertainty.

Bangladesh has seen similar phases before. External financing has provided breathing space during periods of stress, often tied to expectations around revenue mobilisation, pricing discipline, and stronger financial governance. Those expectations are not new. Meeting them has proven difficult to sustain, particularly where the adjustment moves through households and the formal economy.

Revenue has historically been harder to manage than it appears to be. Bangladesh’s tax-GDP ratio remains among the lowest in comparable economies, hovering around seven to eight percent in recent years. Efforts to expand it continue to face structural constraints, including a narrow base and heavy reliance on indirect taxes. When pressure builds, the response tends to follow the easier path. Rather than widening the base, the system leans more on those already within it—through tighter enforcement and greater reliance on indirect taxation, including VAT and supplementary duties.

The burden does not spread evenly. It falls more heavily on individual taxpayers, compliant businesses, and consumers already within the system, while large segments remain outside effective coverage. Indirect taxes, by design, apply uniformly across transactions. In practice, that uniformity does not translate into socioeconomic equity. That raises costs within the formal economy without necessarily improving the overall resilience. Over time, this approach tightens the system, rather than strengthening it. The pressure shifts again—into margins, into pricing, and into parts of the economy where it is less visible but still felt.

What this points to is not a policy gap but a structural one. Stability cannot be managed reactively. It depends on knowing where the cost sits and how it is carried over time. Without that strategy, stability risks becoming a way of holding pressure in place rather than resolving how it is managed sustainably.

The current approach has kept conditions stable for now, at least on the surface. But it also risks something closer to Friedrich Nietzsche’s idea of recurrence, where what is unresolved does not disappear; it returns, again and again, in the same form. The current trade-off cannot hold indefinitely. It is high time to strategise how the cost is absorbed and where, accepting that the economy will be pressured, while keeping the impact as contained as possible.

Tasneem Tayeb is a columnist for The Daily Star. Her X handle is @tasneem_tayeb.

Views expressed in this article are the author's own. 

Follow The Daily Star Opinion on Facebook for the latest opinions, commentaries, and analyses by experts and professionals. To contribute your article or letter to The Daily Star Opinion, see our guidelines for submission.