New studies from the South Asian Network on Economic Modeling (Sanem) reveal significant macroeconomic effects of energy price shocks in Bangladesh. A 10% rise in coal prices leads to a 0.3% increase in inflation, while LNG prices increase inflation by 0.2%. The studies also show that such price hikes cause depreciation in the taka, with a 10% increase in crude oil prices leading to a 0.16% depreciation. Despite these impacts, no direct effect on GDP was observed in the short term. Additionally, energy price fluctuations exacerbate net exports, with coal price hikes reducing net exports by 0.25 percentage points.
Sanem’s studies also highlighted challenges in Bangladesh’s energy sector, particularly poor regulatory quality, weak institutional capacity, and corruption. The country’s current renewable energy capacity is only 4.16% of total generation, with investment needs ranging from $60.31 billion to $76.13 billion to meet future renewable energy targets. Experts urge the government to rethink policies and develop a new strategy for energy sector transformation.
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