Impact of World Oil Price Change

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Table 3.2 further clarifies the numbers. It shows that from the current growth rate of 6.6 percent in 2005 and it would have gradually increased to 8.07 percent with the baseline scenario. Under reduced oil demand (ROD) scenario growth rate falls to 5.17 in 2007 and it will be at 6.2 percent in 2020. If, however, the current oil prices (at $70 per barrel under BAU scenario) remain as it is the growth rate will fall further to 5.67 percent by 2020. The supply shock scenario (SUS) under with

alternative fuel can be found, growth rate falls until 2007 and then it picks up up to

6.17 by 2020 and under PKO scenario (peak oil demand) growth rate falls to 5.47 percent, the lowest.

Table 3.3: GDP of Bangladesh under different world oil price scenarios

BASE

ROD

BAU

SUS

PKO

in million taka

2005

2935395

2935395

2935395

2935395

2935395

2007

3334721

3241964

3241964

3222585

3241964

2011

4171037

4010350

3988886

3957802

3955012

2015

5291286

5003048

4896415

4896416

4814147

2020

7508588

6656256

6394751

6480621

6209113

Average

4648205

4369402

4291482

4298564

4231126

% change

-5.99

-7.67

-7.52

-8.97

In terms of GDP of Bangladesh, Table 3.2 shows that between baseline scenarios GDP of Bangladesh falls by 5.99 to 8.97 percent due to oil price increases.

- Impact on Poverty

Oil price increase leads to domestic price increase through a) increase in prices of importable, and b) increase in the cost of fuel within the economy and thereby affecting the domestic prices. This will affect the poor people. Consequently, the process of poverty reduction will be affected

Table 3.4: Population living in extreme poverty under different price scenarios

BASE

ROD

BAU

SUS

PKO

2005

31027.13

31027.13

31027.13

31027.13

31027.13

2007

28220.97

28987.81

28987.81

29153.44

28987.81

2011

24052.46

24967.50

25095.14

25282.43

25299.36

2015

20226.41

21332.35

21773.64

21773.62

22127.09

2020

15493.60

17373.34

18047.90

17820.54

18560.33

Source: BANSIM II simulation results. (numbers are in thousands)

Table 3.4 presents the number of individuals (in thousands) under different world price scenarios. It shows that compared with the base price scenario, under reduced oil demand scenario, 1.8 million people will slip into poverty by 2020. This means that compared with the prices of oil as of 2002 (the base scenario), under reduced oil demand, addition 1.8 million population cannot leave the poverty cycle in Bangladesh. However, if the oil prices remains as it is (current level of 70$ per barrel), an additional 2.5 million people will fail remain trapped into poverty. This number will rise to 3 million under the peak oil demand price scenario when oil price (Figure 3.3).

Since 1990 Bangladesh has succeeded in reducing its poverty by 1% annually and this is required for achieving its MDG goal. All these gains will be halted in future due to rising prices of oil. Considering this, world oil price increase will have a significant effect on the success of MDGs for Bangladesh.

- Impact on Government