Bangladesh is likely to suffer a sharp drop in growth, exports and employment when remaining export quotas on its all-important textile industry are scrapped at the end of this year, the International Monetary Fund says.
Bangladesh's gross domestic product will be 2.3 percent smaller than it would have been in 2007 if the global system of quotas had continued; employment will shrink by 4.5 percent; and exports will drop 14.2 percent, according to an IMF simulation.
"Relatively weak competitiveness makes the Bangladeshi economy highly vulnerable to the final stage of the quota phase-out," an IMF report says.
The direct contribution of textiles to Bangladeshi GDP is just five percent. But the industry employs about 1.8 million people, or about 40 percent of all manufacturing jobs, and provides an indirect lifeline to 10-15 million people in one of the world's poorest countries.
Bangladesh labours under fewer quota and tariff restrictions than its major textile competitors. Also, its unit labour costs are 20-30 percent and 30-40 percent lower than in India and China, respectively.
But productivity is low and stagnant, and Bangladesh - unlike China and India - has yet to show it can penetrate unrestricted markets, the Washington-based lender said.
"Coupled with inadequate infrastructure and policy-induced weaknesses, Bangladeshi exporters will likely find it difficult to compete in the short to medium term even if appropriate policy responses can be put in place rapidly," IMF economists Montfort Mlachila and Yongzheng Yang concluded in a working paper.
The Fund urged Bangladesh to make more of an effort to address the deep-seated impediments facing garment exporters, who account for 77 percent of the country's total foreign sales.
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