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Post-mfa Quota Regime

RMG export may fall 5pc in FY06 IMF projects

Rejaul Karim Byron
The looming expiry of Multi-Fibre Agreement (MFA) quotas will cause at least a-5-percent decline in apparel export from Bangladesh in financial year (FY) 2005-06, projected an International Monetary Fund (IMF) study.
The decline may push down the country’s gross domestic product (GDP) growth by one percentage
point, besides generating additional financing requirement of almost $800 million, added the study report.
But, Prof Mustafizur Rahman, research director of Centre for Policy Dialogue (CPD), a leading independent think-tank of the country, did not entirely agree with the IMF* views on post-MFA export decline. For instance, he said, ’Tn some categories like shirt, jacket and sweater, Bangladesh owns competitiveness in terms of quality and price. Export orders in these categories have also been increasing in the current fiscal."
[Due to the expiry of quota regime,] "Small industries may have to close down, which would affect export volume, but big RMG [ready-made garment] manufacturers will have chance to boost export after the quota withdrawal," ProfMustafizur maintained.
The professor said as phasing-out of quota for RMG comes into force next year the upcoming budget should include measures to face the [post-MFA] challenges.
Finance ministry sources said the next budget might have some such measures and incentives for the RMG sector. One of them said the government might set up a linkage fund which would provide loans at lower-than-market interest rate to the sector's backward linkage industry.
On remedial policy response, the IMF said the impact of the MFA quota removal could be mitigated "through a more aggressive exchange rate movement, a more rapid reduction in anti-export bias, and a more concerted effort to improve the investment climate and upgrade infrastructure."
The Fund said, even if the government adopted those measures, "The RMG exports could still fall, to virtually no growth in FY05, and a decline of 5 percent in FY06," as the measures would take some time to
bringresults.
While examining the extent of negative impact of quota withdrawal, the IMF study report recalled the 30-percent plunge that Bangladesh experienced in its exports to the US market of products whose quotas were removed in FY 2001-02. In that fiscal, the country's overall exports to the US fell by 16 percent.
That year in European Union (EU) market, Bangladesh's exports of products whose quota were removed fell by 20 percent, but its total exports to Europe fell by only two percent, due in part to the Everything but Arms initiative that the EU had introduced in March 2001.
Though Bangladesh will lose its quota preference in the US market after 2004 and its preferential access to the EU market will also diminish, the Fund said, "With duty-free access to the EU and Canadian markets, Bangladesh will be somewhat sheltered from the full effects of competition. Bangladesh's key competitors will continue to face duties in these markets on the order of 12 and 22 percent respectively."
While discussing the issue with the government last month, the IMF Poverty Reduction Growth Facility mission asked to take policy measures to face the challenges. The mission also promised the government of extending its support to counteract the impact of quota removal on the country's balance ofpayment.