Growth to slow if Europe scraps trade privileges: IMF

Bangladesh's economic growth, exports, exchange rate and foreign currency reserves will come under pressure if the European Union cancels the trade benefits for the country's failure to improve labour standards, the IMF has said.
In its latest analysis on Bangladesh, the International Monetary Fund said the shock in the form of preferential access to the EU market through Generalised System of Preferences (GSP) could have a sizable impact on economic growth through lower exports of garments.
It said balance of payments would come under pressure as exports will slump, destabilising the exchange rate and putting a strain on reserves.
"A loss of market access would have significant downsides for the external position and inclusive growth, potentially stalling important gains in poverty reduction."

The IMF made the overall analysis on the country while releasing its fourth instalment of $1 billion in budgetary support for Bangladesh on Friday.
The IMF said Bangladesh's GDP growth could decline by up to 1.80 percentage points in the first year after the GSP is withdrawn, as activity would severely be affected in the garment sector.
The loss in the real economic growth will come down to 0.6 percentage point in the second year of the shock.
Exports of goods in terms of GDP will decline 2.2 percentage points in the first year, 2.1 points in the second year and 2.2 percentage points within three to five years in the event of cancellation of the GSP.
The current account balance will also be hit: going down by 1.1 percentage points in terms of GDP in the first two years each and 1 percentage point within three to five years.
The IMF said the attendant loss of income from the export sector is also expected to curb private consumption and private investment.
At present, Bangladesh enjoys duty-free and quota-free access to the EU under the “Everything but Arms” scheme.
The country's garment sector accounts for 80 percent of total exports and directly employs about four million workers, mainly rural women. Its annual exports to the EU stand at around $14 billion.
But after the industrial disasters of Tazreen fire and Rana Plaza building collapse, the country's claims to such benefits have become delicate.
The EU has already made it clear that Bangladesh cannot take the trade preferences for granted and could face trade measures, as has been done by the US.
The US in June cancelled its GSP for Bangladesh due to a lack of progress in strengthening labour standards and worker safety conditions.
The impact of the withdrawal of the GSP will, however, be short-term and the country's economy will be able to absorb the loss in the economic growth within three to five years, the IMF said. The export growth will recover as Bangladesh maintains significant cost advantages, the lender added.
Under this scenario, Bangladesh's external debt distress rating remains unchanged as a low risk country, the IMF said.
The rule change in EU's GSP in 2011 favoured Bangladesh, which is said to have helped increase the country's share in the bloc's garment imports by 2.5 percentage points by 2012-2013.
The analysis, however, acknowledged the recent developments in the country's garment sector, aimed at strengthening working conditions.
Among the measures, the government recently revised the minimum wage for garment workers, raising the salaries by 77 percent to Tk 5,300. The labour laws have been amended to improve safety standards and workers' collective bargaining rights.
With support from the International Labour Organisation, development partners and international retailers, the authorities are strengthening the factory inspection system.
The IMF also said the recent growth slowdown and currency market volatility in India are expected to have relatively modest spillover into Bangladesh in the near term, as the country's export exposure to the larger neighbour is very low and financial linkages are limited.
"Domestic inflation could actually decline as a result of the depreciation of the rupee reducing the cost of imports from India," it said.