A study undertaken by two International Monetary Fund economists has predicted that Bangladesh will lose a considerable proportion of ready-made garment (RMG) exports to the European Union and United States once quotas are lifted next year.

Economists Monforth Mlachila and Yongzheng Yang have warned that the country may lose 25 per cent of its RMG exports by value.

They also say that the decline in trade balance may be 1.5 per cent of Gross Domestic Product (GDP), after quotas are abolished completely.

The study, entitled 'The End of Textile Quotas: A Case Study of the Impact on Bangladesh,' states: "The export slowdown since 1998 and evidence from the third phase of quota removal indicate that Bangladeshi exporters are likely to find it difficult to maintain their market shares in the US and the EU after 2004."

It continues: "While the RMG sector's contribution to GDP is relatively small, the impact of quota removal could be amplified through labour market rigidities as well as indirect effects through backward and forward linkages to the rest of the economy."

The study emphasises that major economic unrest could eventually be a knock-on effect of the changes and argues that Bangladesh needs to make "accelerated structural reforms."

It pointed out that of the seven types of products that underwent quota removal in the US In 2002, Bangladesh experienced export losses in every sector but one.

A problem identified with Bangladesh's labour productivity was the range of supply constraints in place, such as weak infrastructure and power supply. 

Another failing pinpointed was the government's bias towards larger firms.