June 23, 2016, is a black day for the European Union as the people of the United Kingdom voted in favour of leaving the union. Clearly, it is a massive drive to the European experiment in post world war-II. It will have outrageous implications all over the world especially for the developing countries like Bangladesh though the decision of departing the EU will come into effect after 2018. Furthermore, other EU countries may be influenced to leave the bloc subsequent to Brexit. Indeed, European politics and financial markets are thrown into a great turmoil after the referendum in Britain.
Bangladesh, a least developed nation, has been enjoying the zero-duty market access since 1971 under the 'Everything but Arms' arrangement. The UK is Bangladesh's third largest importer and second largest provider of remittance. The total export and import volume between Bangladesh and the UK during the FY 2014-15 was valued US$ 3205.45 million and US$ 330.20 million respectively. Export items from Bangladesh to the UK mainly include knitwear, woven garments, engineering products, frozen food, leather etc. Import items from the UK to Bangladesh mostly include textiles and textile materials, prepared foodstuffs, base metals, machinery and mechanical appliances, electrical equipment, chemical products, etc. The readymade garments products constitute nearly 90 per cent of our total export. Besides these, local businesses also export agro-based products to the UK including fruits and vegetables worth more than Tk.4 billion each year. Nearly 40 per cent of our total export of vegetables, fruits and allied products enter the UK.
After the referendum, the pound fell more than 10 percent that is the lowest value since 1985 and devaluation of pound through Brexit might hurt Bangladesh economy in different ways. UK may adopt an immediate conservative move on their financial expenditure as the purchase of goods or services in the UK will be more expensive and goods being sold to other countries from the UK will become cheaper in particular. Again, it could encourage imposition of a huge tariff on imports to raise revenue or to protect their domestic industries. If Brexit is effective, migrant workers and NRBs may defer sending money back home until the currency regains its old position. Racial tension may be raised as vote highlighted disagreement on immigration. Finally, it will echo around the world that may induce further shock in the world economy.
As a consequence of Brexit, Bangladesh may lose its competitiveness over its counterparts, especially in the export trade. Thus, Brexit may negatively impact on exports and remittance earnings of Bangladesh. Moreover, it may significantly influence our future plan of expanding export which is linked with Vision 2021.
Nobody exactly knows what will be the impact of Brexit on the world economy including Bangladesh. However, if the UK continues to allow duty-free market access after its exit, Bangladesh would not have difficulties in export. If something like this happens, the impact will be lesser than anticipated. UK would continue to grow because of a large number of non-resident Bangladeshis there.
According to Capital Economics, a London-based research firm, Brexit would cause at the most a GDP drop of 0.2 per cent across Asia. This is a matter of concern for us. The government will have to make necessary adjustments in the proposed budget and keep the export sector vibrant by maintaining the tax at source on readymade garments export at 0.60 per cent instead of 1.5 per cent. In fact, consequences of Brexit will generally depend on UK's reactions. Bangladesh needs to proceed carefully. It should inclusively analyze the post-Brexit global economic changes by forming a national committee involving representatives of trade bodies, law practitioners, economists, researchers and representatives from concerned ministries and agencies so that effective actions may be taken promptly. The government ought to start lobbying and need to renegotiate with UK to retain the duty-free access. Accordingly, the government should also try through the diplomatic channel so that the trading facility now being enjoyed in the UK through EU to keep pace with the global competitors is maintained.
The writer is Assistant Secretary (Planning and Research) of FBCCI and former Assistant Research Economist to Vice Chancellor of Uttara University.
altap.fbcci@gmail.com

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Source: The Financial Express