These projections are just for illustrative purpose and should not be considered as robust for two key reasons. _<mark>Firstly</mark>_ <mark>, there is little information available on the underlying assumptions behind the FAO projections, for us to ascertain how robust these projections are.</mark> _<mark>Secondly</mark>_ <mark>, the assumption that domestic rice prices in Bangladesh will move in sync with world prices is not realistic for a number of reasons. Rice is a thinly traded commodity in the world market, with the result that there is often a high “wedge” between domestic and world prices. In the case of Bangladesh, domestic demand and production trends – as well as distortions created by export restrictions in countries that Bangladesh typically import from – are likely to play a key role in short‐term price movements. In sum, the assumption of a steep decline in domestic rice prices in 2010 based on FAO projections appears to be</mark> highly speculative.

<mark>In spite of these caveats, our alternate projections under a scenario of rice price decline serve a useful purpose – of illustrating the impact that rice prices would have on poverty in Bangladesh, at least in the short‐term. The lesson to take away from the alternate poverty projections is that the ultimate impact of the financial crisis on poverty will depend to some extent on how food prices move in the near future.</mark>

# **_4.5 The impact of the crisis across regions and urban/rural areas_**

The East‐West gap in poverty reduction between 2000 and 2005, as described in Section 4.1 earlier, is a result of significant differences in how industrialization and rapid growth in remittances have evolved in different parts of the country. Given this background, it is important to look at how the impact of the crisis is likely to be distributed between the two regions. We would expect the impact to be higher in the East than the West because of two primary reasons. First, the East has a greater concentration of industry, which is the worst‐affected sector; and second, the eastern region – and Sylhet and Chittagong divisions in particular – has much higher incidence of remittances.

**Figure 4: Impact of crisis on income and poverty – by region (2010)**

<!-- Start of picture text --> (a) % change in average household income (b) % change in poverty rate (upper PL) between<br>between benchmark and crisis benchmark and crisis<br>0.0 15<br>‐1.0<br>10<br>‐2.0<br>5<br>‐3.0<br>‐4.0 0<br>Source : Own simulations based on HIES (2005)<br>Note: Vertical axis measures the difference between crisis and benchmark poverty rates (as % of benchmark rate)<br>% change % change<br>Rural Urban Chittagong Dhaka Sylhet Barisal Khulna Rajshahi Rural Urban Chittagong Dhaka Sylhet Barisal Khulna Rajshahi<br><!-- End of picture text -->

**East‐West differences in income losses and poverty impact** . Our micro‐simulation results confirm these expectations for 2010 (see Annex 2, Table G for all results). Sylhet, Chittagong and Dhaka are the worst‐ affected divisions in terms of loss of average income. The average household income in Sylhet, Chittagong and Dhaka are projected to be lower by 4%, 3% and 2.5% respectively in the crisis scenario

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