ACU

1974

Asian Clearing Union ANNUAL REPORT 2018

Submitted to: The 48th Meeting of the ACU Board of Directors held by Royal Monetary Authority of Paro- Bhutan July 15, 2019 ANNUAL REPORT 2018

Board of Directors at the 47th ACU Meeting

June 28, 2018 Kathmandu -

II Board of Directors at the 47th ACU Meeting ANNUAL REPORT 2018

Participants at the 47th Meeting of the ACU Board of Directors

June 28, 2018 Kathmandu - Nepal

III Participants at the 47th ACU Meeting ANNUAL REPORT 2018

Board of Directors

Fazle Kabir Dasho Penjore Shri Shaktikanta Das Governor, Governor, Governor*, Bank Royal Monetary Reserve Bank of

Authority of Bhutan * From 12.12.2018

Abdol-Naser Hemmati Ahmed Naseer Kyaw Kyaw Maung Governor*, Governor, Governor, Central Bank of I.R. of Monetary Central Bank of

* From 25.07.2018 Authority

Chiranjibi Nepal Indrajit Governor, Governor1, Coomaraswamy State Bank of Governor, Central Bank of

1 Dr. , Governor, acts as Director since 05.05.2019.

IV Board of Directors ANNUAL REPORT 2018

Alternate Directors

Kazi Sayedur Yangchen Tshogyel Usha Janakiraman* Rahman* Deputy Governor, Chief General Manager, Executive Director, Royal Monetary Authority

Bangladesh Bank of Bhutan * From 21.02.2018

* From 31.01.2018

Gholamreza Panahi* Mariyam Hussain Didi Bo Bo Nge Vice Governor, Assistant Governor, Deputy Governor, Central Bank of I.R. of Iran Maldives Monetary Central Bank of Myanmar

* From 12.08.2018 Authority

Bhisma Raj Jameel Ahmad D. Kumaratunge Dhungana* Deputy Governor, Director, Executive Director1, Central Bank of Sri Lanka Nepal Rastra Bank

* From 02.04.2018

1 Mrs. Sarita Adhikari, Acting Executive Director, acts as Alternate Director since 17.05.2019. V Alternate Directors ANNUAL REPORT 2018

Offi cers-in-Charge

Kazi Rafi qul Hassan* Tshering Wangmo* Peeyoosh Nag* General Manager, Director, Deputy General Manager, Bangladesh Bank Royal Monetary Authority Reserve Bank of India

* From 02.08.2018 of Bhutan * From 11.06.2018

* From 01.10.2018

Mohammad Reza Fathmath Ulfa* Myint Myint Kyi Khataei* Manager, Director General, Director, Maldives Monetary Central Bank of Myanmar Central Bank of I.R. of Iran Authority

* From 21.10.2018 * From 24.06.2018

Arun Kumar Shah* Saleem Ullah K A Thamara N Assistant Director1, Director, Senarathna* Nepal Rastra Bank State Bank of Pakistan Senior Assistant Director,

* From 05.09.2018 Central Bank of Sri Lanka

* From 30.01.2018 1 Mr. Bashu Dev Bhattarai, Deputy Director, acts as Offi cer-in-Charge since 09.04.2019.

VI Offi cers-in-Charge ANNUAL REPORT 2018

Contents

Administrative Organization, 2018 ...... 1 Board of Directors, 2018 ...... 2 Offi cers-in-Charge, 2018 ...... 3 Letter of Transmittal to the Board of Directors ...... 4 Global Economic Prospects and Challenges ...... 5 Economic Highlights of ACU Member Countries ...... 15 Country Performance ...... 28 Bangladesh ...... 28 Bhutan ...... 41 India ...... 53 Iran ...... 73 Maldives ...... 86 Myanmar ...... 95 Nepal ...... 102 Pakistan ...... 112 Sri Lanka ...... 134 Auditor’s Report ...... 147 ACU Operations ...... 148 Clearing Operations ...... 148 Credit Positions ...... 149 Debit Positions ...... 149 Net Credit/Debit Positions ...... 150 Interest Received/Paid ...... 150 Cotribution to Growth ...... 151 Swap Facility ...... 151 Measures and Achievements ...... 151 Tables ...... 154 Acronyms and Abbreviations ...... 177

VII Contents ANNUAL REPORT 2018

Asian Clearing Union Administrative Organization, 2018

Chiranjibi Nepal Chairman of the Board of Directors Governor of Nepal Rastra Bank

Lida Borhan-Azad Secretary General

Secretariat Office Address: No. 47, 7th Negarestan Alley, Pasdaran Ave., P.O. Box 15875/7177 , Islamic Republic of Iran Phone: (+98 21) 22842076, 22854509 Fax: (+98 21) 22847677 E-mail: [email protected] Website: www.asianclearingunion.org

Agent Bank Central Bank of Islamic Republic of Iran

1 Administrative Organization, 2018 ANNUAL REPORT 2018

Asian Clearing Union

Board of Directors, 2018

Bangladesh Bank Mr. Fazle Kabir Governor, (Director) Mr. Kazi Sayedur Rahman* Executive Director, (Alternate) * From 31.01.2018 Royal Monetary Authority of Bhutan Mr. Dasho Penjore Governor, (Director) Ms. Yangchen Tshogyel Deputy Governor, (Alternate) Reserve Bank of India Mr. Shri Shaktikanta Das* Governor, (Director) * From 12.12.2018 Ms. Usha Janakiraman* Chief General Manager, (Alternate) * From 21.02.2018 Central Bank of Islamic Republic of Iran Dr. Abdol-Naser Hemmati* Governor, (Director) * From 25.07.2018 Mr. Gholamreza Panahi* Vice Governor, (Alternate) * From 12.08.2018 Maldives Monetary Authority Mr. Ahmed Naseer Governor, (Director) Ms. Mariyam Hussain Didi Assistant Governor, (Alternate) Central Bank of Myanmar Mr. Kyaw Kyaw Maung Governor, (Director) Mr. Bo Bo Nge Deputy Governor, (Alternate) Nepal Rastra Bank Dr. Chiranjibi Nepal Governor, (Director) Mr. Bhisma Raj Dhungana* Executive Director, (Alternate) * From 02.04.2018 State Bank of Pakistan Mr. Tariq Bajwa Governor, (Director) Mr. Jameel Ahmad Deputy Governor, (Alternate) Central Bank of Sri Lanka Dr. Indrajit Coomaraswamy Governor, (Director) Mr. D. Kumaratunge Director, (Alternate)

2 Board of Directors, 2018 ANNUAL REPORT 2018

Asian Clearing Union

Officers-in-Charge, 2018

Bangladesh Bank Mr. Kazi Rafiqul Hassan* General Manager, Forex Reserve and Treasury Management Dept. * From 02.08.2018 Royal Monetary Authority of Bhutan Mrs. Tshering Wangmo* Director, Payment and Settlement Systems Dept. * From 01.10.2018 Reserve Bank of India Mrs. Peeyoosh Nag* Deputy General Manager, External Investments and Operations Dept. * From 11.06.2018 Central Bank of Islamic Republic of Iran Mr. Mohammad Reza Khataei* Director, International Dept. * From 21.10.2018 Maldives Monetary Authority Ms. Fathmath Ulfa* Manager, Foreign Exchange Section * From 24.06.2018 Central Bank of Myanmar Ms. Myint Myint Kyi Director General, Accounts Dept. Nepal Rastra Bank Mr. Arun Kumar Shah* Assistant Director, Foreign Exchange Management Dept. * From 05.09.2018 State Bank of Pakistan Mr. Saleem Ullah Director, Finance Dept. Central Bank of Sri Lanka Mrs. K A Thamara N Senarathna* Senior Assistant Director, Payments and Settlements Dept. * From 30.01.2018

3 O f ficers-in-Charge, 2018 ANNUAL REPORT 2018

Letter of Transmittal to the Board of Directors

July 15, 2019

The Honorable Mr. Dasho Penjore Chairman of the Board, Governor, Royal Monetary Authority of Bhutan, Paro, Bhutan

Dear Mr. Chairman,

I have the honor to present to the Board of Directors, the Annual Report of the Asian Clearing Union (ACU) for the year 2018, duly signed by me, in accordance with Chapter III, Article VIII, Section 3(c) of the Agreement Establishing the Asian Clearing Union.

Yours sincerely,

Lida Borhan-Azad Secretary General, ACU

4 Letter of Transmittal to the Board of Directors ANNUAL REPORT 2018

Global Economic Prospects and Challenges1

An overview

Global economic activity slowed remarkably economies is estimated to fall as the impact in the second half of 2018. Growth is of US fiscal stimulus fades and growth tends projected to decline from 3.60 percent in 2018 toward the modest potential for the group. China to 3.30 percent this year, before returning and India are forecast to experience robust to 3.60 percent next year. China’s growth growth by comparison to slower-growing decreased due to regulatory tightening to advanced and economies rein in shadow banking and an increase in (even though Chinese growth will eventually trade tensions with the United States (US). moderate during 2019-20). Moderate labor The euro area economy slowed down as productivity, slowing expansion of the labor consumer and business confidence lowered, force, and population aging negatively car production in Germany was disrupted, affected the growth in advanced economies. investment fell in Italy, and external demand, Factors such as structural bottlenecks, slower especially from emerging Asia, dropped. advanced economy growth, high debt, tighter In Japan, natural disasters hurt activity. financial conditions, suppressed commodity Trade tensions adversely affected business prices, and civil conflict deteriorate confidence, weighing on global demand. In medium-term prospects for Latin America; 2019, as the US Federal Reserve signaled a the Middle East, North Africa, and Pakistan more accommodative monetary policy stance region; and parts of Sub-Saharan Africa and markets became more optimistic about a (SSA). Convergence prospects are bleak for US–China trade deal, conditions improved. some 41 emerging market and developing economies, accounting for about 10.00 percent In emerging market and developing of global Gross Domestic Product (GDP) economies, activity is projected to gain and with total population of around 1.00 momentum from projection of 4.40 percent billion, where per-capita incomes are expected growth in 2019 to 4.80 percent in the year after. to decline further behind those in advanced By contrast, economic activity in advanced economies over the next five years.

1 This summary report is based on World Economic Outlook (WEO-April 2019), International Monetary Fund.

5 Global Economic Prospects and Challenges ANNUAL REPORT 2018

The balance of risks to the outlook remains global growth dropped to 3.60 percent in on the downside. A further rise of trade 2018, with a forecast to decline to 3.30 tensions and the associated increases in policy percent this year and returning to 3.60 percent uncertainty could further weaken growth. in 2020. Market sentiment is expected to deteriorate notably, leading to portfolio reallocations Growth in advanced economies is projected away from risk assets, wider spreads to slow from 2.20 percent in 2018 to 1.80 over safe haven securities, and generally percent in 2019 and 1.70 percent in 2020. tighter financial conditions, especially for The drawback in part reflects the anticipated vulnerable economies. A no-deal Brexit negative effects of the tariff increases enacted withdrawal of the United Kingdom (UK) in 2018. from the European Union; prolonged global growth slowdown; and extended fiscal In the US, growth is expected to decline uncertainty and elevated yields in Italy with to 2.30 percent in 2019 and drop further to possible adverse spillovers for other euro area 1.90 percent in 2020 with the slowdown economies, worsens the outlook. of fiscal stimulus. The downward revision was led by the Government shutdown and Over the medium-term, climate change lower fiscal spending. Momentum in the and political disputes are key risks that US remained robust amid a tight labor could dampen global potential output, market and strong consumption growth, but with particularly severe impacts on some investment moderated in the second half vulnerable countries. of the year. Notable growth of domestic demand is likely to lead to higher imports and Global Prospects and current account deficit. Challenges Growth in the euro area is set to slowdown from 1.80 percent in 2018 to 1.30 percent World output growth in 2019 and 1.50 percent in the next year. Growth rates have been marked down for After two years increase in global growth, many economies, notably Germany (due to the economic activity declined in the second soft private consumption, weak industrial half of 2018, stemming from intensified trade production, and subdued foreign demand); tensions and tariff rises between the US and Italy (due to weak domestic demand, as China, deteriorated business confidence, sovereign yields remain elevated); and France tightened financial conditions, and expanded (due to the negative impact of street protests). policy uncertainty across many economies. In the UK, the economy is expected to grow Following peaking at 3.80 percent in 2017, at about 1.20 and 1.40 percent during 2019–20,

6 Global Economic Prospects and Challenges ANNUAL REPORT 2018 with the assumption that a Brexit deal is group, where growth is projected to fall to reached in 2019. Euro area economies’ exports 4.40 percent from 4.50 percent in the last dropped markedly, in part because of weak year. The decline came from lower growth in intra-euro-area trade, which exacerbated poor China and the recession in Turkey. In 2020, sentiment across the currency area. growth is forecast to rise to 4.80 percent, driven by an expected strengthening of Activity weakened in Japan, largely due to activity in these economies as a result of natural disasters in the third quarter. Japan’s policy adjustment and some easing of economy is set to grow by 1.00 percent geopolitical tensions. in 2019, slightly higher than 0.80 percent growth of the last year. The recovery In emerging and developing Asia, growth stems from additional fiscal support such is expected to diminish to 6.30 percent as measures to ease the effects of the during 2019-20 from 6.40 percent in 2018. consumption tax rate increase. Growth is Economic growth in China is projected to projected to moderate to 0.50 percent in 2020. slow during this period. In India, growth is projected to pick up to 7.30 percent in 2019 In China, domestic regulatory tightening, and 7.50 percent in 2020, supported by the domestic investment moderation, spending continued recovery of investment and robust on durable consumption goods softening, consumption amid a more expansionary automobile sales reduction contributed to stance of monetary policy and some expected slower momentum over the year, with further impetus from fiscal policy. pressure from diminishing export orders as US tariff actions began to take hold in the Activity in emerging and developing Europe second half of the year. As a result, China’s in 2019 is expected to moderate, despite growth declined from 6.80 percent in 2017 to generally buoyant and higher-than-expected 6.60 percent in 2018. It is projected to drop growth in several central and eastern European further to 6.30 percent in 2019. countries, before recovering in 2020. The revision for the region is mainly due to Policy tightening to diminish financial and contraction in Turkey in 2019, where the macro-economic imbalances took effect in weakness in demand is expected to continue Argentina and Turkey; sentiment undermined in early 2019. In Latin America, growth is and sovereign spreads rose in Mexico, and expected to recover over the next two years, geopolitical tensions contributed to weaker to 1.40 percent in 2019 and 2.40 percent in activity in the Middle East. 2020. In Brazil, growth is set to improve from 1.10 percent in 2018 to 2.10 percent In 2019, global growth slowed down by the in 2019 and 2.50 percent in the next year. In emerging market and developing economy Mexico, growth is projected to remain below

7 Global Economic Prospects and Challenges ANNUAL REPORT 2018

2.00 percent during 2019–20. Venezuela’s due to continued strong investment growth, economy is forecast to contract by 25.00 economic activity is anticipated to grow at percent in 2019, and a further 10.00 percent about 4.80 percent over the medium-term. In in 2020. emerging Asia, growth is expected to remain above 6.00 percent. China experiences a In the Middle East, North Africa, gradual slowdown of 5.50 percent by 2024 Afghanistan, and Pakistan (MENAP) region, as internal rebalancing toward a private- growth is projected to fall to 1.50 percent in consumption and services-based economy 2019, before gaining momentum to about continues and regulatory tightening slows 3.20 percent in 2020. For the region, the the accumulation of debt and associated outlook is weighed down, driven by slower vulnerabilities. Growth in India is set to oil GDP growth in Saudi Arabia; ongoing stabilize at 7.75 percent over the medium- macro-economic adjustment in Pakistan; and term, based on continued implementation of civil tensions and conflict. structural reforms and easing of infrastructure bottlenecks. In SSA, growth is set to pick up to 3.50 percent in 2019 and 3.70 percent in 2020 In Latin America, growth is forecast to pick from 3.00 percent in 2018. Growth in South up from 2.40 percent in 2020 to 2.80 percent Africa is expected to slightly increase from over the medium-term. Financial stabilization 0.80 percent in 2018 to 1.20 and 1.50 percent and recovery in Argentina contributes to that during 2019-20. region’s growth improvement.

Growth in the Commonwealth of Activity in emerging Europe is set to rise Independent States (CIS) is set to be 2.20 and above 3.00 percent over the medium-term. 2.30 percent in 2019–20, as weaker oil prices This improvement stems from momentum weigh on Russia’s growth prospects. gained by Turkey, where the growth is projected to increase to 3.50 percent Beyond 2020, global growth is projected as domestic demand recovers from the to be 3.60 percent over the medium-term. current sharp contraction that is reducing For the advanced economy group, growth macro-economic and financial imbalances. is set to moderate further. Growth for the emerging market and developing economy For the CIS, the outlook is for growth group is expected to broadly stabilize at its to stabilize at 2.40 percent over the 2020. Specifically, for advanced economies, medium-term. This mainly reflects sluggish growth is expected to slow to 1.60 percent growth in Russia of about 1.50 percent, by 2022 and remain at that level thereafter. In weighed down by the modest outlook for oil emerging market and developing economies, prices and structural headwinds.

8 Global Economic Prospects and Challenges ANNUAL REPORT 2018

Growth in SSA as a whole is projected to is less than central bank targets despite the rise from 3.70 percent in 2020 to about increase in domestic demand in the past two 4.00 percent in 2024. Growth prospects years; in the US and UK, it is about 2.00 for commodity exporters are weighed percent. Although wage growth has gone up down by the soft outlook for commodity across most advanced economies, particularly prices, including for Nigeria and Angola. In in the US and UK, it is still sluggish despite South Africa, growth is projected to stabilize lower unemployment rates and diminished at 1.75 percent over the medium-term. labor market slack.

The medium-term outlook for the MENAP Among emerging market economies, core region is largely shaped by the outlook for fuel inflation remained below 2.00 percent in prices, needed adjustment to correct macro- China, given moderated activity. In other economic imbalances in certain economies, cases, inflation pressure eased toward the and geopolitical tensions. Growth in lower bound of the central bank’s target Saudi Arabia is expected to stabilize at about range with the decline in commodity prices 2.25–2.50 percent over the medium-term. In (Indonesia) and slowdown in food inflation Pakistan, in the absence of further adjustment (India). policies, growth is set to remain subdued at about 2.50 percent, with continued external In the advanced economies, inflation is and fiscal imbalances weighing on confidence. forecast to drop to 1.60 percent in 2019 compared to 2.00 percent last year. The Inflation projection is consistent with the softer outlook for commodity prices and the Global energy prices declined by 17.00 expected moderation in growth. For the percent between October 2018 and April 2019 US, core inflation was 2.40 percent in 2018, as oil prices fell from a four-year peak of declining to 2.00 percent this year. USD 81.00 a barrel in October to USD 61.00 in February. Since the beginning of this year, In the euro area, core inflation is expected to oil prices have recovered due to production fall from 1.80 percent in 2018 to 1.30 percent cuts by oil-exporting countries. Prices of in 2019. base metals went up by 7.60 percent since August because of supply disruption in some Japan’s core inflation rate is forecast to rise metal markets more than offsetting softened from 1.00 percent last year to 1.10 and 1.50 global demand. Across advanced economies, percent during 2019-20 as the consumption consumer price inflation remained subdued, tax rate is raised in October this year. In as a result of decrease in commodity prices. India, inflation is likely to increase to 3.90 For most countries in this group, core inflation percent in 2019 compared to 3.50 percent a

9 Global Economic Prospects and Challenges ANNUAL REPORT 2018

year ago. Financial conditions in emerging markets improved in early 2019. Central banks For emerging market and developing in many emerging market economies economies (excluding Venezuela), inflation (Chile, Indonesia, Mexico, Philippines, is expected to rise to 4.90 percent this year South Africa) risen policy rates because of from 4.80 percent in 2018, stemming from concerns about likely increase in inflation a higher value-added tax rate in Russia and due to high oil prices in 2018 and, for a gradual pickup in price pressure in India as some countries, pass-through from previous a result of strong demand conditions and a currency depreciation. In China, the central modest increase in food inflation from a low bank provided liquidity support and reduced base. reserve requirements for all banks as growth moderated. In Mexico, sovereign spread Financial conditions widened notably during November and December, but it has since narrowed. Spreads Market sentiment recovered in early 2019 have declined in Brazil since October as a after a notable tightening of financial result of the prospects of pension reform. conditions in late 2018. Moderate global Emerging market equity indexes recovered in growth, unfavorable corporate earnings, late-2018. and market concerns about the pace of Federal Reserve policy tightening, adversely With regard to exchange rates, the US Dollar affected sentiment at the end of 2018. was back to its September 2018 level in late March as the late-2018 appreciation reversed In advanced economies, financial conditions following a shift in market expectations have eased since the start of the year, after about the pace and extent of monetary policy tightening notably in late-2018 on equity price tightening. The euro depreciated by about drops and higher risk spreads. In the US, bond 3.00 percent over this period, given weaker yields declined as investors reassessed the macro-economic data and concerns about outlook for monetary policy normalization. Italy. The Yen appreciated moderately, and The European Central Bank ended its net the Pound strengthened by about 3.00 percent asset purchases in December 2018 and further due to Brexit negotiations. Emerging market postponed a rise in policy rates to the end of currencies generally appreciated, led by the this year. pause in interest rate hikes by Federal Reserve and by the truce in the US–China trade Equity markets in the US and Europe have dispute. This includes currencies that had regained footing after the sharp sell-off at come under more severe pressure in previous the end of 2018, while high-yield corporate months—primarily the Argentine Peso and spreads have narrowed. the Turkish Lira, but also the Brazilian Real

10 Global Economic Prospects and Challenges ANNUAL REPORT 2018 and the South African Rand—as well as the economies projected for 2020 and beyond. Indian Rupee and the Russian Ruble. Most other Asian currencies also appreciated, with Global current account deficits and surpluses the Chinese Renminbi strengthening by about have widened marginally in 2018 compared 2.00 percent. with the previous year. This was led by higher oil prices, boosting the current account balance Improved market sentiment toward of oil exporters by about 3.50 percent of their emerging markets was reflected in a GDP. The current account deficits of some stabilization and subsequent recovery in Asian net oil importers (India, Indonesia, and portfolio flows, which had declined notably Pakistan) expanded, due to increase in oil in the second and third quarters of 2018. The prices. The current account surplus of China recovery was particularly remarkable in early decreased notably to 0.40 percent of GDP, 2019 as investors increased allocations to while the US current account deficit was emerging market bond and equity funds. unchanged at 2.30 percent, and the surplus of the euro area declined marginally to 3.00 External sector percent.

Amid high policy uncertainty and weakening Forecasts for 2019 and beyond reflect a prospects for global demand, industrial gradual reduction in global current account production reduced, particularly for capital deficits and surpluses, particularly after 2020. goods. The slowdown was broad-based, The surplus of oil exporters will diminish, as notably across advanced economies, except average oil prices are expected to decrease the US. Global trade growth declined sharply from their 2018 level, and the current account from its peak in late 2017, with US imports surpluses in the euro area, Japan, and other from China subject to new US tariffs. advanced Asian economies are set to decline gradually. Among deficit countries, the Global trade growth slowed markedly in current account balance of the US is forecast 2018, driven by increased trade tensions to rise during 2019–20 due to expansionary and a more general slowdown in global fiscal policy, and to narrow again thereafter. activity. The forecast for 2019 reflects further The recently imposed trade measures by the slowdown, followed by some recovery in US and retaliatory actions by trading partners 2020. In subsequent years, trade growth is are expected to have limited impact on projected to continue at broadly the same overall external imbalances. Excess current pace as in the last year as investment demand account balances in 2018 are projected to gradually recovers in emerging market have declined, supported in many cases by and developing economies, offsetting the real exchange rate movements. Medium- slowdown in capital spending in advanced term projections reflect further movement of

11 Global Economic Prospects and Challenges ANNUAL REPORT 2018

current account balances in the same Risks to the global outlook direction. Global growth will stabilize in the first half Changes in international investment positions of 2019 and recover gradually next year. If depict net financial flows and valuation the trade truce between the US and China is changes arising from fluctuations in resolved with a pushback of tariff increases exchange rates and asset prices. Forecasts enacted in 2018, rising business confidence reflect broadly stable real effective and financial sentiment is likely to improve exchange rates and limited variation in asset growth. However, the balance of risks skewed prices. Creditor and debtor positions as a share toward the downside. of world GDP are projected to widen slightly this year, and then to broadly stabilize. On the Global trade, investment, and output are creditor side, the growing creditor positions negatively affected by continued trade of a group of European advanced economies tensions. Signing of the US-Mexico- is offset by some reduction in the creditor Canada Agreement, of the truce between the position of China and oil exporters. On the US and China on tariff increases, and debtor side, the debtor position of the reduction in Chinese tariffs on US car imports US increases initially and then stabilizes with are favorable measures. A proposal to increase the forecast reduction in its current account tariffs on all imported cars and car parts deficit as the fiscal stimulus is withdrawn, remains under consideration in the US. Failure while the position of euro area debtor countries to resolve disputes would lead to rise in tariff further improves. In advanced European barriers, in costs of imported intermediate economies, the net creditor position is and capital goods, and in consumer prices. estimated to be above 80.00 percent of Higher trade policy uncertainty would reduce GDP and for Japan to exceed 65.00 percent, business investment, disrupt supply chains, while the net creditor position of and slow productivity growth. The resulting China would diminish to below 10.00 deteriorated outlook for corporate profitability percent. The debtor position of the would adversely affect financial market US is forecast to reach 50.00 percent of sentiment and growth. GDP, while the net international investment position of a group of euro area debtor The global growth is affected by projections countries, including Italy and Spain, is set of a recovery in the euro area, avoidance of to improve by more than 25.00 percentage a no-deal Brexit, some firming of growth in points of their collective GDP. By 2024, net China, and a gradual softening of growth foreign liabilities, at about 32.00 percent of in the US as fiscal stimulus fades. The their GDP, would be half what they were a materialization of risks in these economies decade earlier. would dampen global growth directly and

12 Global Economic Prospects and Challenges ANNUAL REPORT 2018 through real and financial spillovers. financial vulnerabilities, diminish future policy space, and raise downside risks to In Europe, an elevated yields in Italy, medium-term growth. the rising possibility of a no-deal Brexit and European Parliamentary election Cyber-attacks are another source of risk outcomes that delay or reverse progress as they can severely disrupt cross-border on strengthening the euro area architecture, payment systems and the flow of goods and would weigh on the economies. A no-deal services. Reversals of post-crisis regulatory Brexit that severely disrupts supply chains reform or a continuation of accommodative and raises trade costs is likely to have large financial conditions could lead to additional and long-lasting negative impacts on the financial vulnerabilities. economies of the UK and the European Union. Policy uncertainty about the agenda of new In the US, policy rates remains below administrations or surrounding elections, the Federal Open Market Committee’s geopolitical conflict in the Middle East, projections, increasing the possibility of a and tensions in east Asia are factors which market reassessment of the expected policy adversely affect investment and growth. path if US economic data remain strong. This would lead to higher interest rates, Dollar Risks with serious impacts on the medium- appreciation, and tighter financial conditions and long-term outlook include climate for emerging market and developing change, decline in trust with regard to economies. establishment institutions and political parties. The worsening profile mainly reflects In China, failure to reduce trade tensions the expected risk of oil prices rebounding would dampen economic activities. Excessive sharply from their recent rapid drop. stimulus to help near-term growth by a Projections suggest slightly higher near-term loosening of credit standards, or a resurgence downside risks to global financial stability of shadow banking activity and off-budget and continued elevated risks to medium-term infrastructure spending, would increase growth.

13 Global Economic Prospects and Challenges ANNUAL REPORT 2018

World Economic Outlook (Percent change unless noted otherwise) Year Projections 2017 2018 Item 2019 2020 World Output 3.80 3.60 3.30 3.60 Advanced Economies 2.40 2.20 1.80 1.70 United States 2.20 2.90 2.30 1.90 Euro Area 2.40 1.80 1.30 1.50 Japan 1.90 0.80 1.00 0.50 United Kingdom 1.80 1.40 1.20 1.40 Canada 3.00 1.80 1.50 1.90 Other Advanced Economies (excl. G7 and euro area countries) 2.90 2.60 2.20 2.50 Emerging Market and Developing Economies 4.80 4.50 4.40 4.80 Commonwealth of Independent States 2.40 2.80 2.20 2.30 Emerging and Developing Asia 6.60 6.40 6.30 6.30 Emerging and Developing Europe 6.00 3.60 0.80 2.80 Latin America and the Caribbean 1.20 1.00 1.40 2.40 Middle East, North Africa, Afghanistan, and Pakistan 2.20 1.80 1.50 3.20 Sub-Saharan Africa 2.90 3.00 3.50 3.70 South Africa 1.40 0.80 1.20 1.50 European Union 2.70 2.10 1.60 1.70 World Trade Volume (goods and services) 5.40 3.80 3.40 3.90 Imports Advanced Economies 4.30 3.30 3.00 3.20 Emerging Market and Developing Economies 7.50 5.60 4.60 5.30 Exports Advanced Economies 4.40 3.10 2.70 3.10 Emerging Market and Developing Economies 7.20 4.30 4.00 4.80 Commodity Prices (US Dollar) Oil 23.30 29.40 -13.40 -0.20 Non-fuel (average based on world commodity export weights) 6.40 1.60 -0.20 1.10 Consumer Prices Advanced Economies 1.70 2.00 1.60 2.10 Emerging Market and Developing Economies (excl. Venezuela) 4.30 4.80 4.90 4.70 London Interbank Offered Rate (percent) On US Dollar Deposits (six month) 1.50 2.50 3.20 3.80 On Euro Deposits (three month) -0.30 -0.30 -0.30 -0.20 On Japanese Yen Deposits (six month) 0.00 0.00 0.00 0.00 Source: World Economic Outlook, IMF, April 2019, Page 9

Source: World Economic Outlook, IMF, April 2019, Pages xv-xvi and 1-52

14 Global Economic Prospects and Challenges ANNUAL REPORT 2018

Economic Highlights of ACU Member Countries

Bangladesh

Bangladesh has experienced a high and previous year. steady economic growth for more than a decade. Real Gross Domestic Product (GDP) The budget deficit (excluding grants) growth has accelerated to 7.86 percent in increased by 64.06 percent to Tk. 1,120.40 2017/18, which was 7.28 percent in 2016/17. billion (4.98 percent of GDP) in 2017/18 This growth was mainly contributed by the from Tk. 682.90 billion in 2016/17. The higher growth of industry sector along with domestic borrowing of the deficit financing satisfactory growth of service sector. in 2017/18 was Tk. 660.20 billion (2.93 percent of GDP). Foreign financing Annual average Consumer Price Index (CPI) component of the budget deficit was inflation (base: 2005/06=100) increased to Tk. 415.70 billion (1.85 percent of GDP) 5.78 percent in 2017/18 from 5.44 percent in during 2017/18. 2016/17. The average CPI inflation stood at 5.54 percent in December 2018. Total export earnings increased by 6.43 percent growth in 2017/18 compared to 1.73 Bangladesh Bank (BB) has pursued a percent growth in 2016/17 while import cautious but growth supportive, inclusive and payments recorded a growth of 25.23 percent investment friendly monetary policy stances during 2017/18 compared to 9.00 percent in 2017/18 with a view to achieving desired growth in 2016/17. The overall balance economic growth, maintaining inflation at registered a deficit of USD 885.00 million a moderate level. Broad Money (M2) grew during 2017/18 compared to a surplus of by 9.24 percent in 2017/18 against 13.30 USD 3,169.00 million in 2016/17. percent targeted under the program and 10.88 percent growth in 2016/17. In addition, The workers’ remittance inflows increased M2 increased by 9.41 percent in December by 17.32 percent from USD 12,769.45 2018 compared to the same month of the million in 2016/17 to USD 14,981.69

15 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

million in 2017/18. Account Deficit (CAD) resulting from higher import growth along with meager The nominal exchange rate depreciated by exports growth. Looking ahead, in 2018/19, 3.63 percent and stood at Tk. 82.11 as of the domestic credit is projected to grow by end of June 2018 compared to Tk. 79.13 as of 15.90 percent; imports (fob) are projected the end of June 2017. The Nominal Effective to grow by 7.50 percent, exports (fob) by Exchange Rate (NEER) of Taka, calculated 14.00 percent and remittances 11.00 percent. against a trade weighted 15 currency basket The foreign exchange reserves are projected (base: 2015/16=100) depreciated by 4.50 to reach USD 33.30 billion or higher in percent in 2017/18. However, the Real 2018/19. Based on the recent economic Effective Exchange Rate (REER) of Taka indicators and econometric analysis, depreciated by 1.70 percent in 2017/18. the monetary program for the second half of 2018/19 will target a monetary The gross foreign exchange reserves of growth path aiming at keeping average BB stood at USD 32,943.00 million at the inflation in the range of 5.30-5.60 percent. end of 2017/18 which is 1.64 percent lower In 2014/15, Bangladesh reached the lower than USD 33,493.00 million of the preceding middle-income country status and expects year. The foreign exchange reserve is to reach upper middle-income countries sufficient to meet around 5.50 months of by 2030 or earlier. Moreover, Bangladesh’s prospective imports of goods and services. target is building Bangladesh as a knowledge-based and technology-oriented Total transactions of Bangladesh under middle-income country by 2021, poverty Asian Clearing Union (ACU) increased alleviation, overall development of living in terms of net volume during 2017/18 standard of people and graduation of the compared to the preceding year. Receipts country to a developed one by 2041. significantly increased from USD 183.60 million (Tk. 14.80 billion) to USD 189.21 Bhutan million (Tk. 15.84 billion) and import payments increased from USD 5,996.92 With slowdown in hydropower million (Tk. 483.34 billion) to USD 8,088.52 investment, the economic growth dipped million (Tk. 677.18 billion) with the to 4.63 percent in 2017/18 against 8.02 ACU member countries during 2017/18. percent growth in 2016/17. In consideration to the nearing completion of three mega The near and medium-term outlook for projects, the hydro investment resulted in Bangladesh’s economy remains broadly 8.12 percentage points drop in the overall positive. Overall Balance of Payments (BOP) private investment demand. The modest stood in deficit due to massive Current growth was primarily supported by endured

16 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

fiscal expansion and restoration of private USD 2.65 billion as of 2017/18, reflecting consumption spending. The higher investment an increase of USD 136.64 million from the for public infrastructure development and previous year. Of the total external debt, 73.50 increased capital grants disbursement to public percent (INR 133.19 billion) constitutes entities expanded government investment Indian Rupee debt and USD 699.82 million demand by 23.36 percent in real terms. in the form of convertible currency. Within the Indian Rupee debt, about 89.69 percent The Reserve Money (RM) recorded negative were related to hydropower projects and the growth of 2.50 percent in June 2018, due remaining was incurred to meet BOP deficit to dropped in bank’s deposit maintained with India. Of the total convertible currency at the Royal Monetary Authority (RMA). debt, the concessional public debt constitutes With increase in digital payment and lower 95.71 percent and 4.29 percent were related to inflation, growth in currency in circulation, private sector. which accounted 36.65 percent of total RM, slowed down significantly to 6.41 percent India from 19.21 percent during 2016/17. Banks’ deposit (Cash Reserve Ratio (CRR) and The growth of real GDP (at market prices) excess reserve) held with the RMA also moderated to 7.00 percent in 2018/19 (7.20 experienced a negative growth of 7.01 percent in 2017/18) mainly due to slowdown percent due to decrease of deposits in the in government consumption expenditure commercial banks. Net Foreign Assets and a drag from net exports. While (NFA), key sources of RM decline by 5.25 growth was largely contributed by private percent, owing to lower inflow of loans and consumption expenditure and supported by grants. The change in RM influenced the fixed investment. money supply through the money multiplier effect. On the supply side, growth in real gross value-added decelerated marginally to 6.80 Bhutan’s external imbalance continues to percent in 2018/19 (6.90 percent in 2017/18), reflect underlying economic fundamentals of due to lower growth in agricultural and high dependency on imports (including a large services sector. expatriate labor force), grant, aid and debt. However, during 2017/18, due to decrease Headline CPI inflation reached an intra-year in merchandise trade deficit and increase in high of 4.90 percent in June 2018. Over the capital and financial inflows, the overall BOP subsequent period, inflation generally upturned to positive. trended downwards to reach 2.00 percent in January 2019. Then, during February and Total outstanding external debt stood at March 2019, inflation showed some upward

17 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

tendency, even as it remained below 3.00 2018 to 10.80 percent in September 2018. percent. Bank credit is also recovering from the risk aversion of recent years. In the interim Union Budget (UB) for 2019/20, the Centre’s Gross Fiscal Deficit Iran (GFD) was revised upward to 3.40 percent of the GDP in the revised estimates of the full The Iranian economy had a relatively year 2018/19 from 3.30 percent in the budget favorable performance in 2017/18, with the estimates of that year. The interim budget stable prices and reasonable GDP growth. for 2019/20 has kept the GFD to GDP ratio In 1397 (2018/19)1, however, upon the unchanged at 3.40 percent; the GFD target of US withdrawal from the Joint Comprehensive 3.00 percent of the GDP has been retained Plan of Action (JCPOA) and the imposition for 2020/21. of new sanctions, uncertainty in terms of macro-economic conditions, volatility in the The CAD increased to 2.60 percent of GDP foreign exchange market, and restrictions during April-December 2018 from 1.80 on financial transactions and external trade percent in the Corresponding Period of the increased. This in turn adversely affected the Previous Year (COPPY), due to the widening macro-economic indicators including GDP of the trade deficit. While net Foreign growth and the inflation rate in 2018/19, Direct Investment (FDI) flows remained although with the adoption of appropriate strong during the year, portfolio investment policy measures, the negative impact recorded a net outflow during the first three emanating from these developments was quarters of the year as against a net inflow to a large extent controlled. in the COPPY. Portfolio flows resumed in the forth quarter, buoyed, inter alia, by After the US withdrawal from the JCPOA dovish monetary policy stances in advanced in May 2018 and the re-imposition of economies. India’s foreign exchange sanctions and restrictions, the local currency reserves at USD 412.90 billion as on March exchange rate versus foreign currencies 31, 2019 as compared with USD 424.40 increased in the unofficial market. To billion in the COPPY. alleviate the turmoil in the foreign exchange market, the CBI adopted some policy The asset quality of banks showed an measures to manage and control volatilities improvement with the gross non-performing in the foreign exchange market. assets ratio of scheduled commercial banks declining from 11.50 percent in March Accordingly, the exchange rate for the

1 The year 1397 corresponds to 2018/19 (starting March 21, 2018 and ending March 20, 2019). The first 9 months of 1397 cover April-December 2018 and the first 6 months cover April-September.

18 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

US Dollar, which had increased to conditions in this year, indicating 26.00 Rls. 182,570.00 in the middle of 2018 was percent growth compared with the year before. lowered to Rls. 130,700.00 at the end of year It is important to note that 55.80 percent of (March 2019). This was indicative of the these facilities were allocated as working return of relative stability and tranquility to capital for productive units and companies. the market. Based on preliminary estimates, total With the rise in the exchange rate, monthly agricultural output, including farming, inflation started an upward and fluctuating horticultural, livestock, and fishery products, trend as of June 2018. As a result, the reached 121.80 million tons in 2018/19, up point-to-point inflation rate (monthly CPI) by 2.60 percent respect to the year before. increased to 42.40 percent in December 2018, and the inflation rate surged to 21.20 percent. Due to restrictions on transfer of funds and financial transactions with international trade Tehran Stock Exchange Price Index partners, several Iranian industries, including (TEPIX) indicated 85.50 percent growth the automotive industry, experienced severe in March 2019 and reached 178,659.00 conditions in terms of the importing of points. In 2018/19, the sales and exports raw materials in 2018/19. However, some of industries listed and traded on the industrial groups managed to maintain the stock exchange increased sharply, mainly long-term growing trend. Products such as attributable to the rise in the exchange rate. crude steel, steel products, iron ore, and coal Therefore, despite the imposition of a new concentrate increased in 2018/19 compared round of sanctions in 2018/19, the capital with 2017/18. market had a favorable performance in terms of absorbing market liquidity and In addition, data on the performance channeling it into productive activities and of operation permits, as an indicator of operative companies. Accordingly, market private sector willingness to invest in the capitalization increased by 78.60 percent to manufacturing sector, show increases by Rls. 6,829.00 trillion. respectively 7.20, 113.80 and 2.10 percent in terms of the number, investment (at current Liquidity grew by 23.10 percent in March prices), and job opportunities compared with 2019 and reached Rls. 18,828.90 trillion, the year before. 1.00 percentage point higher than the respective growth figure of the year before In 2018/19, construction permits issued by (22.10 percent). Banks’ extension of municipalities in all urban areas indicated loans and facilities experienced favorable 11.10 and 20.80 percent increase in number

19 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

and total floor space, respectively, in the first 2018) compared with the respective period nine months of 1397 (April-December 2018). in the previous year. Iran’s crude oil exports decreased by 5.60 percent on average and Based on preliminary data released reached 2.00 mb/d in the same period. by Islamic Republic of Iran Customs Moreover, the exports of oil products Administration (IRICA), the value of exports amounted to 256.30 thousand b/d, indicating through Customs (excluding natural gas 18.80 percent decrease. condensate) amounted to USD 39.40 billion in 2018/19, down by 1.40 percent with The estimated average of Iran’s spot price respect to the previous year. In this period, of crude oil increased by 47.80 percent to the value of imports through customs USD 72.00 per barrel compared with the decreased by 21.80 percent and reached respective period in 1396 (April-September USD 42.60 billion. 2017).

In 2018/19, the value of each ton of exported According to the estimates of the Statistical goods, in terms of US Dollar, increased by Center of Iran (SCI), unemployment 5.90 percent and the average per ton price of rate reached 12.00 percent in 2018/19, imported goods decreased by 5.10 percent. indicating only 0.10 percentage points Therefore, the terms of trade (the ratio of the rise despite fluctuations in the economy. value of exported goods per ton to that of The unemployment rate in urban areas imported goods) increased by 0.03 percentage was 13.50 percent and in rural areas, 7.90 points. percent, indicating 0.20 percentage points increase and 0.20 percentage points decrease, Reviewing the foreign trade developments respectively. in 2018/19 indicates that the value of foreign trade through customs totaled USD 82.00 In this year, the number of available jobs billion (excluding natural gas condensate), increased by about 463.90 thousand, with down by 13.10 percent. However, as exports the highest increase by 246.90 thousand through customs (including natural gas related to the services sector. condensate) reached USD 44.30 billion and given the value of imports in this year, Maldives the trade balance of the country indicated USD 1.70 billion surplus in 2018/19. Real GDP growth is estimated to have accelerated at a remarkable pace of 7.65 Iran’s average crude oil production fell percent during 2018, up from the 6.91 percent by 1.90 percent to 3.80 mb/d in the first recorded during the preceding year. The six months of 1397 (April-September growth was driven by a resilient tourism

20 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018 sector and continued expansion in the the temporary exemption of the fuel surcharge construction sector. and harmonization of utility rates across the country, despite the continued surge in global Despite numerous challenges during oil prices. 2018, the tourism sector depicted a solid performance as reflected by the positive With regard to public finances, the budget developments in the key indicators. As such, deficit is estimated to have widened the number of tourist arrivals increased in during 2018. The total revenue (excluding annual terms, owing mainly to the favourable grants) increased by USD 88.39 million in conditions in the European source markets, annual terms due to the growth in both tax coupled with increased international flight and non-tax revenue. Similarly, total movements. Additionally, mirroring the expenditure (excluding debt amortization) growths in the average duration of stay and rose by USD 194.44 million during the tourist bednights, the average occupancy year, predominantly reflecting a significant rate of the industry rose during the year. increase in current expenditure, while capital Meanwhile, the construction sector continued expenditure fell marginally. Meanwhile, total its progressive trend from previous years, public debt stood at 58.01 percent of GDP in propelled by the mega infrastructure projects 2018, driven by external public and public of the Government and the residential guaranteed debt. housing construction boom. Conversely the fisheries sector moderated as evidenced As for the monetary developments, both the by both the slowdown in the growth of fish monetary policy stance and monetary policy purchases and the decline in fish exports. framework remained unchanged in 2018. Looking at the developments in monetary The domestic rate of inflation (as measured aggregates, growth of money supply stood by the annual percentage change in the CPI at at 3.38 percent at the end of 2018, driven the national level) entered deflation territory, by a sizeable growth in other deposits while and averaged -0.13 percent during 2018. transferable deposits and currency outside Inflationary pressure was curbed by based depository corporations also posted a steady effects stemming from a number of policy growth. On the sources side, the annual changes such as the significant reduction in growth in money supply was mainly driven administered prices of food staples and the growth in Net Domestic Assets (NDA) of the harmonization of electricity prices across banking sector, while NFA also observed a the country by the Government. Electricity steady increase. Turning to the banking sector prices exerted the most downward pressure on performance, a healthy growth was observed inflation, resulting from the reduction in the as profitability and asset quality improved import duty on petrol and diesel, followed by while capital adequacy ratios remained at a

21 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

strong level. Regarding banking and financial sector, since 2013, CBM is focusing on development On the external front, the current account is of Myanmar Banks. Currently, there estimated to have increased to 23.74 percent are 27 private banks, 13 foreign bank of GDP in 2018, largely owing to the strong branches and 44 representative offices. growth in imports, despite a significant The CBM published directives to improve increase in tourism receipts over the year, financial sectors in line with international underpinned by the remarkable performance standards. According to supervision, of the tourism sector. Meanwhile, the Gross on-site and off-site examination and International Reserve (GIR1) increased by risk-based supervision are also practiced as 29.29 percent in annual terms and stood at per international standards. USD 757.77 million at the end of 2018. Four key regulations to support Myanmar implementation of the FIL were released on July 7, 2017, pertaining to capital adequacy, The economy experienced a broad-based large exposures, asset classification and increase in real GDP growth to 6.80 percent provisioning, and liquidity requirements. The in 2017/18 from 5.90 percent in 2016/17. CBM also issued a directive on credit risk Inflation moderated from 7.00 percent in management (March 2017), and a directive 2016/17 to 5.40 percent in 2017/18. that allows for the restructuring of viable overdrafts to term loans of up to 3 years, The CAD increased from 6.02 percent of incorporating regular payments of interest GDP in 2016/17 to 6.64 percent of GDP and principal (November 2017). in 2017/18. The trade deficit was wider from 9.56 percent of GDP in 2016/17 to CBM introduced the Central Bank of 9.99 percent of GDP in 2017/18 driven Myanmar Financial Network System by rapid increase in imports from 29.48 (CBM-NET) and Mechanized Clearing percent of GDP to 32.16 percent of GDP. House (MCH) in January 2016. Now, In 2017/18, the reserve maintained by the CBM is implementing an upgrade of the Central Bank of Myanmar (CBM) CBM-NET (CBM-NET2). It is expected covered about 3 months of prospective that the CBM-NET2 will go live in 2020 import.During 2017/18, the services sector with major functions such as Straight- was the major contributor to GDP with Through Processing (STP), international 42.58 percent. The fiscal deficit was standards (ISO20022), Liquidity Saving budgeted to increase significantly to 5.80 Facility (bilateral and multi-lateral offsetting)/ percent of GDP in 2017/18. Message Queuing, Automated Clearing

1 GIR comprises of foreign currency deposits of the Maldives Monetary Authority (MMA) and the Government, commercial bank’s US Dollar reserve accounts and Maldives’ reserve position in the International Monetary Fund (IMF).

22 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

House including 24/7 faster payment and auctioned, includingfor new longer tenor bulk payment, cheque truncation, Delivery bills (6- and 12-month bills), increased Versus Payment (DVP) with collateral: by 60.00 percent in 2017/18 compared to Delivery Versus Payment (DVPC) (known 2016/17. as auto-collateralization in other countries) and remote disaster recovery facilities. Concerning about external sector, during 2017/18, the value of exports increased by Financial technology as internet banking, 10.54 percent, from value of USD 9,456 .00 mobile banking, and mobile financial million to USD 10,452.20 million compared services has been improved. Moreover, Quick to the previous year. The value of imports Response (QR) codes standardizationis being increased by 9.25 percent, from value of conducted with a three-month pilot project. USD 13,865.30 million to USD 15,148.50 CBM together with the banks, international million compared to the previous year. card scheme (Visa, Master, JCB, UPI) and mobile service providers are conducting to With respect of ACU, total exports to ACU setup National Standard for QR Code so member countries decreased by15.91 percent. called Myanmar Quick Response (MMQR). Total imports from ACU countries decreased CBM has already endorsed MMQR technical by 5.13 percent during 2017/18. India is specification and plan to launch MMQR the major export and import country from Standard in 2019. Myanmar with the share of 68.43 and 84.70 percent among the ACU countries. According The regulation on Mobile Financial to the transaction of trade between ACU Services (MFSs) issued by CBM in 2016 countries and Myanmar, trade deficit was laid out the foundation for the licensing and about USD 128.30 million, USD 888.10 supervision of Mobile Financial Services million in exports and USD 1,016.40 million Providers (MFSPs), which includes non-bank in imports. Myanmar mainly imported financial institutions and Mobile Network consumer goods such as machinery, tyre, tube Operators (MNOs). and flap, medicine, vehicle spare parts, mild steel, stationary, electrical, personal goods, The market demand for deposit auctions agriculture use and cosmetics from India conducted 24 times in 2017/18 with maturity during 2017/18. Share of trade with ACU 2 weeks, 4 weeks and 6 weeks. In 2017/18, countries in total trade was 8.50 percent in the CBM accepted bids over 7,000.00 billion export and 6.71 percent in import in 2017/18. Kyat with range of interest rate between 5.86 and 7.50 percent. Nepal

The value of Treasury Bills (T-bills) Nepal’s real GDP at basic prices grew

23 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

at 5.90 percent in 2017/18 as compared to Rs. 268.85 billion (USD 2.58 billion) to 7.40 percent growth in the previous from Rs. 188.69 billion (USD 1.81 billion) in year. Agriculture, industrial and service 2016/17. The ratio of budget deficit to GDP sectors grew by 2.80, 8.08 and 6.60 percent stood at 8.90 percent in the review year. respectively, in the review year. Government expenditure, on cash basis, The ratio of gross consumption to GDP increased 26.20 percent to Rs. 1,029.02 decreased to 85.00 percent in the review year billion (USD 9.86 billion) in 2017/18 compared to 88.10 percent in the previous compared to an increase of 40.20 percent to year. Consequently, the gross domestic Rs. 815.70 billion (USD 7.82 billion) in the savings increased marginally to 15.00 percent previous year. The government revenue, on of the GDP compared to 11.90 percent in the the other hand, increased 19.20 percent to previous year. Rs. 726.08 billion (USD 6.96 billion) in 2017/18 as compared to a growth of 26.40 The annual average CPI moderated to 4.20 percent in the previous year. Revenue to GDP percent in the review year as compared to 4.50 ratio increased to 24.10 percent in the review percent in the previous year. year.

The Nepal Stock Exchange (NEPSE) index, The trade deficit as percentage of GDP the only one security market index of the jumped to 38.60 percent in the review year country, decreased 23.40 percent to 1,212.40 from 34.70 percent of the previous year. points from 1,582.70 points in the middle of July 2017 on Year-on-Year (YoY) basis. The overall BOP recorded a surplus of Rs. 960.20 million (USD 9.20 million) in The annual turnover of the securities the review year compared to a surplus of decreased 40.80 percent to Rs. 121.39 Rs. 82.11 billion (USD 773.47 million) in the billion (USD 1.16 billion) in 2017/18 from previous year. Rs. 205.02 billion (USD 1.96 billion) in the previous year. The gross foreign exchange reserves increased 2.10 percent to Rs. 1,102.59 M2 increased 19.40 percent in 2017/18 billion (USD 10.56 billion) as compared to 15.50 percent in the previous at the middle of July 2018 from year. The growth in M2 has almost matched Rs. 1,079.43 billion (USD 10.50 billion) in the growth in nominal GDP of 13.80 percent the middle of July 2017. Based on the in 2017/18. imports of 2017/18, the Foreign Exchange (FX) holding of the banking sector The budget deficit on cash basis increased is sufficient to cover the prospective

24 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018 merchandise imports of 10.80 months, and transport, storage and communication; and merchandise and services imports of 9.40 other private services all losing some of the months. momentum witnessed previously during 2016/17. The total number of Bank and Financial Institutions (BFIs) licensed by Nepal Rastra CPI inflation remained below the annual Bank (NRB) stands 151 in the middle of target for the fourth consecutive year during July 2018 from 149 a year ago. The branch 2017/18; the overall inflation was 3.90 network of BFIs expanded to 6,651 in the percent in 2017/18, compared to 4.20 middle of July 2018 from 5,068 a year ago. percent in 2016/17. That said, after falling As of the middle of July 2018, the financial for three consecutive years, domestic prices system constituted 28 commercial banks (“A” of petroleum, diesel and liquid petroleum class institutions), 33 development banks gas recorded double-digit growth as (“B” class institutions), 25 finance companies international oil prices soared and exchange (“C” class institutions), 65 micro-finance rate depreciated during 2017/18. Similarly, financial institutions (“D” class institutions), the Non-Food Non-Energy (NFNE) measure 39 insurance companies and one each of of core inflation reached 7.10 percent in the Employees Provident Fund, Citizen June 2018 – the highest level since October Investment Trust and Postal Saving Bank. 2014.

The ratio of Non-Performing Loan (NPL) The Monetary Policy Committee (MPC) to total loans of BFIs dropped to 1.60 percent increased the policy rate by a cumulative 75 in the middle of July 2018 as compared to basis points during 2017/18, after keeping 1.80 percent in the previous period. it unchanged for the previous two years. The policy rate reversal was mainly due to Pakistan growing macro-economic balances, a sharp increase in global oil prices, and the likely Real GDP growth witnessed a marginal impact of exchange rate depreciation on increase from 5.20 percent in 2016/17 to inflation. Despite this, weighted average 5.50 percent in 2017/18. The agriculture lending rates inched up by only 39 bps sector recorded strong growth on the back during 2017/18 due to improved liquidity of a rebound in the production of crops and situation in the inter-bank market, as the higher growth in livestock. In addition, Government resorted to borrowing more growth in the industrial sector was higher from the central bank. compared to the previous year. By contrast, the services sector growth was marginally lower The demand for bank credit continued to than last year, with finance and insurance; rise; in overall terms, private sector credit

25 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

expanded by Rs. 775.50 billion during with depreciation of exchange rate, led to 2017/18, compared to Rs. 747.90 billion increase in public debt accumulation during a year earlier. The momentum in working 2017/18. Public debt grew by 16.60 percent capital loans was particularly strong, while during the year, compared to an 8.80 percent the expansion in loans for fixed investment increase in 2016/17. remained lower compared to 2016/17. Sri Lanka Fiscal accounts continued to deteriorate for the second consecutive year. Though the pace The Sri Lankan economy recorded a modest of increase in both revenue collection and expansion with an annual real GDP growth expenditure slowed, the growth in expenditure of 3.20 percent amidst a low inflation outpaced revenue mobilization. As a result, environment during the year. The growth was the fiscal deficit rose to 6.60 percent of GDP mainly supported by the services sector and during 2017/18, surpassing both the 4.10 the recovery in agriculture activities while percent target for the year and the 5.80 percent industry sector slowed down significantly in deficit in the previous year. 2018. Per capita GDP was at USD 4,102.00 in 2018 which was marginally lower than in the The external sector remained under pressure, previous year. with financial inflows being insufficient to finance the elevated CAD. Resultantly, Due to tightening global financial conditions State Bank of Pakistan’s (SBP’s) foreign and increased pressure on exchange rates of exchange reserves declined by USD 6.40 twin deficit economies, the external sector billion during the year. This led to increased of the economy remained volatile during pressure on the (PKR), the year. Moreover, trade deficit surpassed which depreciated by 13.70 percent against USD 10.00 billion for the first time in history the US Dollar in 2017/18. On one hand, the with higher growth in import expenditure currency depreciation contributed to a 12.60 outpacing the growth in export earnings, percent growth in exports, in the backdrop of which were at record levels in nominal improved international demand. On the other terms. During the year, the external CAD hand, however, there was a 16.20 percent widened to 3.20 percent of GDP due to the increase in import payments, amid a rising deficit recorded in the merchandise trade energy import bill and increased demand balance, stagnant workers’ remittances and for imported raw material and capital goods rising foreign interest payments amidst (particularly machinery). Ultimately, the CAD a substantial growth recorded in services rose to a historic high of USD 19.90 billion. exports. FDIs reached the historical highest level in 2018, which, along with the issuance The widening of both fiscal and CAD, along of International Sovereign Bonds (ISBs)

26 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018 supported the financial account during the pressures, both headline and core inflation year. remained subdued in 2018 as a result of well anchored inflation expectations under the The Central Bank signalled the end of its enhanced monetary policy framework. monetary tightening cycle in April 2018 considering subdued inflation and inflation In relation to public finance, some expectations and lower than potential growth improvements were recorded with a higher in real economic activity. Thereafter, the primary surplus and a lower budget deficit in Central Bank maintained a neutral monetary 2018. Due to political tensions in late 2018 and policy stance throughout the year, in view of the resultant delays in the implementation of the continued pressure on the external sector budget proposals, public investment declined. amidst the subpar performance in the domestic However, government revenue declined economy. The YoY M2 growth continued during the year while expenditure and net its declining trend in 2018 although overall lending also declined. Budget deficit declined expansion of credit granted to the private to 5.30 percent of GDP in 2018 while central sector by commercial banks in 2018 was government debt as a percentage of GDP higher than expected. Amidst tight liquidity increased to 82.90 percent by the end of 2018. conditions and the tight monetary policy stance that was maintained until April 2018, Meanwhile, the financial sector continued to most market lending and deposit interest expand during 2018 although the profitability rates of commercial banks remained high in of the banking sector declined mainly due to both nominal and real terms during 2018. some deterioration in asset quality, a rise in Despite the sharp depreciation of the Rupee operating costs and higher taxes. against major currencies and transitory price

27 Economic Highlights of ACU Member Countries ANNUAL REPORT 2018

Country Performance

Bangladesh

Bangladesh has experienced a high and growth of 11.17 percent in 2016/17. The steady growth for more than a decade with Current Account Balance (CAB) registered an average growth of over 6.00 percent. a defi cit stood at USD 9,780.00 million Real Gross Domestic Product (GDP) in 2017/18, from a small defi cit of growth has accelerated to 7.86 percent USD 1,331.00 million in 2016/17 due to in Financial Year (FY)1 2017/18, which large defi cit in the services sector, primary was 7.28 percent in 2016/17. This growth income and trade balance. A signifi cant was mainly contributed by the higher import growth (25.23 percent), and a growth of industry sector along with small growth of export earnings (6.43 satisfactory growth of service sector. percent) causes the situation. The capital Average infl ation in Bangladesh has and fi nancial account has continued to declined gradually over the last couple surplus and stood at USD 292.00 million of years. However, annual average and USD 9,076.00 million respectively Consumer Price Index (CPI) infl ation in 2017/18. During the same period the (base: 2005/06=100) increased to 5.78 overall Balance of Payments (BOP) percent in 2017/18 from 5.44 percent recorded a defi cit of USD 885.00 million in 2016/17. Bangladesh Bank (BB) has which was a surplus of USD 3,169.00 pursued a cautious but growth-supportive, in 2016/17. Gross international foreign inclusive and investment friendly monetary exchange reserves stood at USD 32,943.00 policy stance in 2017/18. Broad Money million at the end of 2017/18 representing (M2) registered a 9.24 percent growth in around 5.5 months of prospective imports 2017/18 against the projected growth of of goods and services. In order to maintain 13.30 percent. M2 grew by 10.88 percent stability of the exchange rate of Taka (Tk.) in 2016/17. Domestic credit grew by 14.58 with US Dollar by absorbing excess percent against the projected growth of liquidity, BB sold USD 2.31 billion in 15.80 percent in 2017/18 and the the domestic inter-bank market with

1 Financial Year stands for beginning of July to the end of June.

28 Country Performance / Bangladesh ANNUAL REPORT 2018 no purchase of foreign currency Real GDP Growth during 2017/18. To meet the (In percent) payment obligations of Government 8 7 and others, foreign exchange market showed a depreciating trend of Taka 7 6 against US Dollar from the beginning of 6 5 the 2017/18. However, careful liquidity GDP growth 5 4 management and proper supervision of Per capita GDP growth

4 3 BB ensured stability with adequate 2013/14 2014/15 2015/16 2016/17 2017/18 liquidity in the foreign exchange market GDP growth Per capita GDP growth in 2017/18.

Economic Growth Savings and Investment

Bangladesh economy has achieved robust The ratio of gross national savings to GDP economic growth reached at 7.86 percent declined to 27.42 percent in 2017/18 from in 2017/18, higher than the average in 29.60 percent in 2016/17. Investment as a peer asian economies. The growth in percentage of GDP increased to 31.23 percent industry sector stood at 12.10 percent in 2017/18 from 30.50 percent in 2016/17. in 2017/18 which was 10.23 percent in During the same period, private investment 2016/17. This growth was supported increased from 23.10 percent to 23.26 by strong growth of construction percent of GDP and public investment sub-sector especially small scale industry. increased from 7.40 percent to 8.00 percent of Among the industry sub-sectors, growth GDP. As a result, domestic savings-investment of large and medium scale increased by gap as a percentage of GDP increased to 14.30 percent, construction sector by 9.90 8.40 percent in 2017/18 from 5.20 percent in percent, and small scale by 9.30 percent 2016/17. in 2017/18 from 11.20, 8.80, and 9.80 percent in 2016/17, respectively. Infl ation The services sector registered a 6.40 percent growth in 2017/18 which was Annual average CPI infl ation (base: 6.69 percent in 2016/17. The growth 2005/06=100) in Bangladesh has consistently in agriculture sector increased to 4.20 declined from its recent peak of 7.35 percent percent in 2017/18, which was 2.97 percent at the end of 2013/14 to 5.44 percent at in 2016/17. The growth mainly supported the end of 2016/17. However, the headline by the strong growth of agriculture and infl ation rate stood at 5.78 percent at the forestry sub-sectors. end of 2017/18. In 2017/18, the increase in

29 Country Performance / Bangladesh ANNUAL REPORT 2018

average CPI infl ation mainly driven by food from Tk. 682.90 billion in 2016/17. infl ation, while non-food infl ation decreased The domestic borrowing of the from 4.57 percent in 2016/17 to 3.47 percent defi cit fi nancing in 2017/18 was in 2017/18. Increased global commodity Tk. 660.20 billion (2.93 percent of GDP). prices and weather related shocks raised food On the other hand, the foreign fi nancing infl ation above 7.00 percent during second of the budget defi cit was Tk. 415.70 half of 2017/18. The twelve month point-to- billion (1.85 percent of GDP). point CPI infl ation stood at 5.54 percent in 2017/18 from 5.94 percent in 2016/17. Monetary and Credit Situation

National CPI Infl ation (12-month average: base 2005/06=100) BB pursued a cautious but growth (In percent) supportive, inclusive and investment 9 friendly Monetary Policy Stances (MPS) 8 in 2017/18 with a view to achieving 7 desired economic growth maintaining 6 infl ation at a moderate level. M2 recorded 5

4 a growth of 9.24 percent in 2017/18 as against

3 13.30 percent projected and 10.88 percent 2013/14 2014/15 2015/16 2016/17 2017/18 growth in 2016/17. The Net Foreign Assets Food Non-food General (NFA) of the banking system decreased by 4.25 percent in 2017/18 compared to Fiscal Developments the increase of 11.50 percent in 2016/17. The growth in NFA declined mainly due Total revenue receipts increased by to unprecedented increase in imports as 28.94 percent and stood at Tk. 2,594.50 compared to remittances and exports. On billion in 2017/18 compared to the other hand, the growth rate of Net Tk. 2,012.10 billion in 2016/17. Total Domestic Assets (NDA) in the banking expenditure increased by 37.85 percent to system registered a 14.00 percent growth in Tk. 3,715.00 billion in 2017/18 compared 2017/18, which was lower than the projected to Tk. 2,695.00 billion in 2016/17. The growth of 17.90 percent for 2017/18, while Annual Development Program the growth of NDA was 10.70 percent in (ADP) in 2017/18 was amounted to 2016/17. The credit to public sector declined Tk. 1,483.80 billion which was 76.45 by 2.45 percent in 2017/18 against the percent higher than the actual ADP in projected 8.30 percent growth in 2017/18, 2016/17. The budget defi cit increased while the public sector credit growth was by 64.06 percent to Tk. 1,120.40 billion negative at 13.00 percent in 2016/17. Private (4.98 percent of GDP) in 2017/18 sector credit recorded a 16.95 percent

30 Country Performance / Bangladesh ANNUAL REPORT 2018 growth in 2017/18 as against of 15.66 5.00 percent in 2017/18, effective from percent growth in 2016/17. Reserve November, 2003. Money (RM) grew by 4.01 percent in 2017/18 which was lower Exchange Rate Developments than the growth of 16.30 percent in 2016/17 due mainly to decrease in NFA and slow Since the adoption of fl exible exchange growth of NDA. Money multiplier rate regime in May 2003, BB has increased to 4.76 in 2017/18 as compared allowed suffi cient fl exibility in the to 4.53 in 2016/17. The income velocity of exchange rate movements, which help money increased to 2.03 in 2017/18 from to keep the nominal exchange rate stable 1.94 in 2016/17. in 2017/18. The nominal exchange rate depreciated by 3.63 percent and stood at To support growth and mitigating infl ation Tk. 82.11 as of the end of June 2018 compared risk, BB continued to pursue a cautiously to Tk. 79.13 as of the end of June 2017. The accommodative monetary policy stance Nominal Effective Exchange Rate (NEER) in both the fi rst and the second half of of Taka, calculated against a trade weighted 2017/18. Policy rates namely repo rate was 15 currency basket (base: 2015/16=100) reduced by 75 basis points at 6.00 percent depreciated by 4.50 percent in 2017/18. with effect from April, 2018 and reverse However, the Real Effective Exchange Rate repo rate remains unchanged at 4.75 percent (REER) of Taka depreciated by 1.70 percent in in 2017/18. Besides, the Cash Reserve 2017/18. Ratio (CRR) for the scheduled banks with BB has been decreased by 100 basis Exports (fob) points to 5.50 percent of their total demand and time liabilities with effect from 15 Total exports earnings increased by 6.43 April, 2018. Regarding Statutory Liquidity percent in 2017/18 to USD 36,205.00 million Ratio (SLR), it is mentioned that for the from USD 34,019.00 million in 2016/17. conventional banks, the statutory liquid In spite of negative growth of petroleum assets inside Bangladesh which also by-product (86.17 percent), engineering includes excess reserves with BB shall products (48.32 percent), tea (37.36 percent), not be less than 13.00 percent of their leather and leather products (25.41 percent), total demand and time liabilities. For the etc., positive growth of knitwear products shariah based Islami banks, this rate shall (10.40 percent), jute products (9.40 percent), not be less than 5.50 percent. This has been chemical products (7.64 percent), woven effective from February, 2014 and is garments (7.18 percent), etc. contributed to remained unchanged in 2017/18. The slight increase in the growth of merchandise bank rate also remained unchanged at exports in 2017/18.

31 Country Performance / Bangladesh ANNUAL REPORT 2018

Export Growth Balance of Payments (BOP) (In percent)

14 CAB showed a defi cit of USD 9,780.00 12 million in 2017/18 which was a defi cit of 10 USD 1,331.00 million in 2016/17. Large 8 defi cit in the services and primary income 6

4 led to the signifi cant downfall in the CAB

2 in 2017/18. The fi nancial account surplus

0 increased from USD 4,247.00 million in 2013/14 2014/15 2015/16 2016/17 2017/18 2016/17 to USD 9,076.00 million in 2017/18. The capital account surplus decreased Imports (fob) from USD 400.00 million to USD 292.00 million during this period. The overall BOP Import payments (fob) stood at registered a defi cit of USD 885.00 million USD 54,463.00 million registering a in 2017/18 compared to a surplus of growth of 25.23 percent in 2017/18 USD 3,169.00 million in 2016/17. compared to USD 43,419.00 million in 2016/17. Increase of import payments Trade, Current Account and Overall Balance for food grains (140.89 percent), (In billions of USDs) 10.00 capital goods and others (30.12 percent), 5.00 consumer and intermediate goods 0.00

(17.99 percent), and other food items -5.00

(3.42 percent) contributed to signifi cant -10.00

increase in import growth in 2017/18. -15.00

-20.00 2013/14 2014/15 2015/16 2016/17 2017/18 Import Growth (In percent) Trade balance Current account balance Overall balance

30

25 Workers’ Remittances

20

15 In 2017/18, infl ow of remittances increased 10 by 17.32 percent from USD 12,769.45 5 million in 2016/17 to USD 14,981.69 0 million. The rise of remittance was mainly 2013/14 2014/15 2015/16 2016/17 2017/18 due to the increase of oil revenues in

32 Country Performance / Bangladesh ANNUAL REPORT 2018 the Gulf Cooperation Council (GCC) countries (Tk. 677.18 billion) with the ACU member and tightening measures of BB to curb digital countries during 2017/18. As a result, the hundi (using apps and software). net debtor position of Bangladesh decreased by USD 361.23 million or 6.63 percent to Foreign Exchange Reserves USD 7,899.31 million (Tk. 468.55 billion) in 2017/18 compared to USD 5,813.32 million The gross foreign exchange reserves of (Tk. 468.54 billion) in the preceding year. BB stood at USD 32,943.00 million at the end of 2017/18 which is 1.64 percent lower Near and Medium-Term Outlook than the USD 33,493.00 million during 2016/17. The gross foreign exchange reserve The near and medium-term outlook for is suffi cient to meet around 5.5 months of Bangladesh’s economy remains broadly prospective imports of goods and services. positive. Overall balance of BOP stood in BB tried to maintain optimal return from defi cit due to massive current account defi cit foreign exchange reserve investment by resulting from higher import growth along diversifying the foreign asset portfolio in with meager exports growth. Looking ahead, bonds (issued by sovereign, supranational in 2018/19, domestic credit is projected to and highly reputed foreign commercial grow by 15.90 percent; imports (fob) are banks), Treasury Bills (T-bills) and Treasury projected to grow by 7.50 percent, exports Notes of US Government and in short-term (fob) by 14.00 percent and remittances 11.00 deposits with internationally reputed foreign percent. The foreign exchange reserves are commercial banks. projected to reach USD 33.30 billion or higher in 2018/19. The Monetary Program Trade with ACU Member (MP) for the second half of 2018/19 will Countries target a monetary growth path aiming at keeping average infl ation in the range of Total transactions of Bangladesh under 5.30-5.60 percent. In 2014/15, Bangladesh Asian Clearing Union (ACU) increased reached the lower middle-income country substantially in terms of net volume during status and expects to reach upper middle- 2017/18 compared to the preceding year. income countries by 2030 or earlier. Moreover, Receipts increased from USD 183.60 Bangladesh’s target is building Bangladesh million (Tk. 14.80 billion) in 2016/17 as a knowledge-based and technology- to USD 189.21 million (Tk. 15.84 oriented middle-income country by 2021, billion) in 2017/18. Import payments poverty alleviation, overall development of signifi cantly increased from living standard of people and graduation of USD 5,996.92 million (Tk. 483.34 billion) the country to a developed one by 2041. in 2016/17 to USD 8,088.52 million

33 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Major Economic Indicators During 2013/14-2017/18 Year 2013/14 2014/15 2015/16 2016/171 2017/182 Item National Income and Prices Real GDP growth (2005/06=100) 6.06 6.55 7.11 7.28 7.86 GDP defl ator (percent change) 5.67 5.87 6.73 6.28 5.60 CPI infl ation (annual average, 2005/06=100) 7.35 6.40 5.92 5.44 5.78 GDP growth at current market prices 12.07 12.81 14.32 14.02 13.90 GDP at current market prices (billion Taka) 13,436.70 15,158.00 17,328.60 19,758.20 22,504.00 GDP at current market prices (billion US Dollar) 172.89 195.16 221.42 249.72 274.11 Fiscal Sector (percent of GDP) Total revenue 10.45 9.63 9.98 10.18 11.53 Total expenditure 14.01 13.48 13.76 13.64 16.51 Overall budget defi cit (excluding grants) 3.56 3.85 3.78 3.46 4.98 Financing of overall budget defi cit 3.09 3.70 3.67 3.42 4.78 Net domestic fi nancing 2.84 3.38 2.93 2.83 2.93 bank borrowings 1.35 0.03 0.61 -0.42 0.89 non-bank borrowings 1.49 3.34 2.32 3.26 2.05 Net foreign fi nancing 0.25 0.32 0.74 0.59 1.85 Money and Credit (percent change) Private sector credit 12.27 13.19 16.78 15.66 16.95 Broad money (M2) 16.09 12.42 16.35 10.88 9.24 Balance of Payments (percent change) Exports (fob) 12.08 3.09 8.94 1.73 6.43 Imports (fob) 8.92 2.98 5.94 9.00 25.23 Remittances -1.61 7.65 -2.52 -14.48 17.32 Gross offi cial reserve (million US Dollar) 21,508.00 25,025.00 30,168.00 33,493.00 32,943.00 Gross offi cial reserve (months of imports) 5.90 7.00 7.90 6.30 5.50

1 Revised data.

2 Provisional data.

Source: Annual Report 2017/18, Bangladesh Bank

34 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Exports, Imports and Trade Balance During 2013/14-2017/18 (In millions of USDs) Year 2013/14 2014/15 2015/16 2016/171 2017/182 Item

29,777.00 30,697.00 33,441.00 34,019.00 36,205.00 Exports (fob, including EPZ) (12.08) (3.09) (8.94) (1.73) (6.43)

36,571.00 37,662.00 39,901.00 43,491.00 54,463.00 Imports (fob, including EPZ) (8.92) (2.98) (5.94) (9.00) (25.23)

Trade Balance -6,794.00 -6,965.00 -6,460.00 -9,472.00 -18,258.00

1Revised data.

2Provisional data.

Note: Figures in the brackets indicate percentage changes over the previous year.

Source: Annual Report 2017/18, Bangladesh Bank

35 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Exports to ACU Member Countries During January-December, 2018 (In millions of USDs) Commodity/Country Value Bhutan 6.10 Agri-products 2.20 Woven garments 0.30 Chemical products 2.30 Plastics and articles thereof 0.20 Others 1.10 India 1,177.30 Jute Goods 118.40 Raw jute 37.10 Woven garments 327.80 Agri-products 213.70 Knitwear 110.40 Lead and articles thereof 16.80 Nuclear reactors, boilers, machinery, etc. 1.20 Wadding, felt, nonwovens, yarns, twine, cordage, etc. 11.90 Leather and leather products 24.30 Home textile 31.70 Vehicles other than railway, tramway 7.20 Footware 12.20 Cotton 24.00 Inorganic chemicals, precious metal compound, isotopes 29.20 Frozen food 26.90 Articles of iron and steel 6.80 Knitted or crocheted fabric 20.20 Mineral fuels, oils, distillation products, etc. 19.90 Iron and steel 22.70 Plastics and articles thereof 32.00 Rubber and articles thereof 6.00 Copper and articles thereof 21.40 Electrical, electronic equipment 4.40 Others 51.10 Iran 22.90 Jute goods 22.30 Knitwear 0.10 Agri-products 0.10 Others 0.40 Maldives 5.50 Agri-products 1.80 Knitwear 2.00 Frozen food 1.00 Others 0.70

36 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Exports to ACU Member Countries During January-December, 2018 (Contd.) (In millions of USDs) Commodity/Country Value Myanmar 28.50 Pharmaceutical products 20.20 Agri-products 1.50 Knitwear 1.20 Frozen food 0.20 Jute goods 0.70 Leather and leather products 0.30 Woven garments 0.10 Mineral fuels, oils, distillation products, etc. 0.10 Home textile 1.00 Others 3.20 Nepal 44.00 Agri-products 19.30 Raw jute 7.90 Electrical, electronic equipment 4.10 Knitwear 0.50 Others 12.20 Pakistan 73.20 Raw jute 46.50 Jute goods 2.70 Agri-products 7.60 Home textile 2.60 Woven garments 2.80 Knitwear 0.20 Leather and leather products 0.10 Others 10.70 Sri Lanka 42.60 Nuclear reactors, boilers, machinery, etc. 0.10 Pharmaceutical products 15.80 Electrical, electronic equipment 1.90 Woven garments 1.20 Jute goods 1.70 Cotton 0.70 Agri-products 12.10 Knitwear 0.80 Home textile 0.10 Others 8.20 Source: Export Promotion Bureau (EPB)

37 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Imports from ACU Member Countries During January-December, 2018 (In millions of USDs)

Commodity/Country Value Bhutan 38.00 Vegetable products 13.40 Mineral products 22.70 Others 1.90 India 8,644.20 Live animals; animals products 39.90 Edible vegetable certain roots and tubers 318.70 Edible fruits and nuts peel of citrus fruits or melons 109.10 Coffee, tea, mate and spices 175.10 Cereals 833.30 Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured 423.80 tobacco substitutes Salt, sulphur, earths and stone, plastering materials 153.20 Mineral fuels, mineral oils and products of their distillation, bituminous substances; 250.50 mineral waxes Organic chemicals 240.80 Tanning or dyeing extracts 224.00 Plastics and rubber and articles thereof 352.60 Paper and paperboard and articles thereof 60.20 Textile and textile articles thereof 2,056.70 Base metals and article of base metals 631.70 Machinery and mechanical appliances, electrical machinery and equipment and parts 1,065.10 thereof Vehicles other than railway or tramway, rolling stock, parts and accessories thereof 1,117.10 Others 592.40 Iran 0.10 Others 0.10 Maldives 61.80 Mineral products 58.90 Others 2.90 Myanmar 130.90 Vegetable products 91.60 Wood and articles of woods; wood charcoal 19.30 Others 20.00

38 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Imports from ACU Member Countries During January-December, 2018 (Contd.) (In millions of USDs)

Commodity/Country Value Nepal 10.60 Vegetable products 9.60 Others 1.00 Pakistan 578.70 Vegetable products 91.20 Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured 1.00 tobacco substitutes Mineral products 25.90 Products of the chemical or allied industries 9.00 Textiles and textile articles 417.90 Machinery and mechanical appliances, electrical equipment and parts thereof 8.40 Vehicles, aircraft, vessels and associated transport equipment 1.00 Others 24.30 Sri Lanka 52.20 Base Metals and article of base metals 3.50 Products of the chemical or allied industries 12.50 Plastics and rubber and articles thereof 2.50 Textiles and textile articles 10.00 Paper and paperboard; articles of paper pulp, of paper or of paperboard 5.90 Others 17.80 Source: Statistics Department, Bangladesh Bank

Bangladesh: Trade Through EPZ During January-December, 2018 (In millions of USDs)

Item Export Import ACU countries 116.49 470.81 ACU countries over total trade routed through EPZ (percent) 1.54 10.36 Note: There is no Free Trade Zone (FTZ) in Bangladesh. Source: Bangladesh Export Processing Zone Authority (BEPZA)

39 Country Performance / Bangladesh ANNUAL REPORT 2018

Bangladesh: Trade in Major Services with ACU Member Countries During January-December, 2018 (In millions of USDs) Country Item Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Net Services (A-B) -19.38 -385.34 -0.73 -1.86 -4.51 6.72 -14.68 -15.94 Receipts (A) 0.82 314.26 0.27 1.84 0.39 10.62 2.62 9.26 Transportation 0.00 29.70 0.00 0.01 0.16 0.04 0.18 4.38 Travel 0.35 57.54 0.27 0.77 0.15 9.98 0.33 3.56 commercial 0.00 0.19 0.00 0.00 0.00 0.04 0.00 0.01 education 0.14 29.20 0.00 0.08 0.00 8.85 0.01 0.67 tourist 0.20 25.39 0.26 0.66 0.15 0.87 0.29 2.64 other 0.01 2.76 0.01 0.03 0.00 0.22 0.03 0.24 Communication service 0.00 32.14 0.00 0.82 0.00 0.00 0.80 0.63 Bank commission and 0.00 4.05 0.00 0.00 0.00 0.00 0.04 0.01 charges Misc. business, professional and 0.08 11.75 0.00 0.02 0.02 0.00 0.20 0.03 technical services Government services n.i.e 0.39 179.08 0.00 0.22 0.06 0.60 1.07 0.65 Payments (B) 20.20 699.60 1.00 3.70 4.90 3.90 17.30 25.20 Transportation 19.50 523.00 0.00 3.10 3.10 0.50 14.70 18.40 Travel 0.40 128.60 0.10 0.60 0.30 2.30 0.40 2.60 commercial 0.00 2.60 0.00 0.00 0.00 0.00 0.00 0.20 education 0.00 1.90 0.00 0.00 0.00 0.00 0.00 0.10 tourist 0.30 66.60 0.10 0.30 0.20 1.50 0.10 0.70 other 0.10 57.60 0.00 0.30 0.10 0.80 0.20 1.60 Communication service 0.00 7.00 0.00 0.00 0.00 0.00 0.00 0.30 Insurance services 0.00 0.60 0.00 0.00 0.00 0.00 0.00 0.00 Bank commission and 0.00 2.30 0.00 0.00 0.00 0.00 0.40 0.00 charges Misc. business, professional and 0.00 31.70 0.00 0.00 0.00 0.30 0.10 2.70 technical services Government services n.i.e 0.30 6.40 0.90 0.00 1.50 0.80 1.70 1.20 Note: Services data are given according to Balance of Payments Manual-6 (BPM-6). Source: Statistics Department, Bangladesh Bank

Source: Bangladesh Bank

40 Country Performance / Bangladesh ANNUAL REPORT 2018

Bhutan

With slowdown in hydropower investment, food and energy prices) dropped signifi cantly the economic growth dipped to 4.63 percent at 1.06 percent in June 2017, compared in 2017/18 Financial Year (FY)1 against to 3.68 percent in the previous year. The 8.02 percent growth in the year 2016/17. In deceleration in housing infl ation, fall in the consideration to the nearing completion of price of vehicle purchase, transportation, three mega projects, the hydro investment communication and recreation services resulted in 8.12 percentage points drop are the key determinants of subdued core in the overall private investment demand. infl ation. The modest growth was primarily supported by endured fi scal expansion At the end of the year, the international and restoration of private consumption reserves amounted to USD 1.11 billion in spending. The higher investment for June 2018, compared to USD 1.10 billion public infrastructure development and in the previous year. The international increased capital grants disbursement reserves were adequate to meet 13 months to public entities expanded government of merchandise imports, which is equivalent investment demand by 23.36 percent in to 42.53 percent of external debt. real terms. On our part, the monetary policy stance In the midst of increased domestic demand, of the Royal Monetary Authority (RMA) headline infl ation was at record low of continue to remain to promote policies to 2.55 percent in June 2018 (June 2017:5.94 build an inclusive and resilient economy percent). It was primarily the enduring backed by a strong fi nancial system. Several effect of fall in the crude oil prices in initiatives and polices were launched 2017/18 and impact of second-round during 2017/18, such as the Priority Sector effects of declining fuel prices on food and Lending (PSL) guidelines, the Anti-Money other non-food prices. Moreover, due Laundering and Combating the Financing to Goods and Services Tax (GST) of Terrorism (AML/CFT) act 2018, the implementation in India, since corporate governance rules and regulation the last quarter of 2017, there was a 2018, the rules and regulations for signifi cant fall in the vehicle import Cottage and Small Industries (CSI) Banks prices. Equally, underlying infl ation, as in Bhutan 2018, the national fi nancial measured by the core infl ation (excluding inclusion strategy 2018-23 and the national

1 Financial Year stands for beginning of July to the end of June.

41 Country Performance / Bhutan ANNUAL REPORT 2018

fi nancial literacy strategy 2018-23. Another Real GDP Growth important focus area for the some of the (Percent change)

notable accomplishments of the year 9 were implementation of e-money issuers 8 rules and regulations 2017, payment and 7 6

settlement systems rules and regulation 5 2018, operating procedural guidelines for 4 Bhutan fi nancial switch, Global Interchange 3 2

for Financial Transactions (GIFT) payment 1

0 system and etc. On the operational front, 2013/14 2014/15 2015/162016/17 2017/18 the RMA successfully closed its accounts for 2017/18, and submitted a net Upward government spending, moderate surplus of Nu. 1.50 billion to the infl ation level, improved access to credit Royal Government of Bhutan (RGOB). and enhanced external demand on domestic The net surplus for fi nancial year 2017/18 products, along with higher disposable was a record high refl ecting to some income supported the growth recovery of measure the effi ciency in overall reserve private consumption. Given that almost management. 55.00 percent of total domestic expenditure is composed of private consumption, a 10.70 Real Sector percentage points increase in consumer spending revealed that the economy With slowdown in hydropower investment, continues to be consumption oriented. the economic growth dipped to 4.63 Similarly, due to increase in tourism demand percent in 2016/17 against 8.02 percent and unexpected growth in external demand growth in 2015/16. In consideration to the for domestic manufactured goods and nearing completion of three mega projects, mineral products, the overall exports the hydro investment resulted in 8.12 increased by 11.60 percent in 2016/17. percentage points drop in the overall Simultaneously, slowing import demand private investment demand. The modest through subdued hydropower investment growth was primarily supported by curtailed the external demand. endured fi scal expansion and restoration of private consumption spending. The On the production front, unfavorable higher investment for public infrastructure hydrological fl ows for electricity generation development and increased capital grants and dwindling hydropower construction disbursement to public entities expanded activities has decelerated economic government investment demand by 23.36 growth in 2016/17. Electricity production percent in real terms. comprised 15.03 percent of total output, a

42 Country Performance / Bhutan ANNUAL REPORT 2018

3.81 percent point drop in electricity and a demand with a higher saving-investment gap sharp slowdown in construction activities at posed serious external imbalances-resulting 6.34 percent (2016:13.64 percent) during the into high current account defi cit and depletion year were main contributors for slower of international reserves. Gross Domestic Product (GDP) growth. Monetary Sector On the upside, with gaining momentum of private consumption spending, expansionary The monetary development was fi scal operations boosted industrial and characterized by large volatility due to mining production by 5.50 and 7.01 uncertainty of capital infl ows particularly percent, respectively. Likewise, a resilient related to hydropower projects, frequent demand in tourism sector (21.50 percent recourse to government borrowing to growth), production in transportation and fi nance cash defi cit, and change in the restaurant services attained a maximum currency demand. Due to absence of effective growth at 12.09 and 11.16 percent, liquidity management operations and respectively. This has been further boosted constant build-up of excessive reserves in by the expansion of fi nancial services through the banking system, the growth path of a fi nancial inclusion and priority sector- Reserve Money (RM) and money supply lending program. remained highly volatile. Other combined macro-economic factors such as economic Meanwhile, the Government’s commitment growth, level of infl ation, interest rates and for extending quality health and education exchange rate development also affected the services through enhanced fi scal and demand for money. monetary program witnessed a reasonable level of growth in social services by Growth in M2 and its Counterparts 5.80 percent. Given the limited domestic (Annual change, percent) productive capacity, a sizeable portion of 50 domestic demand is met externally. Further, 40 30 with the weak export-oriented manufactured 20 products to meet external demand has 10 0

-10 resulted persistent trade defi cit. Therefore, 2013/14 2014/15 2015/16 2016/17 2017/18 the economic growth fi rmly anchored on -20 domestic demand. The increase in real NFA DC OIN M2 domestic demand by 2.74 percent translated into Ngultrum (Nu.) 32.04 billion imports, The RM or high-powered money signifi es constituting 40.00 percent of total demand. the Central Bank liabilities that infl uences the At the same time, excessive aggregate expansion and contraction of Broad Money

43 Country Performance / Bhutan ANNUAL REPORT 2018

(M2) supply. The behavior of RM was there has been little easing in the deposit rates. largely determined by the stance of liquidity In addition, lower deposit mobilization by the condition. The Cash Reserve Ratio (CRR) banks also resulted into slowdown in domestic is the only monetary instrument so far used credit growth. by the RMA to manage the liquidity of the banking system. In terms of sources of money supply, NFA which was the main driver of liquidity The RM recorded negative growth of 2.50 condition in the banking system has been percent in June 2018, due to dropped in declining over the years. The decline in NFA bank’s deposit maintained at the RMA. growth contributed to lower growth in money With increase in digital payment and lower supply. The domestic credit grew by 17.91 infl ation, growth in currency in circulation, percent in 2017/18, mainly contributed by which accounted 36.65 percent of total credit to private sector 15.69 percent. The RM, slowed down signifi cantly to 6.41 government borrowings from the fi nancial percent from 19.21 percent during 2016/17. sector to fi nance government short-term Banks’ deposit (CRR and excess reserve) held cash defi cit through Treasury Bills (T-bill) with the RMA also experienced a negative has also contributed to the growth in growth 7.01 percent due to decrease of domestic credit. Money multiplier stood at deposits in the commercial banks. Net 3.44 in 2017/18, affected mainly by excess Foreign Assets (NFA), key sources of RM reserve-deposit ratio. The currency-deposit declined by 5.25 percent, owing to lower ratio and reserve-deposit ratio remained stable infl ow of loans and grants. The change in over the years. On the other hand, the velocity RM infl uenced the money supply through the of money remained constant at 1.50 percent, money multiplier effect. indicating stability in the fi nancial system.

On monetary aggregate, the growth in money In terms of asset quality, the Non-Performing supply was recorded at 10.43 percent as Loans (NPL) of Financial Institutions (FIs) compared to 31.50 percent in 2016/17, mainly increased to Nu. 12.54 billion in June 2018, on account of lower growth in aggregate resulting into a marginal deterioration of deposits and decline in NFA. The growth assets quality from 11.36 percent to 11.52 in aggregate deposits, which forms 92.00 percent. Most of the sectors experienced percent of money supply decelerated by 10.92 decline in the NPL, except manufacturing, percent in 2017/18. A lower growth in both housing and transport sectors. In terms of transferable deposits (saving and current share, the highest NPL is recorded in trade deposits) and other deposits (fi xed and and commerce 21.33 percent followed by foreign currency deposits) also contributed services and tourism 19.24 percent and to slowdown in aggregate deposits although, housing 17.97 percent sectors.

44 Country Performance / Bhutan ANNUAL REPORT 2018

External Sector billion in 2016/17 to Nu. 26.96 billion in 2017/18. This was refl ection of The health of the external sector is mirrored increase in merchandise export by 5.39 through the developments in the real, fi scal percent, aided by drop in merchandise and monetary sectors. The nexus of the above import by 3.24 percent. About 60.00 percent three sectors translated into the level of current of total export constitutes electricity and account defi cit, its fi nancing requirements, mineral products, indicating a low product pressure on international reserves and the diversifi cation. Meanwhile, the top ten exchange rate arrangement. Bhutan’s external imports constitute about 30.00 percent of total imbalance continues to refl ect underlying imports, contributed largely by fossil fuel. economic fundamentals of high dependency Statistics shows that the import value has on imports (including a large expatriate labor doubled the export proceeds. For instance, force), grant, aid and debt. However, during export proceeds from electricity (Nu. 11.99 2017/18, due to decrease in merchandise billion) was just suffi cient to cover fuel import trade defi cit and increase in capital and bill from India (Nu. 9.53 billion). fi nancial infl ows, the overall Balance of Payment (BOP) upturned to positive. In terms of direction of trade, India continues to remain the largest trading partner, Overall BOP constituting 84.78 percent of total export (In millions of Nus.) followed by Bangladesh, Italy and 80, 000 Netherlands. Nepal, Hong Kong, Germany 70, 000 60, 000 and Japan also appeared in the top ten export 50, 000 40, 000 destination during 2017/18. Similarly, 30, 000 20, 000 India, South Korea and Japan are the top 10, 000 0 three import sources for Bhutan. On the -,10 000 2013/14 2014/15 2015/161 2016/17 2017/182 service front, the trade-in-service account Trade deficit Budgetaryg rants Capitaland f inancial a ccount Current account deficit Overallb alance defi cit decreased slightly by 1.77 percent to 1 Revised data. Grossir nternational eserves 2 Provisional data. Nu. 3.35 billion in 2017/18, compared to Nu. 3.41 billion in 2016/17. Within this, However, both trade and current account higher receipts were contributed by increase defi cits continues to remain elevated in earnings from Indian tourists recording during 2017/18. The current account Nu. 2.99 billion as compared to Nu. 1.19 deficit improved to 19.02 percent of billion in the previous year. The net primary GDP, compared to 24.23 percent of GDP income defi cit registered at Nu. 14.19 billion during the previous year. The improvement in 2017/18, recording 7.39 percent growth was primarily due to narrowing of from the previous year. The increment merchandise trade defi cit from Nu. 31.15 was due to increase in interest payment by

45 Country Performance / Bhutan ANNUAL REPORT 2018

7.36 percent on Indian Rupee (INR) 12.14 11th Five Year Plan (FYP), government billion and convertible currency (USD 22.75 spending limit was almost 20.00 percent million) debt. higher than the previous expenditure outlay. However, higher mobilization of domestic Exchange Rate Developments revenue and external grants has positioned overall fi scal defi cit comfortably below In terms of June-to-June comparisons, the the target of 3.00 percent of GDP. Owing Ngultrum depreciated by 5.21 percent from to minimal fi scal defi cit, a surplus primary Nu. 64.44 against US Dollar in June 2017 to balance of about 1.00 percent of GDP refl ects Nu. 67.79 in June 2018. Among other major motivation of creating some fi scal space for currencies, the Japanese Yen depreciated the future use. against US Dollar by 1.17 percent, while Euro appreciated by 8.65 percent against Composition of Domestic Revenue (In percent of GDP) US Dollar compared to the previous year.

16

14 External Debt and Servicing 12

10

8

Total outstanding external debt stood at 6 USD 2.65 billion as of 2017/18, refl ecting 4 2

an increase of USD 136.64 million from the 0 20134 /1 2014/15 2015/161 2016/17 2017/181

previous year. Of the total external debt, 73.50 Tax revenue Non-tax revenue percent (INR 133.19 billion) constitutes 1 Revised data. Indian Rupee debt and USD 699.82 million in the form of convertible currency. Within The aggregate demand in the economy was the Indian Rupee debt, about 89.69 percent largely supported by the substantial expansion were related to hydropower projects and the in government expenditure, recording remaining was incurred to meet BOPs defi cit 35.60 percent of GDP. In the review period, with India. Of the total convertible currency following the fi scal consolidation process at debt, the concessional public debt constitutes the end of 11th FYP, spending on infrastructure 95.71 percent and 4.29 percent were related to and other economic activities accounted more private sector. than one third of the capital budget. The enhanced capital expenditure towards the end Fiscal Sector of plan period was almost double of the fi rst year’s capital budget. Following a constant During 2017/18, the fi scal defi cit recorded build-up in capital in the past, the maintenance low at 1.12 percent of GDP, with a surplus expenditure has increased over the years. primary balance. In the fi nal budget of the Similarly, expansion in public employees by

46 Country Performance / Bhutan ANNUAL REPORT 2018

3.90 percent in 2016/17 and periodic salary state-owned enterprises during the Plan put revisions, expenditure on pay and allowances extra pressure for capital and current grants comprised more than 40.00 percent of total and subsidies, accounting 15.00 percent of current expenditure. The establishment of total expenditure.

47 Country Performance / Bhutan ANNUAL REPORT 2018

Bhutan: Major Economic Indicators During 2013/14-2017/18

Year Item 2013/14 2014/15 2015/16 2016/17 2017/18 GDP Growth and Prices (percent change) Real GDP at market prices 2.14 5.75 6.60 7.99 4.63 Consumer prices 8.55 5.15 3.31 5.45 2.57 Wholesale prices (India) 5.61 -2.20 -0.69 2.33 4.57 Government Budget (in millions of USDs) Total revenue and grants 539.64 583.90 659.45 720.91 797.12 of which: foreign grants 231.60 160.44 256.15 269.41 254.20 Total expenditure and net lending 545.35 553.33 723.07 818.61 824.05 Current balance 91.78 84.51 42.78 65.07 125.65 Overall balance -69.89 30.57 -63.62 -97.70 26.93 Money and Credit (percent change, end of period) Broad money (M2) 6.62 7.82 15.83 31.52 10.43 Credit to private sector 6.44 14.00 14.67 15.39 15.69 Interest Rates (end of period) One-year deposits 5.00-6.50 4.00-7.00 4.00-6.50 5.00-6.00 5.00-5.75 Lending rate 10.00-16.00 11.70-17.00 11.70-15.00 8.00-14.00 9.90-13.00 91-day RMA bills 2.30 0.13 5.50 0.65 2.52 Balance of Payments (in millions of USDs) Trade balance -393.21 -429.70 -540.24 -468.71 -393.10 with India -282.45 -305.61 -434.15 -365.86 -366.68 Current account balance -483.07 -574.45 -621.41 -547.06 -456.50 (in percent of GDP) -28.45 -29.82 -31.22 -24.44 -19.02 with India -418.92 -486.34 -593.12 -524.79 -502.76 (in percent of GDP) -24.67 -25.24 -29.97 -23.40 -20.94 foreign aid (concessional loans 304.38 390.29 533.44 348.63 88.64 net) of which: India 265.94 368.90 526.45 311.36 52.49 Errors and omissions 51.37 -20.39 13.86 -27.88 16.40 Overall balance 69.64 -9.20 189.49 -23.56 70.94 (in percent of GDP) 4.10 0.48 9.52 -1.10 2.96

48 Country Performance / Bhutan ANNUAL REPORT 2018

Bhutan: Major Economic Indicators During 2013/14-2017/18 (Contd.)

Year Item 2013/14 2014/15 2015/16 2016/17 2017/18

External Indicators (end of period) Gross offi cial reserves (in millions of 997.91 958.45 1,118.77 1,106.70 1,110.91 USDs) (in months of merchandise imports) 12.61 11.71 13.25 12.53 13.01 External debt (percent of GDP) 100.31 98.91 118.60 108.64 110.05 Debt to service ratio 27.14 19.82 14.46 24.87 23.40 Memorandum Items Nominal GDP (in millions of USDs) 1,714.31 1,926.60 1,990.67 2,238.13 2,400.52 Ngultrum per US Dollar (fiscal year period 61.47 62.05 66.32 66.43 68.58 average) Money supply (M2, end of period) 1,031.19 1,101.44 1,193.62 1,567.27 1,676.49 Money supply (M1, end of period) 645.87 671.64 677.50 914.09 966.68 Counterparts Foreign assets (net) 876.63 938.74 1,123.80 1,030.80 962.47 Domestic credit 850.81 906.61 990.54 1,280.82 1,462.82 Claims on private sector 810.78 915.72 982.47 1,131.79 962.47 Components Currency outside banks 92.80 95.83 91.98 132.28 134.65 Demand deposits 553.07 575.82 585.52 781.81 832.04 Quasi-money 385.33 429.80 516.12 653.17 709.81 Reserve money (M0) 433.35 423.03 419.22 516.75 488.04 of which: bank’s deposits 301.67 272.63 273.40 343.20 353.39 Money multiplier (M2/M0) 2.40 2.60 2.85 3.03 3.44 Income velocity (GDP/M2) 1.60 1.75 1.67 1.43 1.43 Population growth rate 1.50 1.31 1.50 1.30 na Unemployment rate 2.90 2.60 2.50 2.50 2.40

Notes: Figures are on a calendar year basis. Real sector data source: National Statistics Bureau, Bhutan. BOP, fi scal, money and banking statistics are on a fi scal year basis (July-June). CPI for Bhutan is as of the last quarter of the fi scal year. Indian Wholesale Price Index (WPI) is as of the end of the period.

Source: Royal Monetary Authority of Bhutan

49 Country Performance / Bhutan ANNUAL REPORT 2018

Bhutan: Real GDP Growth by Sector During 2013/14-2017/18 (Year-on-Year, change in percent)

Year Item 2013/14 2014/15 2015/16 2016/17 2017/18

Gross Domestic Product (GDP) 2.14 5.75 6.60 7.99 4.63

Primary sector 2.40 2.37 5.07 3.65 3.39

Secondary sector 3.90 3.71 8.22 6.79 2.41

Tertiary sector 0.30 8.91 5.45 10.48 7.15

Source: National Accounts Statistics

Bhutan: Composition of Domestic Revenue During 2013/14-2017/18 (In millions of USDs)

Year Item 2013/14 2014/15 2015/16 2016/17 2017/18

Total Revenue 37,819.12 36,231.05 42,039.30 47,890.08 54,666.72

Domestic revenue 23,582.77 26,276.03 27,149.69 29,993.03 36,178.37

tax revenue 16,182.77 18,387.34 19,884.63 21,078.49 26,173.13

non-tax revenue 7,061.84 6,753.69 8,149.19 8,089.44 10,005.25

Grants 14,236.35 9,955.02 14,889.61 17,897.05 17,433.08

In percent of GDP

Total Revenue 35.89 30.31 31.83 32.21 33.21

Domestic revenue 22.38 21.98 20.56 20.17 21.98

tax revenue 15.36 15.38 15.05 14.18 15.90

non-tax revenue 6.70 5.65 6.17 5.44 6.08

Grants 13.51 8.33 11.27 12.04 10.59

Source: Royal Monetary Authority of Bhutan

50 Country Performance / Bhutan ANNUAL REPORT 2018

Bhutan: Overall Balance of Payments During 2013/14-2017/18 (In millions of USDs)

Year Item 2013/14 2014/15 2015/16 2016/17 2017/18

Trade Defi cit 24,220.00 26,693.29 37,481.34 31,136.35 26,959.11 Budgetary Grants 11,398.07 9,193.05 14,487.90 9,948.17 6,204.86 Current Account Defi cit 29,741.96 35,655.56 43,758.84 36,341.51 31,306.95 Capital and Financial 32,249.23 36,338.76 56,052.09 36,628.41 39,587.60 Account Overall Balance 4,280.49 -570.83 13,746.12 -1,565.30 4,865.20 Gross International Reserves 59,966.26 61,105.92 75,647.38 71,351.95 76,186.21

Source: Royal Monetary Authority of Bhutan

Bhutan: Main Items of Goods and Services Exported to ACU Member Countries in 2017/18

Sector/Country

Bangladesh Citrus fruit (oranges, apples, pears, etc.), fruit juices, mineral products (granite, basalt, sandstone and other monumental or building stone, limestone and other calcareous stone, dolomite, not Goods calcined or sintered, powdered, gypsum, anhydrite, calcium carbonate, ferro-alloys, etc.) ores, slag and ash, beverages, spirits and vinegar Services Transportation (passenger air transport), travel

India Hydropower, base metal and base metal product (wires, cables, rods and copper product, ferroalloys, iron and non-allot steel), mineral products (cement, dolomite, gypsum, coal), carbides, Goods processed foods, vegetable products (potato, carrot, beans, etc.) ores, slag and ash, beverages, spirits and vinegar

Services Transportation (passenger air transport), travel

Iran

Goods Ferro-alloys

Nepal Gypsum, anhydrite, limestone fl ux, limestone and other calcareous stone, of a kind used for the Goods manufacture of lime or cement, coal, briquettes, ovoids and similar solid fuels manufactured from coal, coke and semi-coke of coal, tableware and kitchenware of wood Services Transportation (passenger air transport), travel

Source: Bhutan Trade Statistics 2017, Department of Revenue and Customs, Ministry of Finance

51 Country Performance / Bhutan ANNUAL REPORT 2018

Bhutan: Main Items of Goods and Services Imported from ACU Member Countries in 2017/18

Sector/Country Bangladesh Tea, whether or not fl avored, rice, sunfl ower seeds, whether or not broken, slag, dross (other than granulated slag), scalings and other waste from the manufacture of iron or steel, medicaments Goods (petroleum jelly, paraffi n wax, micro-crystalline petroleum wax, slack wax, ozokerite, lignite wax, peat wax, other mineral waxes), self-adhesive plates, sheets, fi lm, foil, tape, strip and other fl at shapes of plastics, whether or not in rolls, etc. India Mineral product (high speed diesel, petrol, kerosene), textile (silk, cotton, paper yarn, carpets, knitted or crocheted fabrics), ceramic products, base metal and articles of base metals (iron, steel, Goods copper, zinc, tools, implements, cutlery, spoons and forks of base metal), vehicles and parts, aircraft parts, vessels and associated transport equipment, arms and ammunition with parts and accessories

Services Construction, education, health, business service (telecommunication, information technology, etc.)

Nepal Garment and textile (woven fabrics of cotton), table and kitchen ware, aluminum rods, aluminum wire, copper alloys, electrical transformer, static converter and inductors, soap, organic surface- Goods active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes beauty or make-up preparations, including sunscreen or sun tan preparations, manicure or pedicure preparations Sri Lanka

Stationaries (printed books, brochures, leafl ets and similar printed matter), textile and fabrics Goods (woven fabrics of synthetic fi lament yarn, carpets), ceramic sinks, wash basins, wash basin pedestals, baths, bidets, water closet pans, fl ushing cisterns, urinals and similar sanitary fi xtures

Source: Bhutan Trade Statistics 2017, Department of Revenue and Customs, Ministry of Finance

Source: Royal Monetary Authority of Bhutan

52 Country Performance / Bhutan ANNUAL REPORT 2018

India

Real Economy

The Second Advance Estimates (SAE) of dipped over the three quarters, as have those national income that were released in the end of agriculture, with construction activity of February 2019, placed real Gross Domestic largely sustaining services sector growth. Product (GDP) growth at 7.00 percent in Financial Year (FY)1 2018/19 (April-March), The fi rst monetary policy statement for lower than that of 7.20 percent in the previous 2019/20, issued on April 4, 2019, has year. Notwithstanding the steady pick-up projected GDP growth for 2019/20 at 7.20 in exports over the year, overall growth percent, with risks evenly balanced. Higher slackened, largely refl ecting the moderation fi nancial fl ows to the commercial sector in government consumption and imports (led augur well for economic activity. Private by a decline in crude oil prices). Growth in consumption, which has remained resilient, Gross Fixed Capital Formation (GFCF), is also expected to get a fi llip from public however, was placed in double digits – slightly spending in rural areas and an increase in higher than that in the previous year – and disposable incomes of households due to tax refl ected the Government’s thrust on the road benefi ts. Business expectations continue to be sector and affordable housing. Consequently, optimistic. the ratio of GFCF to GDP (both in real terms) increased to 32.30 percent in 2018/19 from Infrastructure 31.40 percent in the previous year. Infrastructure remains an important catalyst From the supply side, growth rate of real for the growth in India. During the year Gross Value Added (GVA) was placed at 6.80 2018/19, India has emerged as the fastest percent in 2018/19, slightly lower than that of highway developer in the world with 27 km 6.90 percent in the previous year. The sharp of highways being built each day. Under deceleration in agriculture and allied activities the Pradhan Mantri Gram Sadak Yojana and some moderation in services sector (PMGSY), construction of rural roads has growth were partially offset by a pick-up in tripled. The fl agship program of Sagarmala manufacturing sector growth. Sequentially, along the coastal areas of the country will however, manufacturing growth rates have develop ports for faster handling of import

1 Financial Year stands for beginning of April to the end of March.

53 Country Performance / India ANNUAL REPORT 2018

and export cargo. As far as railways are merely to Government services or factories. concerned, all unmanned level crossings on With job seekers becoming job creators, broad gauge network have been eliminated India has become the world’s second and the fi rst indigenously developed and largest start-up hub.” The Budget envisages manufactured semi high-speed train has to enhance employment generation by, been launched. With regard to the promotion inter-alia, expanding rural industrialisation of the renewable energy, the International using modern digital technologies, Solar Alliance, the fi rst treaty-based promoting the entertainment industry–a international inter-governmental organization major employment generator–by providing headquartered in India, has been set up. single window clearance for ease of shooting India’s installed solar generation capacity fi lms by Indian fi lm-makers, available thus has grown over ten times in last fi ve years. far only to foreigners; and strengthening the Micro, Small and Medium Enterprises Employment (MSME) sector, another signifi cant employment provider. The Government has taken several measures to boost employment generation with focus Fiscal Sector on skill development, self-employment, employer incentives to promote employment During 2018/19 (April-February), the and technological and legislative reforms, fi scal position of the central government apart from enhancing allocations to deteriorated mainly because of muted growth employment schemes. Specifi cally, through in indirect tax revenues, reflecting a the Pradhan Mantri Kaushal Vikas Yojana shortfall in Goods and Services Tax (GST) (PMKVY), over 10 million youth are being collections by Indian Rupee (INR) 1.00 trained to help them earn a livelihood. As trillion (USD 14.00 million approx.), even as mentioned in the interim Union Budget corporate tax and customs duty collections (UB) speech for 2019/20, “High growth and surpassed the budget targets. Consequently, formaliztation of the economy has led to the centre’s fi scal defi cit was more than a third the expansion of employment opportunities higher than the Revised Estimates (RE) at as shown in Employees’ Provident Fund the end of February 2019. This necessitated Organization (EPFO) membership, which a cutback in capital expenditure, in order to has increased by nearly 2.00 crore in two contain the Gross Fiscal Defi cit (GFD). years refl ecting formalization of the economy and job creations.” and “the concept of In the interim budget (2019/20)1 , the Centre’s employment is changing all over the world, GFD was revised upward to 3.40 percent of now the employment generation is not confi ned the GDP in the RE of the full year 2018/19

1 An interim Union Budget for 2019-20 was presented on February 1, 2019, keeping in view the conduct of Parliamentary election during April- May 2019.

54 Country Performance / India ANNUAL REPORT 2018 from 3.30 percent in the budget estimates of categorized into three broad phases. In the that year. The interim budget announced a initial few months, CPI infl ation hardened direct income support scheme for small and and reached an intra-year high of 4.90 percent marginal farmers that would be effective from in June 2018. Over the subsequent period, December 1, 2018, with the fi rst installment infl ation generally trended downwards to for the program being paid during the year reach 2.00 percent in January 2019. Then, 2018/19 itself. As such, the deviation in during February and March 2019, infl ation the GFD for 2018/19 was caused mainly showed some upward tendency, even as it by a large shortfall in GST collections remained below 3.00 percent. and extension of direct income support to farmers. The interim budget for 2019/20 has The increase in infl ation in the initial kept the GFD to GDP ratio unchanged at 3.40 months of 2018/19 was on account of price percent; the GFD target of 3.00 percent of pressures in food, fuel and light as well the GDP has been retained for 2020/21. as miscellaneous components. Thereafter, infl ation started easing following large Against the backdrop of heightened favourable base effects during July-August pressure on state fi nances from 2015/16 2018, moderation in food and beverages to 2017/18 due to factors such as the Ujwal prices (largely refl ecting the sharp fall in Discom Assurance Yonjana (UDAY) vegetables and fruits prices and continued scheme for fi nancial turnaround of defl ation in pulses and sugar) and also state-owned power distribution companies, dissipation of House Rent Allowance (HRA) farm loan waivers, pay revisions and decline impact on account of seventh Central Pay in revenue collections, the consolidated GFD Commission (CPC) which led to the softening of 29 states was budgeted at 2.60 percent of housing infl ation. Rise in global crude oil of GDP in 2018/19. 28 states have so far prices, however, provided an upward push to presented vote-on-account/full budgets for infl ation in the transport and communication 2019/20. From the consolidated position of component till October 2018, following 25 states that is available, the consolidated which infl ation in this component began GFD stands revised to 2.90 percent of easing. GDP for 2018/19. For 2019/20, states have budgeted for a consolidation with the GFD to Infl ation in fuel and light picked up during GDP ratio at 2.50 percent. May to September 2018, largely driven by price pressures in Liquefi ed Petroleum Gas Prices and Infl ation (LPG) and diesel, in line with international prices as well as calibrated increase in The evolution of retail Consumer Price administered kerosene prices and higher than Index (CPI) infl ation during 2018/19 can be average summer uptick in prices of fi rewood

55 Country Performance / India ANNUAL REPORT 2018

and chips. Fuel infl ation started easing from some probability of El Nino effects in 2019, October 2018 and declined substantially to which could impact farm production and 1.20 percent in February 2019 largely due to prices; fuzzy outlook for international crude easing of international LPG prices. oil prices; volatility in fi nancial markets and; the imperative to carefully monitor the fi scal The pick-up in headline retail infl ation during situation at the general government level. February and March 2019 was driven by an increase in prices of items excluding food and Monetary Developments fuel and weaker momentum of defl ation in the food group. In fact, price pressures in meat Reserve Money (RM) increased by 15.10 and fi sh, egg and cereals increased, while percent in 2018/19, lower than that of 27.40 infl ation in health and education remained percent in the previous year, exhibiting the elevated. wearing off of low base effects following the demonetization episode in November 2016. Household infl ation expectations have fallen Currency in Circulation (CIC) remained the in the March 2019 survey round by 160 basis main driver of RM in 2018/19, even as its points (bps) for the three-month horizon and contribution declined vis-à-vis the previous 170 bps for the one-year horizon in relation year. to the September 2018 round. The infl ation path during 2019/20 is likely to be shaped From sources side, the change in net by several factors such as low food infl ation Reserve Bank of India (RBI) credit to the during January-February; the fall in the fuel central government turned around from group infl ation; lower than expected CPI (-) INR 1,541.00 billion (USD 22.00 billion infl ation excluding food and fuel in February; approx.) in 2017/18 to (+) INR 3,715.00 increase in international crude oil prices by billion (USD 53.00 billion approx.) in around 10.00 percent since the February 2019 2018/19, largely as net open market sales to policy and; further moderation in the infl ation absorb liquidity gave way to net open market expectations of households as well as input purchases to inject liquidity in the system. and output price expectations of producers Moreover, net purchase of foreign currency polled in the Reserve Bank’s surveys. Taking during 2018/19 was around one-fi fth of that cognizance of these factors and assuming a during the previous year. Around the middle normal monsoon, the April 2019 monetary of March 2019, the Reserve Bank announced policy statement revised the infl ation path that in order to meet the durable liquidity downwards, keeping risks broadly balanced. needs of the system, it had decided to augment its liquidity management toolkit and inject Beyond the near-term, several uncertainties Rupee liquidity for longer duration through cloud the infl ation outlook. These include long-term foreign exchange buy/sell swap.

56 Country Performance / India ANNUAL REPORT 2018

The US Dollar amount mobilized through expectations of a breakthrough in the this auction would also refl ect in the Reserve US-China trade relations at the G-20 summit, Bank’s Foreign Exchange Reserves (FER) dovish statement by the US Federal Reserve, for the tenor of the swap and in the Reserve improvement in India’s ranking in the ’s forward liabilities. The fi rst such swap Bank’s ease of doing business index and a auction was conducted on March 26, 2019 sharp appreciation of the Rupee against the for an amount of USD 5.00 billion for a tenor US Dollar. of three years. Since then, the market generally moved Broad Money (M3) grew by 10.60 percent upwards barring in February 2019 when in 2018/19 vis-à-vis 9.20 percent during market sentiment reversed on account of 2017/18. Aggregate deposits remained the partial US Government shutdown, concerns primary contributor (around 80.00 percent) to over US-China trade talks and geopolitical the increase in M3 during 2018/19. Growth tensions in the Asian sub-continent. The in Currency with the Public (CWP) was largely upward movement during November placed at 16.60 percent as on March 31, 2018 to March 2019 was on account of various 2019 as against 39.20 percent a year before, factors including the US Federal Reserve’s the latter refl ecting the impact of a low base decision to hold rates along with the indication from November, 2016 onwards. On the of a patient approach towards further rate sources side, M3 was driven primarily by hikes, positive expectations from the interim Scheduled Commercial Banks (SCBs) credit UB for 2019/20 and domestic monetary to the commercial sector, followed by net policy, positive global cues, easing of bank credit to the Government. cross-border tensions and large investments by Foreign Portfolio Investments (FPIs). Stock Market Yields in the Government Securities The Indian equity market, which was Market buoyant till August 2018 – on the back of generally positive domestic macro- Yields in the Government Securities economic developments – fell sharply (G-Sec) market exhibited several directional during September and October, triggered changes during the year. Yields eased at the by a debt event relating to a systemically beginning of 2018/19 on the back of positive important Non-Banking Financial Companies market sentiment, but generally hardened (NBFC), coupled with global trade tensions. from the end of April on account of larger A turnaround occurred during November than expected borrowing calendar for state 2018 on easing of concerns over liquidity development loans, rising international crude tightness, waning infl ation pressures, oil prices, infl ation concerns, fi rming up of

57 Country Performance / India ANNUAL REPORT 2018

US treasury yields to 3.00 percent (fi rst time bias on expectations of monetary policy since January 2014), depreciation of the Rupee, easing, improvement in liquidity conditions, and rising trade protectionism. The yields announcement of Voluntary Retention Route peaked to a high of 8.11 percent on September (VRR) for FPIs, benign infl ation data and 11, 2018. Thereafter, yields started softening infusion of liquidity through US Dollar/Indian towards the end of September refl ecting the Rupee buy/sell swap auction. measures taken for containing INR volatility along with expectations of lower market External Sector borrowings by the central government in the second half of 2018/19. Lower infl ation India’s external sector has remained resilient prints accompanied by a sharp decline in in recent period despite terms of trade crude oil prices resulted in a decline in yields losses due to the fi rming up of international during November 2018 and the yield on the crude prices and uncertain global demand benchmark paper fell to 7.37 percent during conditions. Modest Current Account Defi cit December 2018, yields, notwithstanding (CAD) in recent years was accompanied by intermittent hardening because of fears robust fl ows of Foreign Direct Investment about fi scal slippages on account of the (FDI). Strong FDI infl ows and build-up farm relief package and an expected rise of foreign exchange reserve buffers have in market borrowing during 2019/20. The helped India meet its external fi nancing benchmark yield rose during January 2019 requirements despite domestic capital market amidst deteriorating market sentiments facing sizeable outfl ows of foreign portfolio sparked by concerns about domestic fi scal investment. position and rise in crude oil prices due to expected production cuts by Organization of The CAD increased to 2.60 percent of GDP the Petroleum Exporting Countries (OPEC) during April-December 2018 from 1.80 and others. The announcement of additional percent in the Corresponding Period of the borrowing of INR 1,390.00 billion for Previous Year (COPPY), due to the widening 2019/20 over and above the RE of 2018/19 of the trade defi cit. Net invisibles receipts in the Interim Budget 2019/20 also led to a were higher during April-December 2018 fi rming up of yields. The yield then softened mainly due to increase in net services earnings on account of reduction in the repo rate by the and private transfer receipts. Export growth Reserve Bank and the downward revision of remained weak in January and February the projected infl ation trajectory for April to 2019 mainly due to exports of petroleum September 2019. Concerns of a sharp increase products decelerating in response to a fall in in supply of G-Secs lead to yield hardening international crude oil prices. Among non- in third week of February 2019. Yields during oil exports, engineering goods, chemicals, March remained steady with a softening leather and marine products recorded either

58 Country Performance / India ANNUAL REPORT 2018 sequentially lower or negative growth. As commercial borrowings was put in place in the case of exports, lower international in January 2019, which allowed a uniform crude oil prices downsized the oil import bill. borrowing limit of USD 750.00 million a year Non-oil non-gold imports declined sharply, across tenors and expanded the list of eligible dragged down by the subdued demand borrowers. for pearls and precious stones, transport equipment, project goods and vegetable India’s FER at USD 412.90 billion as oils. The trade defi cit narrowed in February on March 31, 2019 as compared with 2019 – both sequentially and on a Year-on- USD 424.40 billion in the COPPY. Year (YoY) basis – to its lowest level in 17 months. This, along with the increase in External Debt services exports and lower outgo of income payments, resulted in narrowing of the CAD At the end of December 2018, India’s sequentially. external debt was placed at USD 521.20 billion, lower by USD 8.50 billion than its Net FDI infl ows in April-December 2018 level at the end of March 2018 but higher increased to USD 24.80 billion from by USD10.80 billion than its level at the end USD 23.90 billion in COPPY; these of September 2018. fl ows were mainly into manufacturing, communication and fi nancial services. Commercial borrowings continued to be Portfolio investment recorded a net outfl ow the largest component of external debt of USD 11.90 billion in April-December with a share of 37.40 percent, followed by 2018 as against an infl ow of USD 19.80 Non-Resident Indian (NRI) deposits billion in COPPY. Foreign portfolio investors, (24.10 percent) and short-term trade credit however, turned net buyers in the domestic (19.90 percent). capital market in the forth quarter of 2018/19. Foreign portfolio investment – which made The share of long-term debt (original maturity) a fl ight to safety in 2018 due to concerns in total external debt at the end of December surrounding global growth, high oil prices 2018 was 80.10 percent, lower than its level and trade and geopolitical tensions – resumed of 80.70 percent at the end of March 2018. in the forth quarter, buoyed, inter alia, by The share of short-term debt (with original dovish monetary policy stances in advanced maturity of up to one year) in total external economies. debt increased to 19.90 percent at the end of December 2018 from 19.30 percent at the end Flows under non-resident deposits and of March 2018. external commercial borrowings improved during the year. A new framework for external Short-term debt on a residual maturity basis

59 Country Performance / India ANNUAL REPORT 2018

(i.e., debt obligations that include long-term September 2018. Other soundness indicators debt by original maturity falling due over the such as the tier I leverage ratio at 6.70 percent next twelve months and short-term debt by and the liquidity coverage ratio at 134.80 original maturity) constituted 43.50 percent percent as at the end of September 2018 of total external debt at the end of December remain well above the minimum regulatory 2018 (as against 42.00 percent at the end of requirements. Provision coverage ratio also March 2018) and stood at 57.30 percent of increased to 52.40 percent at the end of FER (as against 52.30 percent at the end of September 2018 from 48.30 percent at the March 2018). The ratio of short-term debt end of March 2018. Bank credit is recovering (original maturity) to FER increased to 26.40 from the risk aversion of recent years. percent at the end of December 2018 (as against 24.10 percent at the end of March In early April 2019, the Honorable Supreme 2018). Court held the RBI circular dated February 12, 2018 on resolution of stressed assets US Dollar denominated debt continued to as ultra vires. The Court held that RBI’s be the largest component of India’s external directions under Section 35AA of the debt with a share of 45.90 percent at the end banking regulation act, 1949 “which are in of December 2018, followed by the Indian respect of debtors generally” would be ultra Rupee (24.80 percent), Special Drawing vires of that section. Thus, the order of the Rights (SDR) (5.10 percent), Yen (4.90 Supreme Court mandates RBI to exercise percent) and Euro (3.10 percent). its powers under Section 35AA “in respect of specifi c defaults by specifi c debtors”. Banking Developments The powers of RBI under Section 35AA and other sections of the banking regulation act, Several initiatives have been underway to 1949 are, therefore, not under doubt. In light strengthen the regulatory and accounting of Honorable Supreme Court order, the RBI frameworks aimed at increasing the resilience will take necessary steps, including issuance of the institutions. The Reserve Bank’s of a revised circular, as may be necessary, initiatives in the recent period are aimed at for expeditious and effective resolution of ensuring better and timely recognition of stressed assets. The RBI stands committed stressed assets, suffi cient provisioning and an to maintain and enhance the momentum of effi cient resolution process. resolution of stressed assets and adherence to credit discipline. The asset quality of banks showed an improvement with the gross non-performing Financial Inclusion assets ratio of SCBs declining from 11.50 percent in March 2018 to 10.80 percent in India has adopted a bank-led model for

60 Country Performance / India ANNUAL REPORT 2018

fi nancial inclusion. Interventions have transaction histories. This is expected to lower been in the form of tweaking regulatory transactions costs, while offering convenience guidelines, encouraging banks to come up and thereby enabling fi nancial inclusion. with innovative products for the customers, Banks and non-bank intermediaries such fostering competition through allowing as mobile companies, non-banks, Financial differentiated banks in the form of Payments Technology (Fin-Tech) companies and and Small Finance Banks (SFBs) and Monetary Financial Institutions (MFIs) are advising banks to make fi nancial inclusion an allowed to partner and offer digital fi nancial important agenda in their board level services. At the same time, differential discussion through commencement of banking through new banking entities such as Financial Inclusion Plans (FIP) since 2010. SFBs and payments banks would help focus on niche banking and lending opportunities. Some of the key initiatives over the past few Direct Benefi t Transfer (DBT) and aadhaar years include launch of the Pradhan Mantri seeding of accounts are some of the other Jan-Dhan Yojana (PMJDY) (2014); launch major developments. A national strategy for of Atal Pension Yojana (APY), Pradhan fi nancial inclusion is also being formulated Mantri Jeevan Jyoti Bima Yojana (PMJBY) to give a holistic thrust in this domain. It is and Pradhan Mantri Suraksha Bima Yojana also envisaged to step up fi nancial literacy and (PMSBY) (2015); differentiated Banking customer protection initiatives, going forward. Licenses- Payments and SFBs (2015); rationalisation of branch authorisation Fin-Tech has the potential to reshape the policy (2017) wherein fi xed point Business fi nancial services and fi nancial inclusion Correspondent (BC) outlets serving for landscape in India in signifi cant ways by more than 4 hours a day and fi ve days a reducing costs and improving access and week are treated on par with physical brick quality of fi nancial services. A recent global and mortar branches; and BC Registry and survey (by Ernst and Young) has ranked India BC Certifi cation through International Bar second in terms of Fin-Tech adoption, with Association (IBA) (2018). an adoption rate of 52.00 percent. At the same time, adoption of Fin-Tech has its The PMJDY is a major campaign to improve own share of risks for the regulators and banking reach by enabling the fi nancially supervisors, the early recognition of which excluded population to open a basic bank and initiating action to mitigate the related account without frills. Currently, the focus is regulatory and supervisory challenges, on digitization to achieve fi nancial inclusion. is key to reap the full potential of these Digitalization of fi nancial services provides developments. distinctive advantages of service access, choice of channels/ payments, and building of Designing suitable fi nancial products that

61 Country Performance / India ANNUAL REPORT 2018

cater to specifi c needs of the fi nancially Customer (KYC) registry is a signifi cant step excluded population, digital onboarding in this regard – about 100.00 million KYC and boosting the quantum of investments records have already been uploaded onto this are vital to improving the accessibility of platform. Multi-lingual fi nancial literacy and fi nancial platforms using Fin-Tech. Effective a robust grievance redressal machinery to utilization of Aadhaar eco-system may effectively handle inter-regional disparities provide incentives for the people to adopt and to offer online dispute resolutions, also digital platforms as it is happening in need to be ensured. the case of DBT. The central Know Your

62 Country Performance / India ANNUAL REPORT 2018

India: Real GDP Growth-at Market Prices of 2017/18-2018/19 (In percent)

2017/18 2018/19 Year Item 2017/18 2018/19 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Private Consumption 7.40 8.30 10.10 6.00 5.00 6.70 6.90 9.80 8.40 Expenditure Government Consumption 15.00 8.90 21.90 7.60 10.80 16.90 6.50 10.80 6.50 Expenditure Gross Fixed Capital 9.30 10.00 3.90 9.30 12.20 14.40 11.70 10.20 10.60 Formation Change in Stocks 21.20 5.30 12.50 22.60 24.30 7.80 9.50 4.20 3.90 Valuables 27.40 0.60 79.60 24.60 10.90 29.10 -25.80 9.50 13.30 Net Exports -27.90 -263.10 na na na na na na na Exports 4.70 13.40 4.90 5.80 5.30 3.60 11.20 13.90 14.60 Imports 17.60 15.70 23.90 15.00 15.80 10.90 10.80 21.40 14.70 Discrepancies 42.30 -28.02 1.20 53.00 740.00 -21.80 22.80 -21.20 -90.60 GDP at Market Prices 7.20 7.00 6.00 6.80 7.70 7.70 8.00 7.00 6.60

Source: Central Statistics Offi ce (CSO)

63 Country Performance / India ANNUAL REPORT 2018 2017/18 2018/19 (In percent) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018/19 5.00 2.70 4.20 4.50 4.60 4.50 5.10 4.20 2.70 8.607.80 8.00 7.60 8.607.70 7.60 9.206.20 6.80 7.60 7.50 7.30 8.30 7.506.90 7.70 7.80 8.30 8.20 6.80 6.70 4.80 8.30 8.00 5.90 8.70 6.90 6.80 6.50 6.60 8.20 5.00 7.80 8.60 7.30 6.60 6.90 7.60 7.20 6.90 7.80 7.30 6.80 6.30 11.90 8.50 14.80 8.80 9.20 13.30 7.60 8.70 7.60 2017/18 India: Sector-Wise Growth in Gross Value-Added During 2017/18-2018/19 Value-Added in Gross Growth India: Sector-Wise ce (CSO) ce Year fi Central Statistics Of Industry 6.10 7.20 6.10 6.10 10.10 8.00 8.00 7.70 -0.10 Agriculture, Forestry and Forestry Agriculture, Fishing Mining and quarryingManufacturing gas, water supply Electricity, and other utility services Service 5.10Construction hotels, transportation, Trade, 1.21 communication and services 5.90related to broadcasting 2.90 8.11 10.80 -1.70 5.60 4.50 (at basic Value-Added Gross 7.10prices) 8.90 Source: 2.70 8.60 3.30 0.40 9.10 4.80 -2.10 12.40 8.00 1.30 7.00 11.50 6.70 9.60 8.50 9.60 Financial, insurance, real Financial, insurance, real estate and professional services Public administration, defence and other services Item

64 Country Performance / India ANNUAL REPORT 2018

India: Foreign Trade During 2016/17-2018/19 (In millions of USDs)

Year 2016/17 2017/18 2017/18 2018/19

Item April-March April-January

Export 275,852.40 303,526.20 248,176.80 270,224.00

Import 384,357.00 465,581.00 384,422.50 433,372.40

Trade Balance -108,504.60 -162,054.80 -136,245.60 -163,148.30

Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S)

India: Exports to Central Government Special Economic Zones During 2013/14-2017/18 (In millions of USDs)

Year Item 2013/14 2014/15 2015/16 2016/17 2017/18

Kandla Special Economic Zone 599.30 625.20 637.80 649.80 745.10

Santacruz Electronics Export Processing 2,461.90 2,333.40 2,463.20 2,428.60 2,285.40 Zone Special Economic Zone

Nodia Special Economic Zone 1,405.20 1,084.30 1,194.40 1,344.20 1,107.50

Cochin Special Economic Zone 701.80 251.70 803.30 1,174.30 3,201.80

Falta Export Processing Zone 240.70 191.50 158.10 146.60 165.90

Visakhapatnam Special Economic Zone 358.60 327.40 150.70 139.10 194.40

Total 5,767.40 4,813.40 5,407.60 5,882.50 7,700.00

Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S)

65 Country Performance / India ANNUAL REPORT 2018 Import Export Import Export Import (In millions of USDs) Export April-March April-December Import 2016/17 2017/18 2017/18 2018/19 8.00 3.70 8.60 3.10 8.40 3.00 8.80 3.70 509.30 307.80197.80 546.10 9.20 378.00 217.00 433.60 335.80 5.70 538.80 174.90 320.70 4.60 177.00 19.10 6,820.10 701.702,379.60 8,614.30 10,506.50 685.60 2,652.401,107.90 6,880.20 11,111.505,453.60 1,067.30 2,203.301,821.90 535.40 445.10 966.20 8,810.70 7,283.50 454.50 6,613.00 639.60 2,541.90 1,924.30 810.90 438.40 12,176.00 799.30 488.60 5,312.90 603.20 1,448.20 368.90 1,057.50 420.50 6,422.10 438.10 1,768.30 375.00 473.50 Export India: Trade with ACU Member Countries During 2016/17-2018/19 ACU Member with Trade India: Year India’s India’s to Directorate General of Commercial Intelligence and Statistics (DGCI&S) Country Bhutan Iran Myanmar Nepal Pakistan Sri Lanka Bangladesh ACU of Total Trade Total India’s ACU Share 275,852.40 22,203.30Source: 384,357.00 14,094.30 303,526.20 26,009.70 465,581.00 14,520.10 248,176.80 384,422.50 20,823.50 270,224.00 11,723.40 433,372.40 23,685.70 15,819.10 Total Trade (percent) Trade Total

66 Country Performance / India ANNUAL REPORT 2018

India: Exports of Major Commodities to ACU Member Countries During 2013/14-2017/18 (In millions of USDs)

Item Year 2013/14 2014/15 2015/16 2016/17 2017/18

Engineering Goods 5,955.70 8,613.10 7,103.90 6,953.40 8,127.10

Cotton Yarn/Fabrics/Made-Ups, Handloom 1,725.00 1,770.10 1,815.30 1,926.30 2,117.60 Products, etc.

Petroleum Products 1,985.80 2,288.80 1,421.90 1,707.50 2,691.10

Organic and Inorganic Chemicals 1,050.90 1,110.80 1,022.10 1,234.80 1,305.30

Drugs and Pharmaceuticals 907.30 962.70 970.60 1,068.70 1,070.60

Rice 2,306.00 2,145.60 952.10 899.60 2,249.60

Plastic and Linoleum 626.70 681.20 658.00 729.40 732.20

Man-Made Yarn/Fabrics/Made-Ups, etc. 595.30 659.50 670.90 655.80 652.30

Fruits and Vegetables 554.50 546.90 554.10 581.80 492.60

Mica, Coal and other Minerals Including 410.40 375.30 392.70 488.10 514.20 Processed Minerals

Electronic Goods 271.80 392.70 369.20 358.80 402.70

Spices 216.10 235.90 279.80 347.10 352.40

Oil Meals 1,369.40 635.90 177.80 280.40 364.80

Ready-Made Garments of All Textiles 131.40 155.90 196.00 247.60 167.30

Cereal Preparation and Miscellaneous 203.00 226.60 220.70 233.50 247.00 Processed Items

Others 4,480.10 4,218.40 5,114.70 4,490.60 4,523.10

Total Export to ACU 22,789.40 25,019.50 21,919.80 22,203.30 26,009.90

Total Export 314,415.70 310,352.00 262,291.10 275,852.40 303,526.20

Share to Total Export (percent) 7.20 8.10 8.40 8.00 8.60

Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S)

67 Country Performance / India ANNUAL REPORT 2018

India: Imports of Major Commodities from ACU Member Countries During 2013/14-2017/18 (In millions of USDs)

Item Year 2013/14 2014/15 2015/16 2016/17 2017/18

Petroleum, Crude and Products 8,717.90 7,393.80 4,646.90 9,126.00 9,331.40

Pulses 624.00 807.40 819.30 806.30 432.00

Organic and Inorganic Chemicals 488.30 747.10 611.10 490.00 391.90

Fruits and Vegetables 304.80 427.10 370.40 328.60 329.30

Fertilisers Crude and Manufactured 559.60 230.20 510.30 316.10 564.10

Dyeing/Tanning/Colouring Materials 394.20 425.80 348.10 308.50 430.80

Wood and Wood Products 817.40 454.30 203.00 237.90 238.60

Iron and Steel 292.50 228.10 152.70 175.70 246.50

Artifi cial Resins, Plastic Materials, etc. 217.70 235.50 248.70 173.80 322.20

Transport Equipment 99.90 190.80 72.10 162.60 161.30

Metalliferous Ores and other Minerals 89.60 98.20 101.00 112.70 165.00

Non-Ferrous Metals 92.20 96.80 69.70 109.70 166.70

Textile Yarn Fabrics, Made-Up Articles 94.80 112.50 96.00 84.00 89.20

Leather and Leather Products 70.90 107.10 71.70 77.50 68.20

Chemical Material and Products 52.20 47.60 79.00 51.20 53.60

Others 1,051.60 1,253.00 1,530.10 1,533.60 1,529.40

Total Import from ACU 13,967.60 12,855.50 9,930.10 14,094.30 14,520.10

Total Import 450,213.60 448,033.40 381,007.80 384,357.00 465,581.00

Share to Total Import (percent) 3.10 2.90 2.60 3.70 3.10

Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S)

68 Country Performance / India ANNUAL REPORT 2018

India: Main Items of Goods and Services Exported to ACU Member Countries in 2017/18

Sector/Country

Bangladesh Cotton yarn/fabrics/made-ups, handloom products, etc., rice, oil meals, fruits and vegetables, Agriculture spices, meat, dairy and poultry products, man-made yarn/fabrics/made-ups, etc. Engineering goods, organic and inorganic chemicals, petroleum products, plastic and Industry linoleum, mica, coal and other minerals including processed minerals, electronic goods, drugs and pharmaceuticals Bhutan Meat, dairy and poultry products, other cereals, rice, fruits and vegetables, oil meals, man- Agriculture made yarn/fabrics/made-ups, etc. Engineering goods, petroleum products, mica, coal and other minerals including processed Industry minerals, electronic goods, cereal preparation and miscellaneous processed items, plastic and linoleum Iran Rice, tea, spices, man-made yarn/fabrics/made-ups, etc., fruits and vegetables, oil seeds, Agriculture coffee, cotton yarn/fabrics/made-ups, handloom products, etc., meat, dairy and poultry products, oil meals, cashew, etc. Organic and inorganic chemicals, drugs and pharmaceuticals, plastic and linoleum, Industry engineering goods, gems and jewellery, engineering goods, mica, coal and other minerals including processed minerals, petroleum products Maldives Agriculture Meat, dairy and poultry products, fruits and vegetables, rice Mica, coal and other ores, minerals including processed minerals, petroleum products, Industry engineering goods, cereal preparations and miscellaneous processed items, drugs and pharmaceuticals, marine product, plastic and linoleum Myanmar Cotton yarn/fabrics/made-ups, handloom products, etc., oil meals, tobacco, spices, coffee, Agriculture other cereals Ready-made garments of all textiles, plastic and linoleum, engineering goods, petroleum Industry products, organic and inorganic chemicals, drugs and pharmaceuticals, electronic goods

Nepal

Cotton yarn/fabrics/made-ups, rice, fruits and vegetables, other cereals, spices, tobacco, oil Agriculture seeds, oil meals Organic and inorganic chemicals, drugs and pharmaceuticals, plastic and linoleum, ceramic Industry products and glassware petroleum products, electronic goods, engineering goods, mica, coal and other minerals including processed minerals

69 Country Performance / India ANNUAL REPORT 2018

India: Main Items of Goods and Services Exported to ACU Member Countries in 2017/18 (Contd.)

Sector/Country

Pakistan Meat, dairy and poultry products, fruits and vegetables, spices, tea, other cereals, oil seeds, Agriculture man-made yarn/fabrics/made-ups, etc., cotton yarn/fabrics/made-ups, handloom products, etc. Organic and inorganic chemicals, engineering goods, plastic and linoleum, petroleum Industry products, drugs and pharmaceuticals, handicrafts excluding hand-made carpet, cereal preparation and miscellaneous processed items Sri Lanka Cotton yarn/fabrics/made-ups, man-made yarn/fabrics/made-ups, etc., oil meals fruits and Agriculture vegetables, rice, spices Petroleum products, plastic and linoleum, electronic goods, ready-made garments of all Industry textiles, ceramic products and glassware, organic and inorganic chemicals, drugs and pharmaceuticals, engineering goods, marine products, gems and jewellery

Source: Reserve Bank of India

70 Country Performance / India ANNUAL REPORT 2018

India: Main Items of Goods and Services Imported from ACU Member Countries in 2017/18

Sector/Country Bangladesh Agriculture Cotton raw and waste, fruits and vegetables, wood and wood products Non-ferrous metals, textile yarn fabrics, made-up articles, iron and steel, transport Industry equipment, organic and inorganic chemicals, artifi cial resins, plastic materials etc., leather and leather products petroleum, crude and products, machinery, electrical and non-eletrical Bhutan Agriculture Fruits and vegetables, wood and wood products Iron and steel, organic and inorganic chemicals, metaiferrous ores and other minerals, Industry non-ferrous metals, artifi cial resins, plastic materials, etc., machinery, electrical and non- eletrical Iran Agriculture Fruits and vegetables Dyeing/tanning/colouring materials, chemical material and products, non-ferrous metals, transport equipment artifi cial resins, metaliferrous ores and other minerals, fertilisers Industry crude and manufactured, iron and steel organic and inorganic chemicals, petroleum, crude and products, leather and leather products Maldives

Agriculture Wood and wood products

Artifi cial resins, plastic materials, etc., machine tools, textile yarn fabrics, made-up articles machinery, electrical and non-electrical, petroleum, crude and products, iron and Industry steel, non-ferrous metals electronic goods, professional instrument, optical goods, etc., medicinal and pharmaceutical products Myanmar Agriculture Wood and wood products, pulses Metaliferrous ores and other minerals, non-ferrous metals, iron and steel machinery, Industry electrical and non-electrical, electronic goods, leather and leather products Nepal Agriculture Fruits and vegetables, wood and wood products Organic and inorganic chemicals, machinery, electrical and non-eletrical, chemical material and products, iron and steel, artifi cial resins, plastic materials, etc., dyeing/ Industry tanning/colouring materials, leather and leather products, non-ferrous metals, medicinal and pharmaceutical products

71 Country Performance / India ANNUAL REPORT 2018

India: Main Items of Goods and Services Imported from ACU Member Countries in 2017/18 (Contd.)

Sector/Country Pakistan

Agriculture Fruits and vegetables, pulses

Metaiferrous ores and other minerals, fertilisers crude and manufactured, medicinal and pharmaceutical products petroleum, crude and products, leather and leather products, Industry textile yarn fabrics, made-up articles organic and inorganic chemicals, medicinal and pharmaceutical products, artifi cial resins, plastic materials, etc. Sri Lanka Agriculture Wood and wood products, fruits and vegetables textile yarn fabric, made-up articles Pearls, precious and semi-precious stones, iron and steel, artifi cial resins, plastic materials etc., organic and inorganic chemicals machinery, electrical and non-electrical, transport Industry equipment, transport equipment, non-ferrous metals, chemical material and products, metaliferrous ores and other minerals, machinery, electrical and non-eletrical, petroleum, crude and products, electronic goods

Source: Reserve Bank of India

72 Country Performance / India ANNUAL REPORT 2018

Iran

Introduction

The Iranian economy had a relatively the Central Bank of Islamic Republic of Iran favorable performance in 2017/18, with (CBI) adopted policy measures including the the stable prices and reasonable Gross implementation of a new foreign exchange Domestic Product (GDP) growth. In 1397 policy package, development of a system (2018/19)1, however, upon the United States to oversight non-oil export receipts and (US) withdrawal from the Joint adopt regulations concerning surrender Comprehensive Plan of Action (JCPOA) requirements to banks aimed at strengthening and the imposition of new sanctions, foreign exchange supply for establishment uncertainty in terms of macro-economic of the organized foreign exchange market, conditions, volatility in the foreign allocation of foreign exchange for the imports exchange market, and restrictions on of pharmaceuticals and essential goods at fi nancial transactions and external trade preferential rates, use of monetary measures increased. This in turn adversely affected aimed at restricting high volatility of banks’ the macro-economic indicators including short and long-term deposits to changes in GDP growth and the infl ation rate in market conditions and promoting incentive 2018/19, although with the adoption of structure for banks’ long-term deposits, appropriate policy measures, the negative and improved management and oversight impact emanating from these developments of local currency transactions involved in was to a large extent controlled. foreign exchange market through payment system instruments and tighter regulation Developments in the Foreign and discipline on banking transactions and Exchange Market activities of exchange bureaus. Therefore, the volatilities in the foreign exchange market After the US withdrawal from the JCPOA were relatively managed and controlled. in May 2018 and the re-imposition of Accordingly, the exchange rate for the sanctions and restrictions, the local currency US Dollar, which had increased to exchange rate versus foreign currencies Rls. 182,570.00 in the middle of 2018 was increased in the unoffi cial market. To alleviate lowered to Rls. 130,700.00 at year-end the turmoil in the foreign exchange market, (March 2019). This was indicative of the

1 The year 1397 corresponds to 2018/19 (starting March 21, 2018 and ending March 20, 2019). The fi rst nine months of 1397 cover April- December 2018 and the fi rst six months cover April-September. 73 Country Performance / Iran ANNUAL REPORT 2018

return of relative stability and tranquility to increased sharply, mainly attributable to the the market. rise in the exchange rate.

Price Trends Changes in Stock Exchange Indices (percentage change over respective month of previous year)

With the rise in the exchange rate, monthly 140 120 infl ation started an upward and fl uctuating 100 80

trend as of June 2018. As a result, the point-to- 60 point infl ation rate (monthly Consumer Price 40 20 Index (CPI)) increased to 42.40 percent in 0 -20 December 2018 and the infl ation rate surged -40 ------1394 2 1395 2 1395 8 1396 2 1397 2 to 21.20 percent. Moreover, the infl ation rate 1394 41394 613941394 8 101394 12 1395 41395 6 1395 101395 12 13961396 4 613961396 8 101396 12 1397 41397 613971397 8 101397 12 of the Producer Price Index (PPI) followed Financial index Industrial index TEPIX an increasing trend as of April 2018, mainly owing to the intensifi cation of uncertainties Therefore, despite the imposition of a new in the economy and the foreign exchange round of sanctions in 2018/19, the capital market. This index topped 30.60 percent in market had a favorable performance in December 2018. terms of absorbing market liquidity and channeling it into productive activities and Growth in Price Indices operative companies. Accordingly, market (Year-on-Year, percent) capitalization increased by 78.60 percent 35 to Rls. 6,829.00 trillion. The total project 30

25 fi nancing by the capital market grew by 20 25.70 percent to Rls. 1,275.00 trillion. 15

10 Total funds mobilized in the primary and

5 secondary markets accounted for 91.70

0 ------percent of total fi nancing, and 8.30 percent 1395 1 1394 1 1394 5 1394 9 1395 5 1395 9 1396 1 1396 5 1396 9 1397 1 1397 5 1397 9 of fi nancing was through fi nancial PPI (1395=100) CPI (1395=100) institutions.

Capital Market Money and Banking

Tehran Stock Exchange Price Index (TEPIX) Liquidity grew by 23.10 percent in March indicated 85.50 percent growth in March 2019 and reached Rls. 18,828.90 trillion, 2019 and reached 178,659.00 points. In 1.00 percentage point higher than the 2018/19, the sales and exports of industries respective growth fi gure of the year before listed and traded on the stock exchange (22.10 percent). The CBI managed to reduce

74 Country Performance / Iran ANNUAL REPORT 2018 the amount of banks’ overdraft and debt to and barley rose by 9.70 and 7.60 percent, CBI through strengthening the inter-bank respectively. This was against the backdrop of market and negotiating with indebted banks. a 26.60 percent reduction in total cumulative The most signifi cant CBI measures in this precipitation in 2017/181 farming year regard included deepening of the inter-bank compared with the year before. market and the improved management of banks’ liquidity in the framework of inter- Manufacturing and Mining bank market operations, and utilization of the mechanisms stipulated in the Budget Due to restrictions on transfer of funds and Law for 2018/19. Therefore, banks’ debt financial transactions with international to the CBI started a downward trend from trade partners, several Iranian industries, Rls. 1,822.50 trillion in November 2018 to including the automotive industry, Rls. 1,715.20 trillion in March 2019. Despite experienced severe conditions in terms of the adoption of these measures, banks’ the importing of raw materials in 2018/19. extension of loans and facilities experienced However, some industrial groups managed favorable conditions in this year, indicating to maintain the long-term growing trend. 26.00 percent growth compared with the Products such as crude steel, steel products, year before. It is important to note that 55.80 iron ore, and coal concentrate increased in percent of these facilities were allocated as 2018/19 compared with 2017/18. In addition, working capital for productive units and data on the performance of operation companies. permits, as an indicator of private sector willingness to invest in the manufacturing Agriculture sector, show increases by respectively 7.20, 113.80 and 2.10 percent in terms of the Based on preliminary estimates, total number, investment (at current prices), and agricultural output, including farming, job opportunities compared with the year horticultural, livestock, and fi shery products, before. reached 121.80 million tons in 2018/19, up by 2.60 percent. Fishery and livestock products, Construction and Housing with respectively 4.60 and 3.70 percent, enjoyed the highest growth rates. In 2018/19, In 2018/19, construction permits issued by the growth rate of farming products was municipalities in all urban areas indicated 2.10 percent, constituting 68.90 percent of 11.10 and 20.80 percent increase in number total agricultural products. Grain production and total fl oor space, respectively, in the fi rst increased by 5.90 percent compared with nine months of 1397 (April-December 2018). the year before and the production of wheat The mentioned indices for Tehran rose by

1 2017/18 farming year starts as of October 2017 and ends in September 2018.

75 Country Performance / Iran ANNUAL REPORT 2018

16.50 and 18.20 percent, respectively. Imports through Customs decreased by 21.80 percent and reached US Dollar 42.60 billion. Affected by macro-economic developments, Machinery and transportation vehicles, with housing prices soared dramatically in this 37.50 percent, had the highest share in the year, which led to an increase in construction total value of imports. In 2018/19, the value profi t margin and acceleration in the of each ton of exported goods, in terms of completion process of unfi nished buildings. US Dollar, increased by 5.90 percent and Thus, a number of 427.50 thousand residential the average per ton price of imported goods units with a total fl oor space of 66.50 million decreased by 5.10 percent. Therefore, the square meters were completed by the private terms of trade (the ratio of the value of sector in urban areas. This indicated 6.30 exported goods per ton to that of imported percent increase in number. goods) increased by 0.03 percentage points.

Residential Units Completed by Private Sector in Urban Area Reviewing the foreign trade developments (In thousands) in 2018/19 indicates that the value of foreign

600 trade through Customs totaled USD 82.00

500 billion (excluding natural gas condensate),

400 down by 13.10 percent. However, as exports

300 through customs (including natural gas 200 condensate) reached USD 44.30 billion 100 and given the value of imports in this year, 0 1393 1394 1395 1396 1397 the trade balance of the country indicated USD 1.70 billion surplus in 2018/19.

External Sector Developments Energy

Based on preliminary data released Iran’s average crude oil production by Islamic Republic of Iran Customs fell by 1.90 percent to 3.80 mb/d in Administration, the value of exports through the first six months of 1397 (April- Customs (excluding natural gas condensate) September 2018) compared with the amounted to USD 39.40 billion in 2018/19, respective period in the previous year. down by 1.40 percent. This was mainly due Iran’s crude oil exports decreased by to the 9.30 and 39.10 percent reduction in 5.60 percent on average and reached 2.00 the value of the exports of agricultural and mb/d in the same period. Moreover, the traditional goods and metallic mineral ores, exports of oil products amounted to 256.30 respectively. These groups had a share of thousand b/d, indicating 18.80 percent 16.00 percent in the total value of exports. decrease. The estimated average of Iran’s spot

76 Country Performance / Iran ANNUAL REPORT 2018 price of crude oil increased by 47.80 percent 2018/19, the participation rate increased by to USD 72.00 per barrel compared with the 0.40 percentage points to 40.50 percent. respective period in 1396 (April-September 2017). Iran’s natural gas exports reached 7.10 The number of available jobs increased by billion cubic meters in the reference period, about 463.90 thousand, with the highest indicating 6.70 percent increase compared increase by 246.90 thousand related to the with the respective period in the year before. services sector. In this year, 83.00 thousand Imports of natural gas, on the other hand, fell and 135.80 thousand job opportunities were by 30.20 percent to 1.90 billion cubic meters. created in the industry and agriculture sectors, Therefore, net exports of natural gas reached respectively. Of total 463.90 thousand jobs 5.20 billion cubic meters in the fi rst six created in 2018/19, the number of available months of 1397 (April-September 2018). job opportunities for men was raised by 271.70 thousand and those for women Population and Employment increased by 192.20 thousand. The higher increase in the economically active population According to the estimates of the Statistical at 2.10 percent compared with the rise in the Center of Iran (SCI), unemployment employed population at 2.00 percent led to a rate reached 12.00 percent in 2018/19, slight increase in the unemployment rate in indicating only 0.10 percentage points 2018/19. rise despite fl uctuations in the economy. The unemployment rate in urban areas Unemployment Rate was 13.50 percent and in rural areas, (In percent) 15 7.90 percent, indicating 0.20 percentage points increase and 0.20 percentage points 13 decrease, respectively. The unemployment 11 rate for the female population reached 18.90 9 percent, showing 0.70 percentage points 7 decrease compared with the year before. 5 Unemployment rate for men rose by 0.30 1392 1393 1394 1395 1396 1397 percentage points to 10.40 percent. In Urban areas Rural areas Total

77 Country Performance / Iran ANNUAL REPORT 2018

Iran: Major Economic Indicators During 2014/15-2018/19

Year Item 2014/15 2015/16 2016/17 2017/18 2018/19

Percent Change (2011/12=100) Real Gross Domestic Product (GDP) 3.20 -1.60 12.50 3.70 1.801 (at basic prices) Non-Oil Real GDP 3.00 -3.10 3.30 4.60 0.701 Gross Fixed Capital Formation 7.80 -12.00 -3.70 1.40 -0.801 Consumer Price Index (CPI), 15.60 11.90 9.00 9.60 21.202 (2016/17=100) Broad Money 22.30 30.00 23.20 22.10 23.103 In percent of GDP Gross Fixed Capital Formation 26.00 22.70 20.30 19.70 na Public 6.50 6.10 6.04 6.30 na Private 19.60 16.70 13.90 13.40 na Gross National Saving 41.90 34.80 35.10 36.00 na Current Account Balance 3.10 0.30 3.90 3.50 na Total Government Revenue 14.30 16.10 17.30 17.60 na o/w: oil 5.60 6.00 5.80 6.20 na Total Government Expenditures 15.40 17.90 19.30 19.40 na Overall Budget Balance -1.10 -1.70 -2.00 -1.80 na In millions of USDs Total Debt4 5,108.00 7,476.00 8,481.00 10,910.00 10,034.002 Medium and long-term 4,676.00 5,456.00 5,170.00 6,713.00 6,860.002 Short-term 432.00 2,019.00 3,312.00 4,197.00 3,174.002 Inter-Bank Market Exchange Rate 26,509.00 29,580.00 31,389.00 34,214.00 41,950.00 (USD/Rls.) 1 Including the fi rst quarter of the year 1397. The year 1397 corresponds to 2018/19 (starting March 21, 2018 and ending March 20, 2019). 2 Related to the 9th month of 1397 (The fi rst 9 months of 1397 cover April-December 2018 and the fi rst 6 months cover April- September.) 3 Preliminary data.

4 Excluding arrears.

78 Country Performance / Iran ANNUAL REPORT 2018

Iran: GDP Growth by Economic Sectors During 2014/15-2018/19 (at Constant 2012/13 Prices) (In Percent)

Year 1 Item 2014/15 2015/16 2016/17 2017/18 2018/19 Agriculture 5.40 4.60 4.20 3.20 0.30 Manufacturing 5.40 -6.10 2.20 5.10 0.10 Oil and Gas 4.50 7.20 61.60 0.90 5.20 Services 1.40 -2.30 3.60 4.40 1.10 Total 3.20 -1.60 12.50 3.70 1.80 1 Including the fi rst quarter of the year 1397.

Iran: Government Per-Capita Revenues and Expenses During 2014/15-2018/19 (at Constant 2016/17 Prices) (In USDs) Year Item 2014/15 2015/16 2016/17 2017/18 2018/19 Revenues, 577.50 524.80 582.20 551.30 na of which Tax revenues 419.20 369.80 404.50 381.00 na Expenses 849.70 797.10 826.00 799.10 na

Iran: Ratio of Selected Budget Items to GDP During 2014/15-2018/19 (In percent) Year Item 2014/15 2015/16 2016/17 2017/18 2018/19

Revenues 8.68 10.10 11.48 11.32 na Expenses 12.77 15.34 16.29 16.41 na Acquisition of Non-Financial Assets 2.70 2.40 3.00 2.98 na Net Disposal of Non-Financial Assets 2.95 3.61 2.80 3.25 na Operating Balance -4.09 -5.24 -4.81 -5.09 na

79 Country Performance / Iran ANNUAL REPORT 2018

Iran: Government General Budget Revenues During 2015/16-2018/19 (In millions of USDs)

Share (percent) Year 2015/16 2016/17 2017/18 2018/19 Item 2016/17 2017/18 2018/19

Revenues 37,990.00 46,534.00 48,986.80 na 100.00 100.00 na

Tax revenues 26,771.10 32,326.70 33,856.80 na 69.50 69.10 na

Other revenues 11,218.90 14,207.20 15,130.00 na 30.50 30.90 na

Iran: Government General Budget Performance During 2016/17-2018/19 (In millions of USDs)

Percentage Change Share (percent) Year 2016/17 2017/18 2018/19 Item 2017/18 2018/19 2017/18 2018/19

Revenues 46,534.00 48,986.80 na 5.30 na 52.40 na

Expenses (current) 66,021.40 71,005.20 na 7.50 na 75.90 na

Operating Balance -19,487.40 -22,018.40 na 13.00 na - na

Disposal of non-fi nancial 23,664.30 26,973.70 na 14.00 na 28.80 na assets Acquisition of non-fi nancial assets (development 12,316.40 12,913.10 na 4.80 na 13.80 na expenditures) Operating and Non- -8,139.50 -7,957.80 na -2.20 na - na Financial Balance

Disposal of fi nancial assets 20,011.60 17,576.70 na -12.20 na 18.80 na

Acquisition of fi nancial 11,872.10 9,618.80 na -19.00 na 10.30 na assets

80 Country Performance / Iran ANNUAL REPORT 2018

Iran: Price Indices Growth During 2014/15-2018/19 (2016/17=100)

Percentage Change Over Previous Year Year Item 2014/15 2015/16 2016/17 2017/18 2018/191

Consumer Price Index (CPI) of Goods 15.60 11.90 9.00 9.60 21.20 and Services

Producer Price Index (PPI) 14.80 5.00 4.90 10.00 30.60

Exportable Goods Price Index -0.50 -16.00 -2.70 20.60 - (2011/12=100)

1 Related to the 9th month of 1397.

Source: The Central Bank of the Islamic Republic of Iran

Iran: Current Account Balance During 2015/16-2018/19

In millions of USDs Percentage Change Year Item 2015/16 2016/17 2017/18 2018/191 2017/18 2018/192

Current Account Balance 1,237.00 16,388.00 15,816.00 11,061.00 -3.50 197.10

Goods 5,354.00 20,843.00 22,596.00 12,983.00 8.40 156.60

Services -4,785.00 -5,941.00 -7,916.00 -2,276.00 33.20 32.90

Income 241.00 928.00 669.00 210.00 -27.90 -20.30

Current transfers 427.00 558.00 467.00 144.00 -16.30 26.50 Current Account Balance -28,972.00 -37,976.00 -47,237.00 -9,252.00 24.40 -8.80 (non-oil) 1 Including the fi rst quarter of the year 1397.

2 The percentage change calculation is based on the fi rst quarter of 1397 with the respect to the same period in 1396.

81 Country Performance / Iran ANNUAL REPORT 2018

Iran: Value of Exports During 2014/15-2018/19 (In millions of USDs)

Year Percentage Change 2014/15 2015/16 2016/17 2017/18 2018/191 Item 2017/18 2018/192

Exports of Goods (fob) 88,976.00 62,995.00 83,978.00 98,142.00 29,336.00 16.90 37.50 Oil Exports 55,406.00 31,848.00 55,752.00 65,818.00 20,980.00 18.10 48.10 Non-Oil Exports 33,569.00 31,147.00 28,226.00 32,324.00 8,356.00 14.50 16.50 1 Including the fi rst quarter of the year 1397. 2 The percentage change calculation is based on the fi rst quarter of 1397 with the respect to the same period in 1396. Source: Economic Research and Policy Department, Central Bank of the Islamic Republic of Iran

Iran: Ratio of Imports, Exports, Current Account Balance and Non-Oil Exports to GDP During 2014/15-2018/19 (In percent) Year Item 2014/15 2015/16 2016/17 2017/18 2018/191

Imports 16.30 14.90 15.10 16.90 16.50 Exports 20.50 16.30 20.00 21.90 29.60 Current Account Balance 3.10 0.30 3.90 3.50 11.10 Non-Oil Exports 7.70 8.10 6.70 7.20 8.40 1 Including the fi rst quarter of the year 1397. Source: Economic Research and Policy Department, Central Bank of the Islamic Republic of Iran

82 Country Performance / Iran ANNUAL REPORT 2018

Iran: Exports to ACU Member Countries in 2018/191

Item Country Weight in Kg Value in USDs

Bangladesh 1,439,020,864.00 86,338,077.00 India 8,365,579,860.00 2,042,922,208.00 Maldives 604,589.00 157,609.00 Myanmar 361,818,802.00 115,138,204.00 Nepal 49,577,766.00 12,772,328.00 Pakistan 2,806,580,716.00 1,247,234,276.00 Sri Lanka 233,453,893.00 51,114,652.00 1 Including natural gas condensate. Source: Islamic Republic of Iran Customs Administration (IRICA)

Iran: Imports from ACU Member Countries in 2018/19

Item Country Weight in Kg Value in USDs

Bangladesh 26,110,980.00 31,826,035.00 India 2,011,222,129.00 2,650,200,450.00 Myanmar 65,079.00 89,260.00 Pakistan 298,438,828.00 330,237,419.00 Sri Lanka 23,097,968.00 90,695,523.00 Source: Islamic Republic of Iran Customs Administration (IRICA)

83 Country Performance / Iran ANNUAL REPORT 2018

Iran: Main Items of Goods and Services Exported to ACU Member Countries in 2018/19

Sector/Country Bangladesh Agriculture Shelled pistachios, prunes Cement clinkers, petroleum bitumen, other portland cement than white, hydraulic cements, Industry polystyrene in primary forms India Agriculture Pistachio, dates Urea, whether or not in aqueous solution, methanol (methyl alcohol), anhydrous ammonia, Industry iron and non-alloy steel in ingots or other primary forms, petroleum bitumen, toluene, propane, butanes, poly (vinyl chloride)

Maldives

Peaches, including nectarines, kiwifruit, dates, fruits of the genus capsicum or of the genus Agriculture pimento, watermelons Industry Petroleum bitumen, sweet biscuits Myanmar Petroleum bitumen, paraffi n wax, urea, whether or not in aqueous solution, lubricating oils Industry put up in packing for retail sale, bars and rods containing indentations, ribs, grooves or other deformations, forged bars and rods of iron, micro-crystalline petroleum wax Nepal Industry Petroleum bitumen, urea, whether or not in aqueous solution, non-wired glass, plasters Pakistan Agriculture Pistachios in shell, dates, chickpeas (garbanzos) Petroleum bitumen, light oils and preparations, liquefi ed propane gases, sacks and bags Industry (including cones) of other plastics, bars and rods containing indentations, ceramic fl ags and paving of water absorption, other liquefi ed petroleum gases Sri Lanka Tunas (of the genus thunnus), dried fi sh, other than edible fi sh offal, whether or not salted but Agriculture not smoked Petroleum bitumen, semi-fi nished rectangular (including square) products of iron or non-alloy steel containing by weight less than 0.25 percent of carbon, urea, whether or not in aqueous Industry solution, refi ned lead, hydraulic turbines and water wheels of a power exceeding 10,000 kw, portland cement

84 Country Performance / Iran ANNUAL REPORT 2018

Iran: Main Items of Goods and Services Imported from ACU Member Countries in 2018/19

Sector/Country Bangladesh Industry Yarn and woven fabrics of jute or other textile Bhutan Agriculture Peaches, including nectarines Monoethanolamine and its salts, medicaments containing corticosteroid hormones and their Industry derivatives, sheets, panels, tiles and similar articles from asbestos-cement, of cellulose fi ber- cement or the like India Agriculture Semi-milled or wholly milled rice, black tea, fermented black tea Aluminum oxide other than artifi cial corundum, carbon electrodes, oil-cake and other solid Industry residues, uncoated paper and paperboard in rolls weighing 40 g/m² or more but not more than 150 g/m², ferro-silicon-manganese Myanmar Agriculture Turmeric (curcuma), coffee not roasted not decaffeinated Industry Trunks, suit-cases, camera accessories like lantern slide attachments, lens hoods, stands Pakistan Semi-milled or wholly milled rice, sesame seeds, live bovine animals like cattle, meat of bovine Agriculture animals in boneless form, guavas, mangoes and mangos teens, camels and other camellias Paper, paperboard, cellulose wadding and webs of cellulose fi bers, instruments and appliances Industry used in medical, surgical, dental or veterinary sciences Sri Lanka Agriculture Black tea (fermented), desiccated coconuts, brazil nuts and cashew nuts, vegetable products Aluminum casks, cans and similar containers, folding cartons for sanitary food or beverage as Industry containers, stoppers, caps and lids

Source: Islamic Republic of Iran Customs Administration (IRICA)

Source: Central Bank of the Islamic Republic of Iran

85 Country Performance / Iran ANNUAL REPORT 2018

Maldives

Macro-Economic Developments

Real Economy

According to the latest estimates, real relative to the 8.04 percent growth recorded Gross Domestic Product (GDP) growth for during the previous year. The growth in tourist Financial Year (FY)1 2018 is estimated at arrivals during 2018 was driven primarily 7.65 percent, up from the initial projection by the strong increase in tourist arrivals from of 6.04 percent forecasted during November the European market, which offset the decline 2017. The growth trajectory for 2018 depicted in arrivals from China. an acceleration when compared with the 6.91 percent recorded during the preceding Looking at the key indicators of the tourism year, driven largely by the resilient sector, total tourist bednights registered a performance of the tourism sector, together growth of 10.19 percent during 2018, falling with buoyant domestic demand arising from slightly off the momentum from the previous the continued expansion of the construction year’s 10.62 percent growth. Nonetheless, the sector. average duration of stay increased from 6.18 days in 2017, to 6.38 days in 2018. Mirroring During 2018, the tourism sector showed these positive developments, the average a resilient performance despite numerous occupancy rate of the industry increased to challenges and potential downside risks 62.08 percent, up from 61.12 percent in 2017, associated with rising global trade tensions notwithstanding the supply-side growth in and potential worldwide economic growth the operational bed capacity of the industry slowdown. The sector largely benefi ted from during 2018. Meanwhile, total tourist receipts favourable economic conditions in the main for the year is estimated to grow by 10.47 source markets, coupled with increased percent, totalling USD 3.00 billion. fl ight movements by international carriers. The number of tourist arrivals reached 1.48 The progressive trend observed in the million—faintly short of the 1.50 million target construction sector during the past few years for 2018—and registered an annual growth continued into 2018, as refl ected by the of 6.82 percent. This was a slight moderation growths in the key indicators used to gauge

1 Financial Year stands for beginning of January to the end of December.

86 Country Performance / Maldives ANNUAL REPORT 2018 the performance of the sector—commercial years, which witnessed growth rates of 42.22 bank credit to the sector and construction- percent in 2017 and 19.10 percent in 2016, related imports. While commercial bank respectively. Meanwhile, the volume of fi sh credit to the sector observed an annual exports declined by 5.15 percent on the back growth of 20.91 percent1, construction- of signifi cant falls in the volumes of frozen related imports, such as wood, metal, cement skipjack tuna and frozen yellowfi n tuna and aggregates increased annually by 34.62 exports. These declines completely offset the percent during 2018. The buoyant growth of substantial growth observed in the export of the sector was primarily due to the continued canned or pouched tuna products. public sector infrastructure projects carried out by the Government. As such, key projects Infl ation carried out during the year included the expansion of the Velana International Airport The average rate of infl ation (as measured (VIA); the developments of Hulhumale’ by the annual change in the Consumer phase two, China-Maldives Friendship Price Index (CPI)) declined considerably Bridge, Dharumavantha Hospital; and and entered defl ation territory, standing at Male’ redevelopment project. Additionally, -0.13 percent in 2018, following an increase the continued boom in residential housing of 2.83 percent during the preceding year. construction and new resort developments This largely stemmed from a number of contributed signifi cantly to the growth of the policy changes that came into effect during sector. 2017, as well as the fi rst half of 2018, which signifi cantly reduced the prices of electricity Following a strong performance in 2017, and staple food items (rice, sugar and fl our) activity in the fi sheries sector appears to have during the review year. As such, these declines somewhat moderated as indicated by the key completely offset the upward infl ationary indicators used to gauge the performance of pressures from rising rental house prices, the industry—fi sh purchases by collector and prices of tobacco and arecanuts. Despite vessels from local fi shermen and volume the continued recovery in global oil prices of fi sh exports. In this regard, although fi sh during 2018, the impact was minimal on purchases increased by 2.22 percent domestic oil prices owing to the reduction in in annual terms and amounted to 78.32 the import duty on petrol and diesel in June thousand metric tons in 2018, this was a 2017. Additionally, the upward adjustment moderation relative to the previous two to the administered fuel surcharge cap rate2

1Construction sector-related loans include loans for new resort development, resort renovation and construction of guesthouses (classifi ed as tourism sector loans), as well as loans to the real estate sector. Hence, this fi gure will be different from the loans to the construction sector reported within the monetary developments.

2 Fuel surcharge begins to be charged only when the price at which State Electric Company Limited (STELCO) purchases diesel from Security Token Offering (STO) exceeds the cap of Maldivian Rufi yaa (MVR) 8.00 per liter. The rate at which the fuel surcharge applies is MVR 0.03 per MVR 0.10 increase in the price of a diesel liter, above the surcharge cap. Presently, the purchase price of diesel is at MVR 8.00 per liter.

87 Country Performance / Maldives ANNUAL REPORT 2018

in August 2017—which resulted in the defi cit projection made for 2018, and the 2.98 temporary exemption of the fuel surcharge percent recorded during 2017. on electricity—coupled with the reduction of electricity and water tariffs within the atolls The total revenue (excluding grants) during March 2018, to harmonize utility rates increased by USD 88.39 million and totalled across the country, exerted further downward USD 1.38 billion in 2018, largely refl ecting pressure on infl ation during the year. Similarly, the increase in tax revenue, together with a the decline in staple food prices added to the considerable increase in non-tax revenue. Tax dampening effect on infl ation. This was due revenue, which accounted for 74.00 percent to the reduced wholesale prices by the State of the total revenue, was driven primarily by Trading Organization—the country’s main a remarkable growth in receipts from the importer and distributor of staple foods— in tourism goods and services tax, followed by April 2017 and again in April 2018, restoring increased receipts from import duties and the prices of staple items to the rates prior the general goods and services tax. The rise to the change in subsidy policy in October in non-tax revenue predominantly refl ected 2016. Subsequently, the ministry of economic the growth in receipts from the airport development also revised the controlled prices development fee. (i.e., the prices that can be charged by retailers in the country). It is worth noting the relative During 2018, total expenditure (excluding stability of fi sh prices during the year, which debt amortization) amounted to USD 1.65 are generally the most volatile and carry the billion, which represented an increase of highest weight within the food category of the USD 194.44 million from 2017. The growth CPI basket. resulted entirely from the expansion in the current expenditure, which was driven by a Public Finance signifi cant rise in the expenditure on subsidies, refl ecting the reinstatement of the subsidy on On the fi scal front, as in recent years, staple food items in April 2018, together with the 2018 government budget was geared the increase in electricity subsidies to utility towards economic transformation through companies. In addition, a rise in expenditure infrastructure development. Meanwhile, the on the national insurance scheme (Aasandha) aim of the medium-term budget is to achieve also contributed notably to the growth in such a budget surplus and to reduce the country’s expenses. However, capital expenditure fell total debt as a percentage of the total GDP. marginally during the review year, represented As for the performance of the budget1, the by the decline in expenditure on the Public overall fi scal defi cit for 2018 widened to 4.66 Sector Investment Program (PSIP). percent of GDP, up from the 3.22 percent

1 According to the data available from the Ministry of Finance and Treasury as at 6 February 2019.

88 Country Performance / Maldives ANNUAL REPORT 2018

In 2018, the fi scal defi cit was fi nanced transferable deposits, which is the main through foreign loans (for project fi nancing) component of M2, increased by 1.46 percent and bonds, while domestic fi nancing when compared with the previous year. recorded a net repayment during the year. Meanwhile, currency outside depository Total public debt stood at 58.01 percent of corporations increased by 4.96 percent in GDP in 2018, driven by external public and 2018. However, this was a deceleration public guaranteed debt. from the 8.07 percent growth recorded in the preceding year. On the sources side, the M2 Monetary Developments growth was driven by Net Domestic Assets (NDA) in addition to a steady growth in Net On the monetary front, the Maldives Foreign Assets (NFA). The increase in NDA Monetary Authority (MMA) continued stemmed from the expansion in commercial to adopt a monetary policy that enables bank credit to the private sector, while the economic growth through credit expansion. growth in NFA was due to an increase in NFA The objective of monetary policy continued of the MMA. to be geared toward achieving price stability in the domestic market and maintaining Credit to the private sector maintained its international reserves at an adequate level annual growth trajectory at 8.80 percent, to support the exchange rate peg to the despite a deceleration in pace from the 13.27 US Dollar. Additionally, no changes were percent recorded at the end of the previous brought to the monetary policy framework year, and totalled USD 1.48 billion at the within the year; hence the Minimum Reserve end of 2018. During the year, the tourism, Requirement (MRR) remained at 10.00 construction and commerce sectors accounted percent while the MMA’s interest rate for the highest shares of credit. As such, corridor and Indicative Policy Rate (IPR) credit extended to the tourism sector, which were maintained at the same levels as the accounted for 37.10 percent of total private previous year. sector credit, posted a growth of 6.51 percent while construction (21.25 percent of total With regard to the developments in monetary private sector growth) registered a remarkable aggregates, the annual growth rate of Broad growth of 30.20 percent in 2018. The growth Money (M2) slowed to 3.38 percent at the in tourism sector credit mainly refl ected end of 2018, after recording 5.16 percent credit extended for new resort development, at the end of 2017. On the components side whereas growth in credit for the construction M2 growth was largely contributed by sector was driven by an increase in lending the growth in other deposits (consisting of for residential housing. In contrast, a 2.27 savings and time deposits) which registered percent decline was observed in the credit an annual growth of 10.69 percent. Similarly, extended to the commerce sector primarily

89 Country Performance / Maldives ANNUAL REPORT 2018

due to a fall in lending for the wholesale and year 2018 as indicated by the key variables retail sector. used to measure the growth of the industry- insurance penetration and density. In annual Financial Sector terms, the insurance penetration increased slightly to 1.06 percent in 20181 after The banking sector continued to show healthy registering 1.02 percent in 20172. Meanwhile, growth as profi tability and asset quality insurance density increased to USD 111.02 in improved compared with the previous year 2018 from USD 101.23 in the previous year. and capital adequacy ratios remained strong. The growth in both indicators refl ected the Total risk-based capital ratio stood at 44.24 increase in the gross written premium, which percent, owing to the large share of low- increased by 14.15 percent over the year. risk assets in the banks’ portfolio. The loan portfolio increased by 6.62 percent within External Sector the year while the share of Non-Performing Loans (NPLs) in total loans decreased from With regard to the external sector3, the current 9.66 percent to 8.90 percent during the year. account defi cit is estimated to have widened In terms of asset composition, net loans and from USD 1.07 billion (22.10 percent of advances accounted for 49.23 percent and GDP) in 2017 to USD 1.27 billion (23.74 liquid assets accounted for 49.25 percent of percent of GDP) in 2018. This deterioration the net asset portfolio. can be attributed to the strong growth in imports, despite the remarkable performance Looking at the other fi nancial institutions, of the tourism sector. Meanwhile, the the non-bank fi nancing sector continued to merchandise trade4 defi cit widened further by show steady growth. The capital adequacy 19.02 percent and totalled USD 2.27 billion ratio remained strong, with the total risk-based in 2018. This was due to a signifi cant increase capital ratio standing at 36.19 percent during of 16.07 percent in the value of merchandise 2018. Asset quality improved compared to the imports in 2018, largely driven by public previous year, as the loan portfolio increased infrastructure projects, namely the completion by 9.15 percent and the share of NPLs in total of the China-Maldives Friendship Bridge, the loans decreased from 1.77 to 1.68 percent in on-going airport expansion as well as new 2018. housing development projects. On the other hand, total merchandise exports declined by The insurance sector grew steadily in the 1.57 percent, refl ecting the fall in fi sh exports

1 Figures for 2018 are derived from unaudited returns submitted to MMA.

2 Figures for 2017 are revised to include revised population and GDP data (Source: Monthly statistics, January 2019) and audited fi gures.

3 Balance of Payments (BOP) data was last revised in October 2018.

4 In the compilation of BOP statistics, Customs’ statistics on merchandise trade are adjusted for coverage, classifi cation and valuation.

90 Country Performance / Maldives ANNUAL REPORT 2018 as the fi sheries sector depicted a moderate infl ow of USD 328.66 million recorded in performance for a large part of the year. As for 2017. services, the surplus on the services account balance is estimated to have improved to Gross International Reserves (GIR1) USD 1.92 billion, registering an annual increased by 29.29 percent in annual terms growth of 13.94 percent, depicting a marked and stood at USD 757.77 million at the end increase in travel receipts on the back of a of December 2018. The annual growth in GIR strong tourism sector during the year. was driven by the rise in commercial banks’ foreign currency reserve account balances The fi nancial account is estimated to record held at the MMA, as well as by the increase a net infl ow of USD 1.32 billion in 2018, in investments made abroad by the MMA on higher than the net infl ow of USD 967.99 behalf of the Government in the sovereign million recorded in 2017. This upsurge in net development fund account. In addition, GIR infl ows broadly refl ects higher infl ows as was boosted by the increase in usable reserves2 other investments in the form of borrowings of the MMA. from other sectors, together with an increase in government net borrowings. Meanwhile, Maldives continues to maintain an exchange Foreign Direct Investment (FDIs)—one of the rate peg with the US Dollar. At the end of main components of the fi nancial account— December 2018, the reference rate of the is estimated to register a net infl ow of MMA stood at MVR 15.41 per US Dollar, USD 451.83 million in 2018, which is unchanged from the rate recorded at the end USD 40.91 million lower compared with of 2017. However, the bilateral exchange the previous year. Looking at portfolio rates of the Maldivian Rufi yaa appreciated investments, mirroring the issuance of in annual terms against currencies of the sovereign bonds in the international country’s major trading partners, such as the market, a net infl ow of USD 198.32 million Sri Lankan Rupee, the Indian Rupee, the is estimated to be recorded as portfolio Pound Sterling, the Chinese Yuan, the Euro investment in 2018. This is lower than the net and the Singaporean Dollar.

1 GIR comprises foreign currency deposits of the MMA and the Government, commercial bank’s US Dollar reserve accounts and Maldives’ reserve position in the IMF.

2 Usable Reserves = Gross international reserves – Short-term foreign liabilities. This shows the amount of funds that are readily available for use by the MMA in the foreign exchange market.

91 Country Performance / Maldives ANNUAL REPORT 2018

Maldives: Major Economic Indicators During 2014-2018

Year Item 2014 2015 2016 2017 2018

In millions of USDs

Real Gross Domestic Product (GDP, 3,286.85 3,408.20 3,646.50 3,865.36 na at basic price)1

Consumer Price Index (CPI)2 105.38 106.38 106.92 109.93 109.79

Broad Money 1,766.04 1,978.71 1,982.82 2,076.95 2,147.24

In percent of GDP

Current Account Balance -3.20 -7.40 -23.50 -22.10 -23.70

Total Debt3 55.08 52.73 56.22 58.48 58.18

Total Government Revenue4 26.67 27.41 27.39 27.06 25.84

Total Government Expenditure5 29.08 33.95 37.30 30.05 31.32

Overall Budget Balance6 -2.42 -6.55 -9.92 -2.99 -5.47

1 GDP series has been rebased from base year 2003 to 2014 in November 2017.

2 Refers to CPI National data.

3 This refers to total central government debt.

4 Total government revenue includes total revenue and grants.

5 Total government expenditure as a percentage of GDP is calculated excluding net lending.

6 Overall balance is calculated excluding net lending.

Source: Maldives Monetary Authority, National Bureau of Statistics, Ministry of Finance

92 Country Performance / Maldives ANNUAL REPORT 2018

Maldives: Foreign Trade During 2014-20181 (In millions of USDs)

Year 2014 2015 2016 2017 2018 Item

Exports2 3,299.20 3,145.10 3,147.55 3,290.07 3,603.16

Imports2 2,754.15 2,769.18 3,198.23 3,514.84 3,956.04

Trade Balance 545.05 375.92 -50.67 -224.77 -352.88

1 Foreign trade data are revised data based on information available as at 5th November 2018.

2 Exports and imports include goods and services.

Source: Maldives Monetary Authority

Maldives: Main Items of Goods and Services Exported to ACU Member Countries in 20181

Sector/Country

Bangladesh

Goods Flours, meals and pellets of fi sh (unfi t for human consumption)

India

Waste and scrap of alloy steel (excluding stainless), copper waste and scrap, waste and scrap of Goods aluminum and cast iron, battery (used)

Sri Lanka

Fresh or chilled yellowfi n tuna, fresh, chilled or frozen fi sh (excluding tuna), dried and salted Goods dried fi sh

1 Data is available for import and export of goods by country. Import and exports of services segregated by country is not compiled.

Source: Maldives Customs Service

93 Country Performance / Maldives ANNUAL REPORT 2018

Maldives: Main Items of Goods and Services Imported from ACU Member Countries in 20181

Sector/Country

Bangladesh

Meat, fi sh and seafood, vegetables, root crops and spices, clothing, footwear and fashion Goods accessories, beverages and confectionaries, pharmaceuticals, tobacco items, lead-acid accumulators

India

Wood, metal, cement and aggregates, minerals and sand, construction related items, price administered staples, fruits, vegetables, root crops and spices, electrical and electronic machinery Goods and equipment and parts, meat, fi sh and seafood, machinery and mechanical appliances and parts, pharmaceuticals, printed books, brochures and leafl ets

Iran

Clothing, footwear and fashion accessories, fruit, nuts and seeds, vegetables, beverages and Goods confectionaries, machinery and mechanical appliances and parts

Myanmar

Goods Wood, air conditioning machines

Nepal

Goods Textile materials and knitted and woven clothes, household articles

Pakistan

Fruit, nuts and seeds, vegetables and root crops, cereal and grain products, pharmaceuticals, Goods wood, metal, cement and aggregates

Sri Lanka

Electrical and electronic machinery and equipment and parts, beverages and confectionaries, machinery and mechanical appliances and parts, vegetables, root crops and spices, metal, cement Goods and aggregates, wooden furniture, pharmaceuticals, construction related items, fruit, nuts and seeds 1 Data is available for import and export of goods by country. Import and exports of services segregated by country is not compiled.

Source: Maldives Customs Service

Source: Maldives Monetary Authority

94 Country Performance / Maldives ANNUAL REPORT 2018

Myanmar

Introduction

The economy experienced a broad-based Real GDP Growth Rate increase in real Gross Domestic Product (In percent)

(GDP) growth to 6.80 percent in Financial 12 1 Year (FY) 2017/18 from 5.90 percent in 10

2016/17. Infl ation moderated from 7.00 8 percent in 2016/17 to 5.40 percent in 2017/18. 6 The exchange rate was stable and appreciated 4 slightly towards the end of the year, the Current 2

0 Account Defi cit (CAD) went up slightly and 2008/09 2009/10 2010/11 2011/122012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Source: Statistical Year Book, Myanmar the fi scal defi cit also narrowed in the fi rst three quarters of the fi scal year. While performance During 2017/18, the services sector was the remains strong and the macro-economic outlook major contributor to GDP with 42.58 percent, is positive, there are concerns that the slow pace industry sector followed second with 31.67 of reforms and vulnerabilities in the fi nancial percent and agriculture sector ranked third sector. External risks from uncertainty in global with 25.75 percent. The percentage of GDP trade policy and in commodity prices intensify in industrial sector increased 9.43 percent the downside risks to the growth outlook. compared to last fi scal year. Services sector Economic Development growth rose by 8.39 percent and agriculture sector slightly improved by 1.28 percent.

The CAD increased from 6.02 percent of Contribution to GDP (Sector-Wise) GDP in 2016/17 to 6.64 percent of GDP in (In percent)

2017/18. The trade defi cit was wider from 9.56 120 percent of GDP in 2016/17 to 9.99 percent of 100 GDP in 2017/18 driven by rapid increase in 80 60 imports from 29.48 percent of GDP to 32.16 40 percent of GDP. In 2017/18, the foreign 20

0 exchange reserve maintained by the Central 2008/09 2009/10 2010/11 2011/122012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Bank of Myanmar (CBM) covered about 3 Industry Services ando thers Agriculture, livestock, fishery and forestry Source: Statistical Year Book, Myanmar months of prospective import.

1 Financial Year stands for beginning of April to the end of March.

95 Country Performance / Myanmar ANNUAL REPORT 2018

Recent Banking and Financial that the CBM-NET2 will go live in 2020 Sector Developments with major functions such as Straight- Through Processing (STP), international Since 2013, CBM is focusing on development standards (ISO20022), Liquidity Saving of Myanmar Banks. Currently, there are 27 Facility (bilateral and multi-lateral offsetting)/ private banks, 13 foreign bank branches and Message Queuing, Automated Clearing 44 representative offi ces. House including 24/7 faster payment and bulk payment, cheque truncation, DVP The CBM published directives to improve with collateral: DVPC (known as auto- fi nancial sectors in line with international collateralization in other countries) and standards. On-site and off-site examination remote disaster recovery facilities. and risk-based supervision are also practiced as per international standards. Four key Financial technology as internet banking, regulations to support implementation of the mobile banking, and mobile fi nancial Financial Institution Law were released on services has been improved. Technical July 7, 2017, pertaining to capital adequacy, service providers are providing mobile large exposures, asset classifi cation and banking service to people in rural areas. provisioning, and liquidity requirements. The The Myanmar Payment Union (MPU) switch CBM also issued a directive on credit risk is currently undergoing a modernization management, and a directive that allows for process to increase operational reliability the restructuring of viable overdrafts to term and outreach of digital payment services in loans of up to 3 years, incorporating regular remote and rural areasthrough increasing payments of interest and principal. Recently, access points. Moreover, Quick Response the CBM has released 5 directives for bank (QR) codes standard is being conducted executives and auditors. with a three-month pilot project. The CBM together with the banks, international card CBM introduced the CBM Financial scheme (Visa, Master, Japan Credit Bureau Network System (CBM-NET) and (JCB), UnionPay International Ltd. (UPI)) Mechanized Clearing House (MCH) in and mobile service providers are conducting January 2016 providing functions of Central to setup National Standard for QR Code so Securities Depository (CSD) for Treasury called Myanmar Quick Response (MMQR). Bonds (T-bonds)/Treasury Bills (T-bills), credit The CBM has already endorsed MMQR and collateral management, automated intra-day technical specifi cation and plan to launch overdraft facilities, discount window facilities, MMQR Standard in 2019. The Regulation and Delivery Versus Payment (DVP). Now, on Mobile Financial Services issued by the CBM is implementing an upgrade of CBM in 2016 laid out the foundation for CBM-NET (CBM-NET2). It is expected the licensing and supervision of Mobile

96 Country Performance / Myanmar ANNUAL REPORT 2018

Financial Services Providers (MFSPs), which budget assumptions of declining natural gas includes non-bank fi nancial institutions and prices. General government expenditures was Mobile Network Operators (MNOs). also budgeted to increase from 20.90 percent of GDP in 2016/17 to 22.20 percent of GDP Monetary Policy Development in 2017/18, driven by budgeted increases in other recurrent expenditures in priority The institution has adopted the Reserve ministries like health, and increased domestic Monetary Targeting Monetary Policy interest payments because of payment of Framework to provide Myanmar economy. market interest rates on legacy CBM debt. To achieve the target, the monetary policy The domestic debt market expanded in instruments such as interest rates, minimum terms of value of debt, but with mixed reserve requirements for banks and open trends on T-bills and T-bonds. The value of market operation have been implemented T-bills auctioned, including for new longer with the assistant of International Monetary tenor bills (6- and 12-month bills), increased Fund (IMF). by 60.00 percent in 2017/18 compared to 2016/17. In contrast, the take-up of T-bonds As part of the interest rate policy, if the slowed, with a 30.00 percent decline in value reserve money increasing rate is greater than of monthly bond auctions in 2017/18 the target it is put to deposit auction and the compared to 2016/17. Despite the expansion, surplus is subtracted. Currently, Myanmar market participation remained below macro-economic is over the target. The potential, refl ected in the widening gap market demand for deposit auctions between bid and offer at auctions. Successful conducted 24 times in 2017/18 with maturity bids on a purely competitive basis in T-bonds 2 weeks, 4 weeks and 6 weeks. In 2017/18, auctions are on average 46.00 percent of the CBM accepted bids over 7,000.00 billion auction targets in 2017/18, declining from Kyat with range of interest rate between 5.86 60.00 percent in 2016/17, and for T-bill and 7.50 percent. auctions around 28.00 percent of auction targets, declining from 31.00 percent in 2016/17. The fi scal defi cit was budgeted to increase signifi cantly to 5.80 percent of GDP in External Sector 2017/18 from aprovisional actual rate of 2.70 percent in 2016/17. General government In the reporting period, an overall Balance of receipts are budgeted to decline as a share of Payments (BOP) position recorded negative GDP from 18.20 percent in 2016/17 to 16.90 performance, refl ecting mainly due to increase percent in 2017/18, driven by falling State in imports. During 2017/18, the value of exports Economic Enterprise (SEE) receipts owing increased by 10.54 percent, from value of to declining profi tability, particularly from USD 9,456.00 million to USD 10,452.20

97 Country Performance / Myanmar ANNUAL REPORT 2018

million compared to the previous year mainly percent. India is the major export rice exports reached record highs and garments country from Myanmar with the share of industry accessed new markets. The main 68.43 percent among the ACU countries export items were agro products, fi sheries, while Bangladesh, Pakistan, Sri Lanka, forest products and textile. Nepal, Iran and Maldives accounted for 19.15 percent, 7.16 percent, 4.32 percent, The value of imports increased by 9.25 0.85 percent, 0.08 percent, and 0.01 percent, percent, from value of USD 13,865.30 respectively. The major export items to India million to USD 15,148.50 million compared included fresh ginger, forest products and to the previous year a slight slowdown likely various beans. due to imports of capital goods which are supporting for industrial growth. The main Total imports from ACU countries decreased import items were machinery, tyre, tube by 5.13 percent during 2017/18. India is and fl ap, medicine, vehicle spare parts, mild also the major import country to Myanmar steel, stationary, electrical, personal goods, with the share of 84.70 percent among agriculture use and cosmetics. ACU countries while Pakistan, Iran, Bangladesh and Sri Lanka accounted Exports, Imports and Trade Balance for 8.03, 4.93, 2.19, and 0.14 percent, (In millions of USDs) respectively. The main imports items from 20000 India consisted of machinery, tyre, tube and 15000 fl ap, medicine, vehicle spare parts, mild 10000 steel, stationary, electrical, personal goods, 5000

0 agriculture use and cosmetics.

-5000

-10000 2008/09 2009/10 2010/11 2011/122012/13 2013/14 2014/15 2015/16 2016/17 2017/18 According to the transaction of trade Exports Imports Trade Balance between ACU countries and Myanmar, Source: Statistical Year Book, Myanmar trade defi cit was about USD 128.30 million, USD 888.10 million in exports and Trade with ACU Member USD 1,016.40 million in imports. Share of Countries trade with ACU countries in total trade was 8.50 percent in export and 6.71 percent in During 2017/18, total exports to ACU import in 2017/18. member countries decreased by 15.91

98 Country Performance / Myanmar ANNUAL REPORT 2018

Myanmar: Major Economic Indicators During 2016/17-2017/18 (In millions of Kyats)

Year Item 2016/171 2017/182

Gross Domestic Product (GDP) 59,787,128.50 63,841,945.80

Agriculture (agriculture, livestock, fi shery 16,230,932.40 16,439,257.30 and forestry) Industry (energy, mining, processing and manufacturing, electric power and 18,476,752.00 20,218,299.00 construction) Service (service and trade) 25,079,444.10 27,184,389.50 Growth rate of GDP (percent) 5.90 6.80 Infl ation rate (percent) 7.00 5.40 GDP at current prices 79,760,096.50 90,450,949.10 Per-capita GDP (Kyats) 1,507,268.00 1,694,219.00 GDP defl ator 133.40 141.70

Balance of Payments (BOP)

Export of goods 11,910,383.10 14,158,384.10 Import of goods -17,623,138.70 -20,533,536.40 Trade balance -5,712,755.60 -6,375,152.30 Services and primary income (net) 1,502,472.70 1,452,669.40 Secondary income (net) 2,628,674.70 3,375,141.70 Current account (net) -3,601,872.50 -4,241,580.90 Capital account (net) 1,294.00 818.00 Financial account (net) -5,733,299.70 -5,983,085.50 Errors and omissions -1,641,949.10 -1,465,538.30 Overall balance 490,772.10 276,784.20

1 Provisional actual data.

2 Provisional data.

Source: International Monetary Fund (IMF), Central Bank of Myanmar and Planning Department

99 Country Performance / Myanmar ANNUAL REPORT 2018

Myanmar: Balance of Payments Goods and Services Account During 2016/17-2017/18 (In millions of USDs) Year Item 2016/171 2017/182

Trade Balance -4,409.30 -4,696.30 Export 9,456.00 10,452.20 Import -13,865.30 -15,148.50 Service Balance 1,192.70 1,072.20 Receipt 3,638.30 4,170.20 Payment -2,445.60 -3,098.00

1 Provisional actual data.

2 Provisional data.

Source: Central Bank of Myanmar

Myanmar: Trade with ACU Member Countries in 2017/181 (In millions of USDs)

Item Export Import Country Bangladesh 170.05 22.25 Bhutan -- India 607.72 860.94 Iran 0.69 50.10 Maldives 0.09 0.03 Nepal 7.59 - Pakistan 63.55 81.62 Sri Lanka 38.41 1.46 Total 888.10 1,016.40

Share of Trade with ACU Member 8.50 6.71 Countries in Total Trade (percent)

1 Provisional data.

Source: Central Statistical Organization

100 Country Performance / Myanmar ANNUAL REPORT 2018

Myanmar: Main Items of Goods and Services Exported to ACU Member Countries in 2017/18

Sector/Country

Bangladesh Agriculture Fresh ginger, various beans, aquatic products, turmeric India Agriculture Various beans, betel nut leaf, sugar, raw lead, forestry products Pakistan Agriculture Various beans, betel nut leaf, bamboo, forestry products, ginger Sri Lanka Agriculture Rice, various beans, forestry products, palm, cane Industry Textile

Myanmar: Main Items of Goods and Services Imported from ACU Member Countries in 2017/18

Sector/Country

Bangladesh Industry Medicine, food India Machinery, tyre, tube and fl ap, medicine, vehicle spare parts, mild steel, Industry stationary, electrical, personal goods, agriculture use, cosmetics Pakistan Industry Medicine

Source: Myanma Foreign Trade Bank and Myanma Investment and Commercial Bank

Source: Central Bank of Myanmar

101 Country Performance / Myanmar ANNUAL REPORT 2018

Nepal Real Sector

Nepal’s real Gross Domestic Product (GDP) service sector grew by 6.60 percent compared at basic prices exhibited a growth of 5.90 to a growth of 7.40 percent in the previous percent in Financial Year (FY)1 2017/18 as year. compared to 7.40 percent in the previous year. Agriculture sector continues to be driving On the domestic front, successful conclusion force behind the growth in real GDP in the of elections, formation of Governments and last two years. Paddy production in particular, the formulation of budget at all three levels has improved remarkably as compared to the of Governments have the potential to create previous year, owing to favorable monsoon. a conducive environment for economic Overall, agriculture sector, which contributes activities going forward. to about one-third to real GDP, exhibited a decelerated growth of 2.80 percent in the Sectoral GDP Growth Rate review year as compared to the remarkable (In percent) growth of 5.20 percent in the previous year. 30 25

20 GDP Growth Rate (at basic prices) 15 10 (In percent) 5

0 8 -5

7 -10

6 -15 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 5 Agriculture Services Industry 4

3 2 The ratio of gross consumption to GDP 1 decreased to 85.00 percent in the review year 0 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 compared to 88.10 percent in the previous year. Consequently, the gross domestic The industrial sector also moderated to savings increased marginally to 15.00 growth rate of 8.80 percent in the review year percent of the GDP compared to 11.90 percent as compared to an impressive growth rate of in the previous year. 12.40 percent in the previous year whereas

1 Financial Year stands for the middle of July to the middle of July.

102 Country Performance / Nepal ANNUAL REPORT 2018

Infl ation fall in NEPSE index could be attributed to the continuation of tightened margin lending Nepalese economy experienced moderate policy, market correction, etc. infl ationary pressure in 2017/18. The annual average consumer price infl ation moderated The annual turnover of the securities to 4.20 percent in 2017/18 from 4.50 percent decreased 40.80 percent to Rs. 121.39 in the previous year. This rate of infl ation is billion (USD 1.16 billion) in 2017/18 from the lowest since 2004/05. Rs. 205.02 billion (USD 1.96 billion) in the previous year. Annual Average Consumer Infl ation (In percent) Monetary Sector 14

12 Broad Money (M2) increased 19.40 percent 10 in 2017/18 compared to 15.50 percent in the 8

6 previous year. The growth in M2 has almost

4 matched the growth in nominal GDP of 13.80 2 percent in 2017/18.

0 2012/132 013/14 2014/15 2015/16 2016/17 2017/18 Inflation Food and Beverages Non-Food and Services The Net Foreign Assets (NFA, after adjusting foreign exchange valuation gain/ The annual average wholesale price infl ation loss) increased by 0.10 percent to Rs. 0.96 further decelerated to 1.70 percent in 2017/18 billion (USD 9.20 million) in the review year from 2.70 percent in the previous year, which compared to an increase of 8.60 percent to is mostly attributable to decline in the annual Rs. 82.11 billion (USD 786.72 million) in the average wholesale price indices of agricultural previous year. commodities. Domestic credit expanded 24.90 percent Securities Market in the review year compared to a growth of 20.60 percent in the previous year. Claims on The Nepal Stock Exchange (NEPSE) index, private sector increased 22.30 percent in the the only one security market index of the review year compared to a growth of 18.00 country, decreased 23.40 percent to 1,212.40 percent in the previous year. points from 1,582.70 points in the middle of July 2017 on Year-on-Year (YoY) basis. The Deposits at Banks and Financial Institutions ratio of market capitalization to GDP stood (BFIs) increased 19.20 percent in the review at 47.70 percent in the middle of July 2018. year compared to an increase of 14.00 percent This ratio was 70.30 percent a year ago. The in the previous year. Credit to the private

103 Country Performance / Nepal ANNUAL REPORT 2018

sector from BFIs increased 22.50 percent in Revenue to GDP ratio increased to 24.10 the review year compared to a rise of 18.20 percent in the review year from 23.00 percent percent in the previous year. in 2016/17.

Fiscal Sector Among the components of revenue, Value Added Tax (VAT) accounted for 28.20 In the review year, budget defi cit on cash percent followed by income tax (21.80 basis increased to Rs. 268.85 billion percent), customs (18.80 percent), and excise (USD 2.58 billion) from Rs. 188.69 billion duties (14.00 percent). In the previous year, (USD 1.81 billion) in 2016/17. The ratio their shares were 26.30, 24.30, 18.60, and of budget defi cit to GDP stood at 8.90 13.90 percent, respectively. percent in the review year. The increase in government expenditure accounted for such The Government of Nepal (GON) resorted increase in budget defi cit during the review to gross domestic borrowing of Rs. 144.75 year. billion (USD 1.39 billion) and made a repayment of Rs. 37.56 billion (USD 369.46 Government expenditure, on cash basis, million) domestic debt in 2017/18, thus increased 26.20 percent to Rs. 1,029.02 having a borrowing of Rs. 107.19 billion billion (USD 9.86 billion) in 2017/18 (USD 1.03 billion). This accounts for 3.60 compared to an increase of 40.20 percent to percent of GDP. Gross domestic borrowing of Rs. 815.70 billion (USD 7.82 billion) in the Rs. 88.34 billion (USD 831.75 million) was previous year. The recurrent expenditure mobilized in the previous year. increased 32.40 percent to Rs. 680.31 billion (USD 6.52 billion) compared to a growth of External Sector 40.90 percent in the preceding year whereas capital expenditure increased by 20.40 Foreign Trade percent to Rs. 239.91 billion (USD 2.30 billion) compared to its growth of 72.20 Nepal is primarily an import-based economy. percent in the previous year. Trade with its major trading partner India stood at 64.68 percent in the review year The government revenue increased 19.20 compared to 63.50 percent in the previous percent to Rs. 726.08 billion (USD 6.96 year. billion) in 2017/18. The revenue collection is 99.50 percent of the budget target of The trade defi cit as percentage of GDP Rs. 730.06 billion. The revenue had recorded jumped to 38.60 percent in the review year a growth of 26.40 percent to Rs. 609.12 from 34.70 percent of the previous year. The billion (USD 5.84 billion) in 2016/17. trade defi cit widened during current year on

104 Country Performance / Nepal ANNUAL REPORT 2018 account of the increase in imports and the fall (USD 10.56 billion) as at the middle of July in exports. 2018 from Rs. 1,079.43 billion (USD 10.50 billion) in the middle of July 2017. Based on In 2017/18, merchandise exports increased the imports of 2017/18, the foreign exchange 11.10 percent to Rs. 81.19 billion holding of the banking sector is suffi cient to (USD 777.91 million) compared to an increase cover the prospective merchandise imports of of 4.20 percent in the same period of the 10.80 months, and merchandise and services previous year. The growth in merchandise imports of 9.40 months. imports remained elevated at 25.50 percent to Rs. 1,242.83 billion (USD 11.91 billion) The ratio of reserves to GDP, reserves to in the review year compared to an increase imports and reserves to M2 stood at 36.70, of 28.00 percent in the same period of the 78.60, and 35.60 percent, respectively as previous year. at the middle of July 2018. Such ratios were 40.80, 95.20, and 41.60 percent, as at the Balance of Payments middle of July 2017.

The current account defi cit showed a marked Financial System expansion to Rs. 245.22 billion (USD 2.35 billion) in the review year compared to a The Nepalese fi nancial system comprises of narrow defi cit of Rs. 10.13 billion (USD 95.38 banking sector and non-banking fi nancial million) in the previous year. The surge in sector. Financial sector comprises of current account defi cits was on account of commercial banks, development banks, the elevated level of import of petroleum fi nance companies and micro fi nance products, transport equipments and parts, institutions, while non-bank fi nancial sector and industrial goods. The overall Balance comprises contractual saving institutions, of Payments (BOP) recorded a surplus of insurance companies and postal saving banks. Rs. 960.20 million (USD 9.20 million) in As of the middle of July 2018, the fi nancial the review year compared to a surplus of system constituted 28 commercial banks (“A” Rs. 82.11 billion (USD 773.47 million) in the class institutions), 33 development banks previous year. (“B” class institutions), 25 fi nance companies (“C” class institutions), 65 micro-fi nance Foreign Exchange Reserve fi nancial institutions (“D” class institutions), 39 insurance companies and one each of The gross foreign exchange reserves the Employees Provident Fund, Citizen increased 2.10 percent to Rs. 1,102.59 billion Investment Trust and Postal Saving Bank.

Note: The annual average mid rate has been applied to derive the fi gures in terms of USD (except forex reserves where year end buying rate has been applied).

105 Country Performance / Nepal ANNUAL REPORT 2018

The total number of BFIs licensed by Nepal The ratio of Non-Performing Loan (NPL) to Rastra Bank (NRB) stands 151 in the middle total loans of BFIs dropped to 1.60 percent in of July 2018 from 149 a year ago. The branch the middle of July 2018 as compared to 1.80 network of BFIs expanded to 6,651 in the percent in the previous period. middle of July 2018 from 5,068 a year ago.

106 Country Performance / Nepal ANNUAL REPORT 2018

Nepal: Key Macro-Economic Indicators During 2013/14-2017/18

Year 2013/14 2014/15 2015/16 2016/17 2017/18 Item

Percent Change

Real Gross Domestic Product (GDP) Growth 5.70 3.00 0.20 7.40 5.90

Consumer Price Index (CPI) 9.10 7.20 9.90 4.50 4.20

Total Exports 19.60 -7.30 -17.80 4.20 11.10

Total Imports 28.30 8.40 -0.10 28.00 25.50

Trade Balance -29.70 -10.80 -2.00 -30.40 -26.70

Gross Foreign Exchange Reserve 24.80 23.80 26.10 3.90 2.10

Nepal Stock Exchange (NEPSE) Index 99.90 -7.20 78.70 -7.90 -23.40

Market Capitalization of Stock Market 105.50 -6.40 91.00 -1.80 -22.70

Government Revenue 20.50 13.70 18.80 26.40 20.20

Government Expenditure 16.30 22.00 14.20 40.20 26.20

Government Budgetary Defi cit -55.90 -233.70 18.30 232.90 42.50

Gross Domestic Borrowing 4.90 112.30 160.90 0.60 63.90

Money Supply (M1) 17.70 19.70 18.50 13.10 17.60

Broad Money (M2) 19.10 19.90 19.50 15.50 19.40

Domestic Credit 12.70 16.20 18.20 20.60 24.90

In percent of GDP

Gross Consumption 88.10 90.80 95.90 88.10 85.00

Gross Investment 41.17 39.05 33.88 45.73 51.75

Market Capitalization of Stock Market 53.80 46.40 83.90 70.30 47.70

Government Budgetary Defi cit 0.90 3.20 2.50 7.10 8.90

Government Revenue 18.50 19.20 21.50 23.20 24.20 Source: (1) Macro-Economic Indicators of Nepal, November 2018, Nepal Rastra Bank, Research Department. (2) Current Macro-Economic and Financial Situation (Based on Annual Data of 2017/18), Nepal Rastra Bank, Research Department.

107 Country Performance / Nepal ANNUAL REPORT 2018

Nepal: Budget Performance in 2017/18 (In millions of Rs.)

As percent of Budget Head Budget Estimates Annual Outturns1 Item Estimates Total Expenditure 1,278,994.85 1,029,022.40 80.46

Recurrent expenditure 803,531.45 680,312.70 84.67

Capital expenditure 335,175.97 239,906.00 71.58

Financial expenditure 140,287.43 108,803.70 77.56

Revenue 730,055.57 726,077.70 99.46

1 Current Macro-Economic and Finacial Situation (Based on Annual Data of 2017/18), Nepal Rastra Bank, 2018 Mid September.

Nepal: Reserve Adequacy Ratios During 2013/14-2017/18 (In percent)

Year 2013/14 2014/15 2015/16 2016/17 2017/18 Item Reserve to GDP Ratio 34.30 38.90 46.20 40.80 36.70

Reserve to Imports1 Ratio 83.10 93.30 117.40 95.30 78.60

Reserve to M2 Ratio 42.50 43.90 46.30 41.70 35.60

1 Goods and services imports.

Nepal: Number of Banks and Financial Institutions During 2017-2018

Number of BFIs Branches of BFIs Year 2017 2018 2017 2018 Item Middle of July

Commercial Banks 28 28 2,274 3,023

Development Banks 40 33 769 993

Finance Companies 28 25 130 186

Micro-Finance Development Banks 53 65 1895 2,449

Total 149 151 5,068 6,651 Source: Macro-Economic Indicators of Nepal, Nepal Rastra Bank, Research Department, November 2018. Banking and Financial Statistics (Monthly), Nepal Rastra Bank, Bank and Financial Institutions Regulation Department, 2075 Asar.

108 Country Performance / Nepal ANNUAL REPORT 2018

Nepal: Trade with ACU Member Countries During 2016/17-2017/18 (In millions of USDs)

Exports of Commodities Imports of Commodities Year Country 2016/17 2017/18 2016/17 2017/18

Bangladesh 12.08 10.38 46.00 45.90

Bhutan 0.78 0.73 6.32 15.69

Iran 0.08 0.01 0.09 0.11

Maldives 0.00 0.01 0.00 0.00

Myanmar 0.09 0.01 28.13 39.47

Pakistan 1.52 0.36 4.70 60.48

Sri Lanka 0.11 0.09 1.75 2.97

Total 14.66 11.57 86.99 164.63

Share of Total Trade with ACU 2.13 1.49 0.93 1.38 Countries to Total Trade (percent)

Source: Trade and Export Promotion Center

109 Country Performance / Nepal ANNUAL REPORT 2018

Nepal: Main Items of Goods and Services Exported to ACU Member Countries in 2017/18

Sector/Country

Bangladesh Edible vegetables and certain roots and tubers, preparation of vegetables, fruits, nuts or Agriculture other parts of plants, residues and waste from the food industries: prepared animal fodder, oil seeds and oleaginous fruits, straw and fodder, etc. Raw hides and skins (other than furskins) and leather, other made up textile articles: sets: Industry worn clothing and worn textile articles: rags, tanning or dying extracts, tannins and their derivatives, dyes, pigments and paints and varnishes: putty and other mastics, inks, etc. Bhutan Articles of apparel and clothing accessories, electrical machinery and equipment and parts, works of art, soap, waxing preparations, lubricating preparations, polishing or Industry scouring preparations, candles and similar, articles of iron or steel, optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instrument, furniture, etc. Iran Women or girls suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), shawls, scarves, muffl ers, Industry mantillas, veils and the like, used or new rags, scrap twine, cordage, rope and cables and worn out articles of twine, cordage, rope or cables, of textile materials Maldives Used or new rags, scrap twine, cordage, rope and cables and worn out articles of twine, Industry cordage, rope or cables, of textile materials Myanmar Used or new rags, scrap twine, cordage, rope and cables and worn out articles of twine, Industry cordage, rope or cables of textile materials, furniture and furnishings, etc. Pakistan Agriculture Organic chemicals, raw hides and skins, leather, coffee, tea, mate, spices Pharmaceutical products, medicaments containing antibiotics for therapeutic or prophylactic uses, chloramphenicol and its derivative, entraocular lences, articles of apparels and clothing Industry accessories, optical photographic, cinematographic, measuring, checking, precision, medical and surgical instruments, printed books, newspaper, pictures, tanning and dyeing extracts, miscellaneous edible preparation, etc. Sri Lanka Raw hides and skins, leather, preparations of vegetables, fruits, nuts, other parts of plant, Agriculture coffee, tea, mate and spices, etc. Optical, photographic, cinematographic, measuring, checking, precision, medical or Industry surgical, instruments and apparels, textile articles, copper and articles thereof

Source: Trade and Export Promotion Centre, Export Import Data Bank, Nepal

110 Country Performance / Nepal ANNUAL REPORT 2018

Nepal: Main Items of Goods and Services Imported from ACU Member Countries in 2017/18

Sector/Country Bangladesh Edible vegetables and certain roots and tubers, cereals, edible vegetables and certain roots Agriculture and tubers, sugar and sugar confectionery, birds eggs, natural honey, edible products of animal origin Paper yarn and woven fabrics of paper yarn, electrical machinery and equipment and parts Industry thereof, pharmaceutical products, beverages, spirits and vinegar, cotton, prepared animal fodder, knitted or crocheted fabrics Bhutan Agriculture Preparation of vegetables, fruits, edible vegetables, etc. Salt, sulphur, earth and stone, plastering materials, lime and cement, Mineral fuels, Industry mineral oils and products of their distillation, bituminous substances, mineral waxes, etc. Iran Fruit juices (including grape must) and vegetable juices, spirit, bread, pastry, cakes, Agriculture biscuits and other bakers wares, communion wafers, etc. Salt, sulphur, earth and stone, plastering materials, lime and cement, electrical machinery and equipment and parts thereof, inorganic chemicals, mineral fuels, mineral oils, products Industry of their distillation, bituminous substances, mineral waxes, beverages, spirits and vinegar, paintings, drawing and pastels Maldives Textile articles, carpets, sets, worn clothing, worn textile articles, rags, and miscellaneous Industry edible preparations Myanmar Agriculture Edible vegetables, certain roots and tubers, wood and articles of wood, furniture Pakistan Agriculture Edible fruits and nuts, milk and cream, peel of fruits, citrus fruits or melons Plastic and articles thereof, glass and glassware, cotton, carpets, other textile fl oor coverings, residues and waste of food industries, prepared animal fodder, article of Industry apparels, clothing accessories, optical, photographic instruments, article of stones, plaster, cement, mica or similar materials, cosmetics waving machines, power looms, artifi cial parts of body, etc. Sri Lanka

Agriculture Live animals, coffee, tea, mate, spices, tobacco and manufactured tobacco, etc. Chemical products, aluminium, electrical machineries, equipments and parts thereof, printed books, newspaper, pictures, other products of printing industries, manuscripts, Industry typescripts, mineral oils, mineral fuels, products of other distillation, bituminous substance, mineral wax, paper and paper boards, rubber and articles thereof, lead and articles thereof, sound recorders, reproducers, TV image, vehicles and parts thereof, etc. Source: Trade and Export Promotion Centre, Export Import Data bank, Nepal

Source: Nepal Rastra Bank

111 Country Performance / Nepal ANNUAL REPORT 2018

Pakistan

Economic Developments

Overall, real economic activity witnessed which accounts for nearly 60.00 percent of a slight uptick compared to Financial Year the value addition by agriculture, also grew (FY)1 2016/17. Infl ation remained below appreciably, with the major push coming from the target for the fourth consecutive year, various projects initiated by the provincial growth in private sector credit was strong, governments and increasing trend of dairy and investment edged up in terms of Gross farming on modern lines. Domestic Product (GDP). However, a sharp deceleration in revenue growth compared to Similarly, the industrial sector grew by 4.90 expenditures, and high level of imports amid percent during 2017/18, slightly higher than elevated domestic demand, led to widening of the 4.60 percent growth achieved in 2016/17. twin defi cits. That said, Large Scale Manufacturing (LSM) growth moderated to some extent. In GDP growth particular, fertilizer and sugar industries could not maintain last year’s performance. In the Real GDP growth remained in excess case of fertilizer, the suspension of domestic of 5.00 percent, rising slightly from 5.20 gas to smaller manufacturing units affected percent in 2016/17 to 5.50 percent in 2017/18. their performance, as operating on imported Notably, the agriculture sector recorded Re-Gasifi ed Liquefi ed Natural Gas (RLNG) strong growth of 3.90 percent in 2017/18, was not feasible. Meanwhile, the decline considerably higher than the 3.50 percent in sugar production was mainly due to the target and 2.20 percent growth achieved in delayed start of crushing by mills due to a 2016/17. A rebound in the production of pricing dispute between growers and millers, crops and higher growth in livestock played which diverted sugarcane to alternative usage. a key role in improved performance of the sector. Crop pricing (in case of sugarcane Finally, the value addition by the services and wheat), continuing subsidies on inputs, sector grew by 6.20 percent in 2017/18, increased access to credit, and favorable compared to 6.50 percent in 2016/17. This weather conditions, contributed to this healthy was due to the slower growth of fi nance performance. The livestock sub-sector, and insurance; transport, storage and

1 Financial Year stands for beginning of July to the end of June.

112 Country Performance / Pakistan ANNUAL REPORT 2018 communication; wholesale and retail trade; increase in drug prices and doctors’ fee, and other private services. As such, the both of which have traditionally maintained only meaningful boost came from general consistent uptrend in their price level. government services. Monetary policy and credit Infl ation conditions

An increase in global commodity prices and The projected trajectory medium-term demand-driven pressures drove up non-food infl ation and pressures in the external infl ation. However, their combined impact account, led the Monetary Policy Committee was more than offset by a sharp fall in food (MPC) to increase the policy rate by a infl ation. The impact of improved supplies cumulative 75 basis points (bps) during of key food staples and a change in the duty the year, after keeping it unchanged for the regime for cigarettes persisted throughout last two years. The main factors that led the year. Thus, Consumer Price Index (CPI) to this reversal in the policy rate included: infl ation stayed below the annual target for (i) growing macro-economic imbalances; the fourth consecutive year during 2017/18; (ii) likely impact of exchange rate deprecation the overall infl ation was 3.90 percent in on infl ation; (iii) insuffi cient fi nancial 2017/18, compared to 4.20 percent last year. inflows; (iv) sharp increase in global oil prices in he second half of 2017/18; and That said, after falling for three consecutive (v) higher-than-expected fi scal expansion. years, domestic prices of petroleum, diesel and Liquefi ed Petroleum Gas (LPG) recorded Despite the hike in policy rate by 75 bps, double-digit growth as international prices Weighted Average Lending Rates (WALRs) soared and exchange rate depreciated during inched up by 39 bps during 2017/18. The 2017/18. Similarly, the Non-Food Non- demand for bank credit continued to grow at Energy (NFNE) measure of core infl ation a rapid pace. Overall, the economy witnessed reached the peak of 7.10 percent in June a healthy increase in private sector credit of 2018 – highest level since October 2014. Rs. 775.50 billion in 2017/18 compared to On the other hand, house rent, education, Rs. 747.90 billion in the previous year. The clothing, health and readymade food momentum in working capital loans was infl ation rose at almost their usual pace. particularly strong, and was visible across a Nevertheless, education infl ation continued to large number of sectors, including textiles, grow by double digits, mainly due to upward cement, electrical machinery, iron and steel, revisions in fees of both government and edible oil and ghee, basic chemicals and rice private institutions. Likewise, health infl ation processors. However, expansion in loans for rose by 8.10 percent in 2017/18 due to fi xed investment remained lower in 2017/18

113 Country Performance / Pakistan ANNUAL REPORT 2018

compared to 2016/17. The slowdown came the year. primarily from the fertilizer sector, as scheduled retirements of earlier loans were The higher CAD was primarily a result of made, and also from the power sector where a record-high merchandize trade defi cit, fresh capacity installations remained subdued. which widened by 19.30 percent to USD 31.80 billion in 2017/18. Even though Meanwhile, budgetary borrowings from the export receipts rebounded strongly, rising banking system remained elevated during 12.60 percent, these were not suffi cient to 2017/18. Public Sector Entities (PSEs) offset the 16.20 percent uptick in import also borrowed heavily, especially energy- payments. With international oil prices related entities as well as those involved in staying 32.00 percent higher on average commodity operations. As a result, the overall during 2017/18, the energy import bill Net Domestic Assets (NDA) grew by 15.90 increased sharply by 25.00 percent to percent in 2017/18. However, its impact on USD 13.30 billion. At the same time, overall monetary expansion was partially infrastructure development and capacity diluted by a sharp contraction in Net Foreign expansion in some industries boosted demand Assets (NFA) on the back of growing external for imported raw materials and capital goods. account defi cit. Resultantly, the overall money In particular, import of machinery remained supply grew by 9.70 percent, lower than the strong, increasing by 18.60 percent to 13.70 percent growth recorded last year. USD 8.80 billion in 2017/18.

External sector Meanwhile, net capital and fi nancial infl ows stood at USD 14.70 billion during 2017/18 A double-digit growth in exports and a modest compared to USD 10.60 billion in 2016/17. recovery in remittances notwithstanding, the This was largely contributed by offi cial infl ows strong growth in imports pushed the Current on account of issuance of Eurobonds and Account Defi cit (CAD) to a historic high of Sukuk, commercial borrowings, and loans from USD 19.90 billion during 2017/18. Though multilateral and bilateral sources; borrowings fi nancial infl ows were higher during 2017/18, by the non-bank private sector were higher these remained insuffi cient to fi nance the as compared to last year as well. Net Foreign elevated trade defi cit. Resultantly, State Bank Direct Investment (FDI) also rose 26.30 of Pakistan’s (SBP’s) Foreign Exchange (FX) percent, driven by China Pakistan Economic reserves declined by USD 6.40 billion in the Corridor (CPEC)-related infl ows from China. year, reaching USD 9.80 billion by the end of On the other hand, private portfolio investment June 2018. This led to increased pressure on continued to witness an outfl ow from the equity the Pakistani Rupee (PKR), which depreciated market. by 13.70 percent against the US Dollar during

114 Country Performance / Pakistan ANNUAL REPORT 2018

Fiscal policy and public debt commodity prices to domestic prices. As a result, the total tax to GDP ratio increased to Fiscal accounts continued to deteriorate 13.00 percent in 2017/18 from 12.40 percent for the second consecutive year, with the in 2016/17. defi cit rising to its highest in the last fi ve years. Although the pace of increase in both The widening of both fi scal and CADs, along expenditure and revenue collection slowed, with depreciation of exchange rate, led to however the growth in expenditure outpaced increase in public debt accumulation during revenue mobilization. As a result, the fi scal 2017/18. Compared to an 8.80 percent defi cit rose to 6.60 percent of GDP during increase in 2016/17, public debt grew 2017/18, surpassing both the 4.10 percent by 16.60 percent during 2017/18. Out of target for the year and 5.80 percent defi cit Rs. 3.50 trillion accumulation during in the previous year. The primary defi cit 2017/18, Rs. 1.10 trillion was due to increased to 2.20 percent of GDP from 1.60 revaluation losses on account of the percent realized last year, indicating a much depreciation of US Dollar against major faster increase in non-interest expenditure. currencies and the depreciation of PKR Similarly, the revenue defi cit increased to against US Dollar. As a result, the gross 1.80 percent in 2017/18 from 0.80 percent in public debt rose to 72.50 percent of GDP as 2016/17, which suggests the increase in the the end of June 2018 from 67.00 percent at fi scal defi cit was more due to a sharp increase the end of June 2017. in current expenditure. Unlike in 2016/17, when around 70.00 Meanwhile, revenue growth decelerated to percent of the increase in public debt was 5.90 percent in 2017/18 from 11.00 percent driven by domestic debt, more than half of in 2016/17. This deceleration was mainly led the increase in public debt during 2017/18 by a sharp contraction in non-tax revenue. On was contributed by external debt. The major a positive note, the growth in the tax revenue contribution to increase in external debt was broad-based, with both the Federal came from bilateral and commercial sources Board of Revenue (FBR) and provincial (borrowing from foreign banks and proceeds taxes picking up pace signifi cantly during from Eurobonds and Sukuk). Importantly, 2017/18. The FBR tax collection grew by most of the fresh loans were on fl oating 14.30 percent in 2017/18 compared to an rates and of relatively short maturity. Within 8.00 percent increase in the previous year. the domestic debt, the entire increase was due Besides the improvement in direct taxes, to short-term debt as the Government retired the indirect tax collection remained robust most of the maturing long-term debt during on the back of strong domestic demand and 2017/18. Moreover, the hefty retirement in the pass-through of increases in international Pakistan Investment Bonds (PIBs) was met

115 Country Performance / Pakistan ANNUAL REPORT 2018

through SBP borrowings. In the end, these cumulative 650 basis points (to 12.25 percent) developments led to a relatively shortened since January 2018. maturity profi le of both external and domestic debt. The fi scal defi cit has widened to 5.00 percent of GDP during July-March 2018/19 from Recent Developments 4.30 percent recorded in the same period last year. A sharp fall in non-tax revenues and a Approaching the close of 2018/19, slowdown in tax revenue has led the overall preserving stability continues to remain the revenue collection to stagnate at last year’s crux of macro-economic decision-making. level. On the other hand, the consolidated All the major policy levers, including expenditure growth has decelerated (mainly interest rates, Public Sector Development on the back of cuts in PSDP spending), Program (PSDP) spending, exchange rate whereas current expenditures have grown and import controls, are being pulled to at a relatively higher rate. The higher fi scal manage excess demand in the economy. Their defi cit has primarily been fi nanced through impact has started taking hold, as evident borrowings from the banking system, as well in LSM growth contraction, decline in as non-bank and external sources (mainly imports, and moderation in fi xed investment bilateral and commercial lenders). Apart component of the private sector credit. The from the external borrowing, Pakistani Rupee underperformance of some major crops added depreciation against the US Dollar has added on to the economic slowdown. However, the signifi cantly to the public debt stock. twin defi cit problem, along with its fi nancing challenges, persists and infl ation continues to In the real sector, the impact of a coordinated follow an upward trajectory. policy is evident as the LSM has contracted by 3.50 percent during July-April 2018/19, Average CPI infl ation during July-May compared to 6.10 percent growth witnessed 2018/19 has increased to 7.20 percent, from during July-April 2017/18. The slowdown has 3.80 percent in July-May 2017/18, mainly been more pronounced in the construction- because of cost-push factors. This trajectory allied industries of cement and steel, as is largely dictated by its core component, well as in the automobile sector. With the NFNE, which further gathered momentum agriculture sector also underperforming as the pass-through of exchange rate amidst water shortages and low fertilizer depreciation and second-round impact of offtake, the moderation in activities of the high oil price accentuated its already elevated commodity-producing sector would result level. Keeping in view the infl ationary in a slowdown in services sector growth. expectations and persistence in the twin This, in turn, will keep the economic growth defi cits, SBP has raised the policy rate by a prospects constrained.

116 Country Performance / Pakistan ANNUAL REPORT 2018

Despite a marginal decline in exports, the Nonetheless, the fi nancing of current account CAD has reduced by 29.30 percent during balance remains challenging, especially Jul-May 2018/19 over the same period last when exports and foreign investment have year due to a signifi cant drop in the country’s not shown corresponding increases. While import bill and a healthy growth in workers’ the external fi nancing from bilateral and remittances. The lower import payments are commercial sources (China, Saudi Arabia mainly attributed to the decline in machinery and United Arab Emirates (UAE)) has helped imports and a temporary softening in plug the current account gap to some extent, global oil prices. Simultaneously, workers’ the remaining defi cit has been fi nanced remittances have posted a welcome growth from SBP’s FX reserves, which declined by of 10.40 percent during July-May USD 1.90 billion during July-May 2018/19. 2018/19 over the same period last year, This has led to an increased pressure on the particularly from the United States (US) and PKR, which depreciated by 17.90 percent United Kingdom (UK) with improved against the US Dollar. macro-economic conditions and wage rises in these countries.

117 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Major Economic Indicators During 2013/14-2017/18

Year 2013/14 2014/15 2015/16 2016/17 2017/18 Item Growth Rate (percent)

Large Scale Manufacturing 5.68 3.30 3.10 5.60 5.00

Exports (FOB) 1.11 -3.94 -8.79 0.14 12.57

Imports (FOB) 3.76 -0.75 -0.25 18.01 16.25

Total Revenue 22.00 8.10 13.10 11.00 5.90

Tax Revenue (FBR) 15.80 13.00 21.30 8.40 12.50 Consumer Price Index (CPI, 8.60 4.50 2.90 4.20 3.90 12 months moving average) Private Sector Credit 12.18 5.92 11.15 16.81 14.92

Money Supply (M2) 12.54 13.20 13.67 13.69 9.71

In millions of USDs

Total Liquid Reserves 14,141.10 18,699.20 23,098.60 21,402.90 16,383.60

Home Remittances 15,837.71 18,720.00 19,916.76 19,351.40 19,913.58

Foreign Private Investment 2,321.40 1,905.20 1,985.60 2,234.00 3,230.50

In millions of USDs

Fiscal Defi cit 13,500.99 14,380.81 12,944.77 17,801.80 20,578.02

Trade Defi cit 16,590.00 17,267.00 19,283.00 26,680.00 31,824.00

Current Account (defi cit/surplus) -3,130.00 -2,795.00 -4,867.00 -12,621.00 -19,897.00

Source: State Bank of Pakistan and Ministry of Finance (GoP)

118 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (In thousands of USDs)

Bangladesh

Item Commodity Export Import

Animal or Vegetable Fats, Oils and Waxes 33.83 - Arms and Ammunition, Parts and Accessories thereof 624.82 - Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials 235.44 - Base Metals and Articles of Base Metal 3,633.53 377.67 Footwear, Headgear, Umbrellas, Walking Sticks, etc. 90.89 22.55 Live Animals and Animals Products 777.17 9.29 Machinery and Mechanical Appliances 13,807.96 372.56 Mineral Products 33,905.06 162.76 Miscellaneous Manufactured Articles 978.29 1,584.37 Optical, Photographic, Cinematographer, Measuring, Checking, Precision 912.71 80.96 Apparatus Plastics and Articles thereof; Rubber And Articles thereof 6,893.14 479.75 Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 895.49 6,792.43 Products of Chemical or Allied Industries 7,089.90 2,128.01 Pulp of Wood or of other Fibrous Cellulosic Material 490.33 462.21 Raw Hide and Skins, Leather, Fur Skins and Articles thereof 19,022.96 249.73 Textiles and Textile Articles 594,521.76 52,992.56 Vegetable Products 97,212.74 1,731.81 Vehicles, Aircraft, Vessels and Associated Transport Equipment 1,249.47 - Wood and Articles of Wood 14.98 - Works of Arts, Collectors, Pieces, Antiques and Special Transactions NES1 156.05 -

Sub-Total 782,546.52 67,446.66

Service Item Export Import

Charges for the Use of Intellectual Property n.i.e. - 9.30 Financial Services 2.65 212.36 Government Goods and Services n.i.e. 1,872.79 3,671.63 Other Business Services 316.13 1,562.64

119 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Bangladesh

Item Export Import Service Personal, Cultural, and Recreational Services - 7.39 Telecommunications, Computer, and Information Services 506.64 5.18 Transport - 2,108.53 Travel 55.15 5.62 Sub-Total 2,753.37 7,582.65 Total 785,299.89 75,029.31

Bhutan

Item Commodity Export Import Base Metals and Articles of Base Metal 1.17 563.76 Live Animals and Animals Products 1.32 6.00 Optical, Photographic, Cinematographer, Measuring, Checking, Precision 1.09 - Apparatus Plastics and Articles thereof; Rubber and Articles thereof - 21.12 Pulp of Wood or of other Fibrous Cellulosic Material - 5.15 Raw Hide and Skins, Leather, Fur Skins and Articles thereof 13.47 - Textiles and Textile Articles 0.26 31.71 Sub-Total 17.30 627.74

Item Service Export Import Transport - 16.83 Other Business Services 22.77 - Charges for the Use of Intellectual Property n.i.e. - 0.37 Sub-Total 22.77 17.20 Total 40.07 644.94

120 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

India

Item Commodity Export Import Animal or Vegetable Fats, Oils and Waxes 526.24 13,966.45 Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials 3,218.57 7,493.78 Base Metals and Articles of Base Metal 5,954.24 77,358.31 Footwear, Headgear, Umbrellas, Walking Sticks etc. 160.39 503.93 Live Animals and Animals Products 310.58 13,925.89 Machinery and Mechanical Appliances 1,945.78 86,926.12 Mineral Products 165,416.73 22,509.55 Miscellaneous Manufactured Articles 2,062.88 3,971.48 Natural or Cultured Pearls, Precious or Semi-Precious Stones, Metals 124.72 808.09 Optical, Photographic, Cinematographer, Measuring, Checking, 10,903.06 4,452.72 Precision Apparatus

Plastics and Articles thereof; Rubber and Articles thereof 12,857.48 165,472.25

Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 33,912.81 15,228.95 Products of Chemical or Allied Industries 24,183.12 655,463.69 Pulp of Wood or of other Fibrous Cellulosic Material 176.64 5,077.95 Raw Hide and Skins, Leather, Fur Skins and Articles thereof 20,050.42 975.78 Textiles and Textile Articles 38,243.42 808,364.96 Vegetable Products 107,436.20 116,254.99 Vehicles, Aircraft, Vessels and Associated Transport Equipment - 10,617.96 Wood and Articles of Wood 6.01 258.51 Works of Arts, Collectors, Pieces, Antiques and Special Transactions NES 8.55 64.76

Sub-Total 427,497.84 2,009,696.11

India

Item Service Export Import

Charges for the Use of Intellectual Property n.i.e. 219.47 543.83

Construction - 43.60

121 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

India

Item Service Export Import Financial Services 164.56 1,424.74 Government Goods and Services n.i.e. 5,085.22 - Insurance and Pension Services 368.24 - Maintenance and Repair Services n.i.e. 38.66 - Other Business Services 12,029.68 170.16 Personal, Cultural, and Recreational Services 19.32 13.68 Telecommunications, Computer, and Information Services 1,165.91 5,643.17 Transport 21.43 57,169.18 Travel 15.79 623.64 Sub-Total 19,128.26 65,631.99 Total 446,626.10 2,075,328.10

Iran

Item Commodity Export Import Animal or Vegetable Fats, Oils and Waxes - 59.25 Base Metals and Articles of Base Metal 5.90 0.36 Live Animals and Animals Products 46.73 - Optical, Photographic, Cinematographer, Measuring, Checking, 4.01 - Precision Apparatus Pulp of Wood or of other Fibrous Cellulosic Material 290.11 - Raw Hide and Skins, Leather, Fur Skins and Articles thereof 74.41 - Textiles and Textile Articles 732.99 - Vegetable Products 2,131.27 -

Sub-Total 3,285.42 59.61

122 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Iran

Item Service Export Import Transport - 1.61 Travel - 18.53 Government Goods and Services n.i.e. 842.59 267.98 Sub-Total 842.59 288.12 Total 4,128.01 347.73

Maldives

Commodity Item Export Import Animal or Vegetable Fats, Oils and Waxes 32.74 161.88 Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials 34.05 - Base Metals and Articles of Base Metal - 45.89 Live Animals and Animals Products 31.51 - Machinery and Mechanical Appliances 20.33 - Mineral Products 13.63 - Miscellaneous Manufactured Articles 31.50 - Optical, Photographic, Cinematographer, Measuring, Checking, 15.48 - Precision Apparatus Plastics and Articles thereof; Rubber and Articles thereof 0.96 65.97 Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 701.62 - Products of Chemical or Allied Industries 1,489.86 15.55 Pulp of Wood or of other Fibrous Cellulosic Material 10.93 - Raw Hide and Skins, Leather, Fur Skins and Articles thereof 32.77 - Textiles and Textile Articles 99.60 19.06 Vegetable Products 3,626.62 - Works of Arts, Collectors, Pieces, Antiques and Special Transactions 14.09 - NES Sub-Total 6,155.68 308.35

123 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Maldives

Item Service Export Import Financial Services - 0.38 Government Goods and Services n.i.e. 1,135.93 767.12 Other Business Services 13.58 22.51 Telecommunications, Computer, and Information Services 3.32 - Transport - 9.07 Travel 31.40 20.95 Sub-Total 1,184.23 820.02 Total 7,339.91 1,128.37

Myanmar

Item Commodity Export Import Base Metals and Articles of Base Metal 360.43 - Footwear, Headgear, Umbrellas, Walking Sticks etc. 21.90 - Live Animals and Animals Products 257.01 - Machinery and Mechanical Appliances 3.00 - Mineral Products 16.38 - Miscellaneous Manufactured Articles 123.53 - Optical, Photographic, Cinematographer, Measuring, Checking, 28.20 - Precision Apparatus Plastics and Articles thereof; Rubber and Articles thereof - 9.99 Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 29,362.92 - Products of Chemical or Allied Industries 9,477.79 14.40 Pulp of Wood or of other Fibrous Cellulosic Material 33.04 - Raw Hide and Skins, Leather, Fur Skins and Articles thereof 2,212.13 - Textiles and Textile Articles 3,170.35 960.75 Vegetable Products 930.17 832.68

124 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Myanmar

Item Commodity Export Import Works of Arts, Collectors, Pieces, Antiques and Special Transactions NES 9.54 - Sub-Total 46,006.41 1,817.82

Myanmar

Item Service Export Import Government Goods and Services n.i.e. 89.24 103.96 Maintenance and Repair Services n.i.e. 0.23 - Other Business Services 230.47 12.52 Telecommunications, Computer, and Information Services 20.08 80.03 Transport - 76.57 Sub-Total 340.03 273.07 Total 46,346.44 2,090.89

Nepal

Item Commodity Export Import Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials 157.97 - Machinery and Mechanical Appliances 1.18 - Mineral Products 14.26 - Miscellaneous Manufactured Articles 15.52 - Optical, Photographic, Cinematographer, Measuring, Checking, 497.34 249.90 Precision Apparatus Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 5,764.91 - Products of Chemical or Allied Industries 70.81 - Pulp of Wood or of other Fibrous Cellulosic Material 0.98 - Raw Hide and Skins, Leather, Fur Skins and Articles thereof 6.35 150.81 Textiles and Textile Articles 50.64 207.06 Vegetable Products 800.26 23.29 Sub-Total 7,380.21 631.06

125 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Nepal

Item Service Export Import

Financial Services - 3.90 Government Goods and Services n.i.e. 252.64 - Maintenance and Repair Services n.i.e. 1.01 - Other Business Services 512.17 96.72 Personal, Cultural, and Recreational Services - 3.91 Telecommunications, Computer, and Information Services 3.03 10.59 Transport 28.36 15.05 Travel 11.70 2.42 Sub-Total 808.90 132.58 Total 8,189.11 763.64

Sri Lanka

Item Commodity Export Import Animal or Vegetable Fats, Oils and Waxes - 288.50 Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials 1,996.72 783.86 Base Metals and Articles of Base Metal 7,923.63 3,093.48 Footwear, Headgear, Umbrellas, Walking Sticks etc. 567.66 1.52 Live Animals and Animals Products 5,647.74 1.38 Machinery and Mechanical Appliances 1,657.00 2,754.43 Mineral Products 31,973.85 134.35 Miscellaneous Manufactured Articles 832.93 25.63 Natural or Cultured Pearls, Precious or Semi-Precious Stones, Metals - 0.32 Optical, Photographic, Cinematographer, Measuring, Checking, 386.65 35.35 Precision Apparatus Plastics and Articles thereof; Rubber and Articles thereof 4,270.83 7,422.31 Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 17,581.04 589.06 Products of Chemical or Allied Industries 38,430.16 3,091.14

126 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Sri Lanka

Item Export Import Commodity Pulp of Wood or of other Fibrous Cellulosic Material 4,462.55 1,247.79 Raw Hide and Skins, Leather, Fur Skins and Articles thereof 1,536.03 10.45 Textiles and Textile Articles 126,839.06 9,094.31 Vegetable Products 112,755.76 23,322.83 Vehicles, Aircraft, Vessels and Associated Transport Equipment 536.66 846.50 Wood and Articles of Wood - 5,541.53 Works of Arts, Collectors, Pieces, Antiques and Special Transactions NES 4.59 - Sub-Total 357,402.84 58,284.75

Sri Lanka

Item Service Export Import Charges for the Use of Intellectual Property n.i.e. 2.84 7.48 Financial Services 1.11 32.96 Government Goods and Services n.i.e. 4,462.08 4,194.73 Insurance and Pension Services - 184.74 Maintenance and Repair Services n.i.e. 12.38 - Other Business Services 583.57 1,827.40 Personal, Cultural, and Recreational Services - 7.53 Telecommunications, Computer, and Information Services 1,768.38 5,232.28 Transport 2,869.34 22,353.62 Travel 10.80 10.09 Sub-Total 9,710.50 33,850.82 Total 367,113.34 92,135.57

127 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Overall

Item Commodity Export Import Animal or Vegetable Fats, Oils and Waxes 592.81 14,476.07 Arms and Ammunition, Parts and Accessories thereof 624.82 - Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials 5,642.75 8,277.64 Base Metals and Articles of Base Metal 17,878.90 81,439.48 Footwear, Headgear, Umbrellas, Walking Sticks etc. 840.84 528.00 Live Animals and Animals Products 7,072.06 13,942.56 Machinery and Mechanical Appliances 17,435.25 90,053.11 Mineral Products 231,339.89 22,806.66 Miscellaneous Manufactured Articles 4,044.65 5,581.47 Natural or Cultured Pearls, Precious or Semi-Precious Stones, Metals 124.72 808.41 Optical, Photographic, Cinematographer, Measuring, Checking, 12,748.54 4,818.92 Precision Apparatus Plastics and Articles thereof; Rubber and Articles thereof 24,022.41 173,471.39 Prepared Foodstuffs; Beverages, Spirits, Vinegar and Tobacco 88,218.79 22,610.45 Products of Chemical or Allied Industries 80,741.63 660,712.78 Pulp of Wood or of other Fibrous Cellulosic Material 5,464.58 6,793.10 Raw Hide and Skins, Leather, Fur Skins and Articles thereof 42,948.54 1,386.77 Textiles and Textile Articles 763,658.08 871,670.40 Vegetable Products 324,893.02 142,165.60 Vehicles, Aircraft, Vessels and Associated Transport Equipment 1,786.13 11,464.47 Wood and Articles of Wood 20.99 5,800.04 Works of Arts, Collectors, Pieces, Antiques and Special Transactions NES1 192.82 64.76 Sub-Total 1,630,292.21 2,138,872.08 Item Service Export Import

Charges for the Use of Intellectual Property n.i.e. 222.30 568.65 Construction - 51.26 Financial Services 168.32 1,681.99

128 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Main Items of Goods and Services Traded with ACU Member Countries in 2017/18 (Contd.) (In thousands of USDs)

Overall

Item Service Export Import

Government Goods and Services n.i.e. 13,740.49 9,013.08 Insurance and Pension Services 368.24 192.40 Maintenance and Repair Services n.i.e. 52.29 - Other Business Services 13,708.37 3,699.60 Personal, Cultural, and Recreational Services 19.32 40.16 Telecommunications, Computer, and Information Services 3,467.36 10,898.87 Transport 2,918.92 81,761.56 Travel 124.83 688.90 Sub-Total 34,790.44 108,596.44 Total 1,665,082.65 2,247,468.52

1It stands for not elsewhere specifi ed.

Pakistan: Trade with the ACU Member Countries Routed Through EPZ During 2016/17-2017/18 (In thousands of USDs)

Item 2016/17 2017/18 Country Export Import Export Import

Bangladesh 421.72 561.07 420.34 164.54

India 3,780.91 8,306.96 6,681.37 7,967.74 Nepal 139.95--- Sri Lanka 2,323.60 988.34 1,164.43 1,295.08 Total 6,666.19 9,856.37 8,266.15 9,427.35

129 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Trade with ACU Member Countries During 2016/17-2017/18 (In thousands of USDs)

Item Export of Commodity Import of Commodity Country 2016/17 2017/18 2016/17 2017/18

Bangladesh 619,385.84 782,546.52 62,622.25 67,446.66

Bhutan 172.84 17.30 315.72 627.74

India 387,229.49 427,497.84 1,778,252.07 2,009,696.11

Iran 30,248.24 3,285.42 194.72 59.61

Maldives 5,789.48 6,155.68 51.20 308.35

Myanmar 52,537.65 46,006.41 2,569.98 1,817.82

Nepal 2,939.80 7,380.21 359.21 631.06

Sri Lanka 276,950.22 357,402.84 65,057.88 58,284.75

Sub-Total 1,375,253.55 1,630,292.21 1,909,423.02 2,138,872.08

Item Export of Service Import of Service Country 2016/17 2017/18 2016/17 2017/18

Bangladesh 3,076.33 2,753.37 9,103.42 7,582.65

Bhutan 1.45 22.77 18.55 17.20

India 15,446.67 19,128.26 68,922.16 65,631.99

Iran 810.49 842.59 184.55 288.12

Maldives 566.00 1,184.23 449.33 820.02

Myanmar 186.98 340.03 1,131.23 273.07

Nepal 948.50 808.90 471.98 132.58

Sri Lanka 9,506.53 9,710.50 32,626.59 33,850.82

Sub-Total 30,542.94 34,790.44 112,907.80 108,596.44

Total 1,405,796.49 1,665,082.65 2,022,330.82 2,247,468.52

130 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Trade with ACU Member Countries During 2013/14-2017/18 (In millions of USDs)

Item Export of Commodity Country 2013/14 2014/15 2015/16 2016/171 2017/18 Bangladesh 689.15 684.73 682.39 619.39 782.55 Bhutan 0.39 0.42 0.65 0.17 0.02 India 435.03 412.62 426.11 387.23 427.50 Iran 41.82 27.84 30.34 30.25 3.29 Maldives 8.31 7.97 6.34 5.79 6.16 Myanmar 10.67 6.53 6.59 52.54 46.01 Nepal 2.59 3.08 108.03 2.94 7.38 Sri Lanka 248.40 271.34 241.12 276.95 357.40 Total 1,436.35 1,414.53 1,501.58 1,375.25 1,630.29

Item Import of Commodity Country 2013/14 2014/15 2015/16 2016/171 2017/18 Bangladesh 53.03 51.67 46.93 62.62 67.45 Bhutan 0.28 0.53 0.71 0.32 0.63 India 1,763.75 1,546.44 1,540.62 1,778.25 2,009.69 Iran 0.38 0.02 0.22 0.19 0.06 Maldives 0.82 0.24 0.20 0.05 0.31 Myanmar 0.17 0.15 0.93 2.57 1.82 Nepal 0.53 0.23 0.17 0.36 0.63 Sri Lanka 55.11 58.17 54.10 65.06 58.28 Total 1,874.06 1,657.45 1,643.88 1,909.42 2,138.87

1 Revised data.

131 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Trade with ACU Member Countries During 2013/14-2017/18 (In millions of USDs)

Item Export of Service Country 2013/14 2014/15 2015/16 2016/171 2017/18 Bangladesh 2.01 2.02 1.71 3.08 2.75 Bhutan 0.01 0.01 - 0.00 0.02 India 11.91 10.49 15.09 15.45 19.13 Iran 0.95 0.11 - 0.81 0.84 Maldives 0.74 0.21 0.69 0.57 1.18 Myanmar 0.09 0.39 0.14 0.19 0.34 Nepal 0.63 0.39 0.42 0.95 0.81 Sri Lanka 1.26 8.63 3.34 9.51 9.71 Total 17.60 22.25 21.40 30.54 34.79

Item Import of Service Country 2013/14 2014/15 2015/16 2016/171 2017/18 Bangladesh 9.09 8.69 7.17 9.10 7.58 Bhutan 0.02 4.94 0.03 0.02 0.02 India 120.22 81.93 73.64 68.92 65.63 Iran 2.02 0.41 0.01 0.18 0.29 Maldives 0.24 3.22 0.31 0.45 0.82 Myanmar 0.28 0.57 0.07 1.13 0.27 Nepal 0.76 1.44 0.63 0.47 0.13 Sri Lanka 10.03 13.81 23.92 32.63 33.85 Total 142.67 115.03 105.77 112.91 108.60

1 Revised data.

132 Country Performance / Pakistan ANNUAL REPORT 2018

Pakistan: Trade with ACU Member Countries During January-December, 2017-2018 (In thousands of USDs) Item Export of Commodity Import of Commodity Month 2017 2018 2017 2018 January 103,611.54 130,849.21 192,688.15 217,823.39 February 113,443.47 122,518.27 206,961.14 232,713.98 March 128,770.82 150,780.21 195,340.60 213,737.10 April 120,421.86 145,767.44 160,261.43 198,228.14 May 110,184.18 181,654.99 316,843.35 185,232.73 June 86,501.95 114,318.67 97,701.66 164,312.62 July 107,483.81 131,596.40 117,462.24 144,683.13 August 118,202.57 130,589.83 116,831.15 139,733.76 September 138,462.31 131,410.39 104,430.13 108,712.42 October 116,963.19 147,869.41 130,436.41 162,527.27 November 118,466.63 121,274.63 137,962.75 160,768.17 December 112,741.23 121,662.78 132,504.02 210,399.38 Sub-Total 1,375,253.55 1,630,292.21 1,909,423.02 2,138,872.08

Item Export of Service Import of Service Month 2017 2018 2017 2018 January 2,847.00 2,213.00 11,775.00 10,195.00 February 2,217.00 3,183.00 9,881.00 10,331.00 March 2,704.00 2,422.00 9,546.00 10,791.00 April 2,896.00 2,546.00 10,260.00 9,933.00 May 1,875.00 3,477.00 14,655.00 9,811.00 June 2,894.00 3,038.00 9,383.00 9,706.00 July 3,624.00 2,373.00 6,713.00 7,384.00 August 2,130.00 3,033.00 10,058.00 6,980.00 September 2,641.00 2,809.00 6,135.00 9,611.00 October 1,804.00 3,061.00 7,341.00 8,481.00 November 2,650.00 2,518.00 8,301.00 9,080.00 December 2,262.00 4,118.00 8,860.00 6,293.00 Sub-Total 30,543.00 34,790.00 112,908.00 108,596.00 Total 1,405,796.55 1,665,082.21 2,022,331.02 2,247,468.08 Notes: Data is based on reporting by the banking channel only. Data for 2018 is provisional.

Source: State Bank of Pakistan

133 Country Performance / Pakistan ANNUAL REPORT 2018

Sri Lanka1

Real Sector Developments

The Sri Lankan economy continued to record consumption expenditure grew at a higher a modest growth of 3.20 percent in Financial rate. With these developments, investment as Year (FY)2 2018 in real terms, compared to the a percentage of GDP fell marginally to 28.60 growth of 3.40 percent in 2017. Agriculture percent in 2018 from 28.80 percent in the related activities recovered from the effect previous year. Accordingly, domestic demand of extreme weather conditions experienced grew by 7.90 percent while net external in the previous year recording a growth of demand deteriorated. Meanwhile, domestic 4.80 percent in 2018. Services sector also savings and national savings as a percentage grew by 4.70 percent in 2018 compared to of GDP declined in 2018. the expansion of 3.60 percent in the previous year. However, the growth in industry sector The unemployment rate increased marginally moderated considerably in 2018 recording to 4.40 percent in 2018 compared to 4.20 a growth of 0.90 percent compared to 4.10 percent recorded during 2017. percent recorded in the previous year. Both headline and core infl ation remained As per the expenditure approach to Gross subdued in 2018 as a result of well anchored Domestic Product (GDP) estimates, economic infl ation expectations under the enhanced growth in nominal terms was supported monetary policy framework. Headline by the expansion of both consumption infl ation, as measured by the Year-on-Year and investment expenditure. Consumption (YoY) change in the Colombo Consumer expenditure, which accounts for the largest Price Index (CCPI, 2013=100), was broadly share of expenditure of the economy, on a downward path in 2018. Accordingly, recorded a slowdown from a growth rate YoY headline infl ation based on CCPI of 10.30 percent in 2017 to an expansion declined to 2.80 percent by the end of 2018 of 8.30 percent in 2018. This slowdown from 7.10 percent at the end of 2017. in consumption expenditure was due to Headline infl ation, as measured by the the moderation in the growth of private YoY change in the National Consumer Price consumption expenditure while public Index (NCPI, 2013=100), followed the same

1 This report is based on the Annual Report 2018 of the Central Bank of Sri Lanka. 2 Financial Year stands for begining of January to the end of December.

134 Country Performance / Sri Lanka ANNUAL REPORT 2018 trend as CCPI, peaking in July 2018 and However, increased trade and primary income remaining at low single digit levels thereafter. account defi cits amidst healthy fl ows to the Consequently, YoY headline infl ation based services and secondary income accounts on NCPI declined sharply to 0.40 percent by caused an expansion in the current defi cit December 2018 from 7.30 percent at the end during the year. In contrast, the fi nancial of 2017. account recorded higher infl ows, despite signifi cant outfl ows from the government Core infl ation also remained at low single securities market and the Colombo Stock digit levels throughout 2018, refl ecting Exchange (CSE) as well as debt servicing the lagged impact of the relatively tight requirements during 2018. monetary policy stance maintained in the past. YoY core infl ation based on CCPI The gross offi cial reserve position that decelerated to 3.10 percent by the end of reached a historically highest level of 2018 from 4.30 percent recorded at the end USD 9.90 billion at the end of April of 2017, refl ecting subdued demand pressures 2018, moderated thereafter with foreign in the economy. NCPI based core infl ation debt service payments and Central Bank accelerated marginally to 3.10 percent YoY intervention in the domestic foreign exchange by the end of 2018 in comparison to 2.70 market. Sri Lanka’s outstanding external debt percent at the end of 2017. also increased, mainly due to the increase in external debt of the general government External Sector Developments and Direct Investment Enterprises (DIEs) in 2018. Meanwhile, the Central Bank Sri Lanka’s external sector experienced a continued to pursue a market based exchange setback during 2018, with increased foreign rate policy with greater fl exibility in the exchange outfl ows, particularly due to higher exchange rate during 2018. The exchange rate, import expenditure and capital outfl ows. The which remained relatively stable in the fi rst trade defi cit expanded during 2018, as the four months of 2018, came under signifi cant growth of import expenditure, driven by a pressure thereafter due to both domestic and signifi cant increase in the imports of vehicles external factors. The Central Bank allowed and fuel (as well as gold during early 2018), greater fl exibility in the determination of the outpaced the growth of export earnings. exchange rate while intervening only to curb Earnings from the export of merchandise unwarranted excessive volatility. During goods, which recorded notable double-digit the year, Central Bank intervention in the growth in 2017 continued to grow in 2018. domestic foreign exchange market amounted Accordingly, earnings from exports grew by to a net supply of USD 1,120.00 million, 4.70 percent to USD 11,890.00 million in while the Sri Lankan Rupee depreciated by 2018 from USD 11,360.00 million in 2017. 16.40 percent against the US Dollar in 2018,

135 Country Performance / Sri Lanka ANNUAL REPORT 2018

refl ecting the degree of pressure created by basis points and SLFR was increased by 50 the tight liquidity conditions in the domestic basis points further narrowing the policy rate foreign exchange market as well as changing corridor. Despite the liquidity injection in global fi nancial market conditions. Assisted November 2018, the liquidity defi cit in the by the policy measures to curtail non-essential domestic money market continued to persist at imports and greater political stability, the high levels. Accordingly, the SRR was reduced resilience of the external sector improved by a further 1.00 percentage point to 5.00 somewhat towards the end of 2018. percent with effect from 1 March 2019, while maintaining SDFR and SLFR unchanged at Monetary Sector Developments 8.00 and 9.00 percent, respectively.

The Central Bank signalled an end to the In view of the tight liquidity conditions and monetary tightening cycle with the realisation tight monetary policy stance maintained until of the objective of the tight monetary policy April 2018, most market lending and deposit stance that was in place since the end of 2015 interest rates of commercial banks remained and maintained a neutral monetary policy high in both nominal and real terms during stance thereafter. Favourable developments in 2018. While some deposit rates declined with infl ation, infl ation outlook as well as subpar the policy rate adjustment in April 2018, most performance in the real economy encouraged deposit and lending rates of commercial the Central Bank to reduce its policy rates in banks increased in 2018. Accordingly, the April 2018. Accordingly, the Central Bank Average Weighted Deposit Rate (AWDR) reduced the Standing Lending Facility Rate decreased to 8.81 percent by the end of 2018 (SLFR) by 25 basis points to 8.50 percent in from 9.07 percent recorded at the end of 2017. April 2018, thus narrowing the policy rate Tight liquidity conditions amidst continued corridor to 125 basis points. However, the high demand for credit caused lending rates large and persistent liquidity defi cit in the of commercial banks to remain high in domestic money market, particularly since 2018. Accordingly, the Average Weighted September 2018, required policy intervention Lending Rate (AWLR) increased to 14.40 by the Central Bank. Accordingly, in order percent by the end of 2018 from 13.88 at to inject liquidity on a permanent basis, the the end of 2017. Meanwhile, yields on Statutory Reserve Ratio (SRR) applicable on government securities, which showed mixed all Rupee deposit liabilities of commercial movements during the fi rst nine months banks was reduced by 1.50 percentage points of 2018, increased notably during the last to 6.00 percent in the middle of November quarter of 2018, refl ecting changes in market 2018. Nevertheless, to neutralise the impact sentiments as well as the funding requirement of this SRR reduction, the Standing Deposit of the Government amidst tight liquidity Facility Rate (SDFR) was increased by 75 conditions. Moreover, yields on Treasury

136 Country Performance / Sri Lanka ANNUAL REPORT 2018

Bonds (T-bonds) in the primary market also contracted during the year. Credit to the displayed mixed movements during 2018. The private sector by commercial banks grew at secondary market yield curve for government a slower pace during the fi rst eight months of securities shifted upwards during 2018. 2018 while some acceleration was witnessed during the last four months of 2018. The YoY Reserve money recorded a moderate growth growth of private sector credit moderated to during 2018, particularly in the latter part 14.30 percent by the end of August 2018 from of the year, with the downward adjustment 14.70 percent at the end of 2017. in the SRR in November 2018. In absolute terms, reserve money increased by only Fiscal Sector Developments Rs. 21.30 billion to Rs. 961.10 billion during 2018, compared to the expansion of Rs. 83.60 Fiscal policy during 2018 was aimed at billion in 2017. From the liability side, the continuing the fi scal consolidation program increase in currency in circulation contributed while generating a sizable surplus in entirely to the expansion of reserve money the primary balance. Accordingly, the while commercial banks’ reserve balances government’s primary account, which with the Central Bank declined during 2018 excludes interest payments from the overall as the SRR was reduced in November 2018. balance, recorded a surplus of 0.60 percent From the assets side, the expansion of reserve of GDP (Rs. 91.40 billion) in 2018. money during 2018 was driven entirely by However, the Current Account Defi cit the increase in Net Domestic Assets (NDA) (CAD), which refl ects government dissaving, of the Central Bank. In contrast to the increase widened marginally to 1.20 percent of GDP in NDA, Net Foreign Assets (NFA) of the in 2018. With these developments, overall Central Bank declined by Rs. 95.60 billion budget defi cit improved to 5.30 percent of in 2018 compared to the sharp increase of GDP in 2018 from 5.50 percent of GDP Rs. 287.50 billion in the previous year. in the previous year. The outstanding central government debt increased to Broad money (M2b) growth, which gradually 82.90 percent of GDP at the end of 2018 moderated since late 2017, maintained its from 76.90 percent at the end of 2017, decelerating trend throughout the year, which is attributed to the depreciation of largely on account of the contraction in the Rupee that affected the Rupee value of NFA of the banking system. M2b growth foreign debt, relatively low nominal GDP and decelerated to 13.00 percent, YoY, by the end higher net borrowings during the period. of 2018, from 16.70 percent at the end of 2017. M2b growth during 2018 was entirely Government revenue as a percentage of due to the expansion in NDA of the banking GDP declined to 13.30 percent in 2018 system, as NFA of the banking system from 13.60 percent recorded in 2017.

137 Country Performance / Sri Lanka ANNUAL REPORT 2018

Underperformance of the revenue collection declined by 6.50 percent in nominal terms was mainly due to the decline in tax revenue to Rs. 603.50 billion during the year in from import duties, Value-Added Tax (VAT), comparison to Rs. 645.40 billion in 2017. excise duty on petroleum products and liquor, Accordingly, capital expenditure and net withholding tax and Cess levy. Accordingly, lending as a percentage of GDP also declined in nominal terms, tax revenue increased by to 4.20 percent in 2018 from 4.80 percent in only 4.80 percent to Rs. 1,920.00 billion in 2017. 2018 from Rs. 1,831.50 billion recorded in the previous year, supported by the nominal The overall budget defi cit was largely increase in the revenue from income taxes, fi nanced through domestic sources during tobacco and cigarettes, VAT and Ports and 2018. Accordingly, 57.50 percent of the total Airports Development Levy (PAL). However, fi nancing need was covered by domestic non-tax revenue as a percentage of GDP fi nancing while the balance was met from increased to 1.40 percent in 2018 from 1.20 foreign sources. The Government relied percent in 2017 owing to profi t transfers by mainly on domestic non-bank sources the Central Bank and the increase in revenue in 2018, accounting for 75.00 percent from fees and charges. (Rs. 327.80 billion) of total net domestic fi nancing compared to 36.20 percent Total expenditure and net lending during (Rs. 106.50 billion) in 2017. During 2018 declined to 18.60 percent of GDP from 2018, financing from commercial banks 19.20 percent in 2017, due to the decline recorded a net repayment of Rs. 136.60 in capital expenditure and net lending. billion compared to borrowings of Accordingly, recurrent expenditure as a Rs. 375.70 billion in 2017, owing to higher percentage of GDP increased marginally to net repayments of Sri Lanka Development 14.50 percent in 2018, from 14.40 percent Bonds (SLDBs) and T-bonds. However, in 2017, and recorded a nominal increase borrowings from the Central Bank increased of 8.40 percent to Rs. 2,089.70 billion in notably to Rs. 246.10 billion in 2018, from a 2018, from Rs. 1,927.70 billion in 2017. net repayment of Rs. 187.90 billion in 2017 Responding to the effects of exchange rate due to increased purchases of Treasury bills variations and the rise in global interest rates, (T-bills) by the Central Bank mainly as a total interest expenditure, in nominal terms, result of the tight liquidity conditions in the increased by 15.90 percent to Rs. 852.20 domestic money market. Foreign fi nancing billion in 2018, from Rs. 735.60 billion in of the budget defi cit declined to Rs. 323.50 2017, while expenditure on foreign interest billion in 2018, in comparison to Rs. 439.20 payments increased by 29.00 percent to billion in 2017, partly refl ecting the impact of Rs. 212.70 billion in 2018. Meanwhile, signifi cant outfl ows from the foreign holdings capital expenditure and net lending of Rupee denominated T-bonds and T-bills,

138 Country Performance / Sri Lanka ANNUAL REPORT 2018 which amounted to Rs. 141.10 billion during banking sector. The quality of the banking the year. sector assets deteriorated due to challenging global and domestic market conditions, as Financial Sector Developments refl ected by the increase in Non-Performing Loan (NPL) ratios. The fi nancial sector recorded a moderate expansion in 2018 amidst challenging market The growth of the Licensed Finance conditions, both globally and domestically. Companies (LFCs) and Specialized Leasing The banking sector that dominates the Companies (SLCs) sector slowed in fi nancial sector recorded a moderate growth 2018, with the decline in credit growth in total assets and maintained its capital and and profi tability during the year. Lending liquidity levels well above the minimum activities of the sector decelerated mainly statutory requirement. The growth of assets due to recent fi scal and macro-prudential was driven mainly by the expansion in the policy measures, which were taken to curtail loan portfolio, which increased signifi cantly the imports of motor vehicles and credit during the second half of 2018 partly due to facilities for purchasing vehicles. Other the depreciation of the Sri Lankan Rupee. sectors of the fi nancial system, including The increase in loans accounted for 84.10 superannuation funds, insurance and Primary percent of the asset growth of the banking Dealers (PDs) expanded moderately during sector during 2018. Deposits continued to be 2018. Nevertheless, a deterioration in the the main source of funding representing performance of the unit trust sector was 72.00 percent of total liabilities of the recorded during the year.

139 Country Performance / Sri Lanka ANNUAL REPORT 2018

Sri Lanka: Major Economic Indicators During 2014-2018

Year 1 Item 2014 2015 2016 2017 2018 Output and Infl ation (percent change) Real Gross Domestic Product (GDP) 5.00 5.01 4.472 3.401,2 3.21 Infl ation (annual average) 3.303 2.20 4.00 6.60 4.30 Infl ation (point to point) 2.103 4.60 4.50 7.10 2.80 Unemployment 4.30 4.70 4.40 4.20 4.40 Government Finance (percent of GDP) Total revenue 11.50 13.29 14.16 13.78 13.29 Expenditure and net lending 17.20 20.92 19.60 19.36 18.64 Budget defi cit -5.70 -7.57 -5.38 -5.52 -5.26 External Sector Export (percent change) 7.08 -5.24 -2.24 10.19 4.66 Import (percent change) 7.85 -2.48 1.31 9.37 5.97 Trade balance (million US dollars) -8,287.00 -8,388.10 -8,873.10 -9,619.38 -10,343.09 Overall balance (million US dollars) 1,369.00 -1,488.73 -499.73 2,068.45 -1,102.86 Total external assets (million US dollars) 9,884.44 9,336.90 8,433.00 10,436.48 9,582.85 Months of import coverage 6.10 5.92 5.28 5.97 5.17 Monetary Aggregates (percent change) Broad money (M2b) 13.40 17.80 18.39 16.70 13.00 Reserve money 18.30 16.53 27.13 9.77 2.27 Narrow money 26.30 16.80 8.62 2.15 4.73 Private sector credit 8.602 25.002 21.602 14.68 15.88 Interest Rates (percent) Standing deposit facility rate 6.50 6.00 7.00 7.25 8.00 Standing lending facility rate 8.00 7.50 8.50 8.75 9.00 Weighted average prime lending rate (WAPR) 6.26 7.53 11.52 11.55 12.09 Treasury-bill rate (91 days) 5.74 6.45 8.72 7.69 10.01 Treasury-bill rate (364 days) 6.01 7.30 10.17 8.90 11.20 1 Provisional data.

2 Revised data.

3 Based on Colombo Consumer Price Index (CCPI) (2006/07=100) and compilation of this index was discontinued since January 2017.

Source: Central Bank of Sri Lanka

140 Country Performance / Sri Lanka ANNUAL REPORT 2018

Sri Lanka: Major Indicators During 2014-2018 (In percent)

Year 1 Item 2014 2015 2016 2017 2018 Licensed Commercial Banks

Non-performing loans to gross loans2 3.58 2.90 2.36 2.30 3.28 Non-performing loans net of provisions to capital3 13.07 9.70 7.60 7.49 13.18 Regulatory capital to risk-weighted assets 17.03 14.14 15.63 15.25 15.04 Return on assets (ROA)-before tax 2.04 1.91 2.00 2.07 1.91 Return on equity (ROE) 16.72 15.71 17.23 17.41 13.67 Interest margin to gross income 34.84 39.04 35.87 32.01 32.34 Non-interest expense to gross income 25.62 27.16 23.70 19.21 20.44

1 Provisional data.

2 Non-Performing Loans Net of Interest in Suspense (IIS).

3 Non-Performing Loans Net of IIS and Specifi c Provisions.

Source: Central Bank of Sri Lanka

Sri Lanka: Trade Through Free Trade Zone in 2018

Export Import Item As a Percentage of As a Percentage of Total Value (FOB) Total Value (CIF) Total Exports of the Total Imports of the (In millions of USDs) (In millions of USDs) Country Relevant Country Relevant Country Bangladesh 77.63 57.19 6.89 19.84 Bhutan 0.001 33.76 - - India 424.26 55.19 767.23 18.45 Iran 2.15 1.45 0.13 0.98 Maldives 7.79 7.09 5.22 2.69 Myanmar 2.91 26.06 16.31 40.16 Nepal 6.76 82.86 0.02 24.13 Pakistan 19.69 25.93 142.76 33.32 Total 541.19 - 938.56 -

1 0.003.

Source: Sri Lanka Customs

141 Country Performance / Sri Lanka ANNUAL REPORT 2018 1 2014 2015 2016 2017 2018 1 (In millions of USDs) Export Import Sri Lanka: Trade with ACU Member Countries During 2014-2018 ACU Member with Trade Sri Lanka: 0.02 0.02 0.04 0.312.043.80 0.01 1.64 3.60 1.18 - 0.98 2.01 - 1.68 11.15 29.73 8.17 - 21.46 0.04 31.89 - 0.02 80.01 0.21 - 40.60 0.10 0.08 90.16 92.82 112.46 122.3988.35 135.75 77.32 26.06 95.31 37.7574.29 107.96 29.37 73.18 109.96 43.59 63.84 10.04 34.73 74.03 23.01 75.98 89.62 279.60 163.55 297.28 192.69 304.33 349.05 428.45 624.81 643.30181.03 554.01 155.75 691.32 172.76 776.88 177.11 4,023.14 148.00 4,268.40 3,815.24 7.87 4,527.35 4,231.18 7.02 6.99 10.76 13.36 2014 2015 2016 2017 2018 1,064.49 1,047.63 1,000.60 1,176.81 1,265.89 4,376.48 4,654.93 4,277.66 5,174.42 4,941.10 11,130.07 10,546.50 10,309.74 11,360.42 11,889.63 19,416.77 18,934.60 19,182.84 20,979.80 22,232.72 Item Sri Lanka Customs, Central Bank of Sri Lanka, Ceylon Petroleum Corporation, Lanka IOC, National Gem and Jewellery Authority Sri Lanka Customs, Central Bank of Lanka, Ceylon Petroleum Corporation, IOC, National Gem and Jewellery Provisional data. Sources: Bangladesh Bhutan India Iran Maldives Myanmar Nepal Pakistan with Trade Total ACU Countries with Trade Total the World 1 Country

142 Country Performance / Sri Lanka ANNUAL REPORT 2018

Sri Lanka: Main Items of Goods and Services Exported to ACU Member Countries in 2018

Sector/Country

Bangladesh Minor agricultural exports, spices, vegetables, natural rubber, live animals, coconut kernel Agriculture products, tea Textiles, plastics and articles thereof, petroleum products, wood and paper products, chemical products, machinery and mechanical appliances, base metals and articles, transport equipment, Industry rubber products, animal fodder, food beverages and tobacco, printing industry products, garments, products of animal origin, leather, travel goods and footwear, gems diamonds and jewellery

India Spices, minor agricultural exports, tea, vegetables, coconut kernel products, natural rubber, Agriculture coconut non-kernel products, seafood, live animals Animal fodder, petroleum products, garments, base metals and articles, machinery and mechanical appliances, textiles, wood and paper products, food beverages and tobacco, rubber Industry products, transport equipment, chemical products, gems, diamonds and jewellery, plastics and articles thereof, ores, slag and ash, ceramic products, earths and stone, products of animal origin, printing industry products, leather, travel goods and footwear Iran

Tea, coconut kernel products, coconut non-kernel products, minor agricultural exports, spices, Agriculture live animals Base metals and articles, animal fodder, wood and paper products, chemical products, transport equipment, petroleum products, garments, plastics and articles thereof, rubber products, machinery Industry and mechanical appliances, textiles, ceramic products, earths and stone, food beverages and tobacco, printing industry products

Maldives

Minor agricultural exports, vegetables, seafood, tea, spices, coconut non-kernel products, live Agriculture animals, coconut kernel products Machinery and mechanical appliances, food, beverages and tobacco, base metals and articles, chemical products, plastics and articles thereof, petroleum products, wood and paper products, Industry transport equipment, ceramic products, garments, printing industry products, leather, travel goods and footwear, textiles, rubber products, gems, diamonds and jewellery, animal fodder, earths and stone, products of animal origin, ores, slag and ash, precious metals Myanmar

Agriculture Tea, vegetables, minor agricultural exports

Textiles, chemical products, petroleum products, food, beverages and tobacco, garments, machinery and mechanical appliances, wood and paper products, base metals and articles, plastics Industry and articles thereof, rubber products, animal fodder, printing industry products, leather, travel goods and footwear, gems, diamonds and jewellery

143 Country Performance / Sri Lanka ANNUAL REPORT 2018

Sri Lanka: Main Items of Goods and Services Exported to ACU Member Countries in 2018 (Contd.)

Sector/Country

Nepal

Agriculture Live animals, tea, vegetables, spices, natural rubber

Food, beverages and tobacco, chemical products, machinery and mechanical appliances, base metals and articles, wood and paper products, animal fodder, plastics and articles thereof, Industry textiles, rubber products, transport equipment, garments, ceramic products, gems diamonds and jewellery, leather, travel goods and footwear, printing industry products

Pakistan Minor agricultural exports, coconut kernel products, natural rubber, coconut non-kernel Agriculture products, spices, tea, live animals, vegetables Machinery and mechanical appliances, textiles, wood and paper products, chemical products, base metals and articles, rubber products, animal fodder, garments, petroleum products, plastics Industry and articles thereof, ceramic products, food, beverages and tobacco, transport equipment, gems diamonds and jewellery, earths and stone, printing industry products, leather, travel goods and footwear Source: Sri Lanka Customs, National Gem and Jewellery Authority, Central Bank of Sri Lanka

144 Country Performance / Sri Lanka ANNUAL REPORT 2018

Sri Lanka: Main Items of Goods and Services Imported from ACU Member Countries in 2018

Sector/Country

Bangladesh

Agriculture Vegetables, agricultural inputs, cereals and milling industry products Medical and pharmaceuticals, textile and textile articles, chemical products, household and furniture items, paper and paperboard and articles thereof, machinery and equipment, clothing Industry and accessories, food preparations, plastic and articles thereof, vehicle and machinery parts, cosmetics and toiletries, printed materials and stationary, rubber products, building materials, rubber and articles thereof, beverages, oils and fats, home appliances India Vegetables, spices, cereals and milling industry products, agricultural inputs, seafood, fruits, wheat Agriculture and maize, unmanufactured tobacco, dairy products Petroleum products, textile and textile articles, building materials, vehicles, machinery and equipment, transport equipment, chemical products, medical and pharmaceuticals, paper and paperboard and articles thereof, base metals, sugar and confectionery, clothing and accessories, plastic and articles thereof, vehicle and machinery parts, mineral products, Industry arms and ammunition, home appliances, food preparations, cosmetics and toiletries, rubber and articles thereof, household and furniture items, rubber products, diamonds and precious or semi-precious stones, printed materials and stationary, oils and fats, fertiliser, beverages, telecommunication devices

Iran

Agriculture Seafood, fruits, agricultural inputs, vegetables Machinery and equipment, building materials, plastic and articles thereof, beverages, medical and pharmaceuticals, mineral products, vehicle and machinery parts, chemical products, Industry rubber products, transport equipment, telecommunication devices, paper and paperboard and articles thereof, rubber and articles thereof, home appliances, food preparations, clothing and accessories, household and furniture items, base metals, printed materials and stationary Maldives

Agriculture Seafood, agricultural inputs, vegetables Petroleum products, building materials, machinery and equipment, medical and pharmaceuticals, printed materials and stationary, textile and textile articles, home appliances, household and furniture items, transport equipment, beverages, base metals, chemical products, plastic and Industry articles thereof, clothing and accessories, food preparations, vehicle and machinery parts, rubber and articles thereof, paper and paperboard and articles thereof, cosmetics and toiletries, telecommunication devices

145 Country Performance / Sri Lanka ANNUAL REPORT 2018

Sri Lanka: Main Items of Goods and Services Imported from ACU Member Countries in 2018 (Contd.)

Sector/Country

Myanmar

Agriculture Vegetables, cereals and milling industry products, spices, fruits, agricultural inputs

Clothing and accessories, building materials, beverages, textile and textile articles, rubber and articles thereof, chemical products, food preparations, household and furniture items, paper Industry and paperboard and articles thereof, machinery and equipment, vehicle and machinery parts, printed materials and stationary

Nepal

Medical and pharmaceuticals, household and furniture items, textile and textile articles, printed Industry materials and stationary, machinery and equipment, building materials, home appliances, clothing and accessories

Pakistan

Wheat and maize, vegetables, cereals and milling industry products, agricultural inputs, Agriculture seafood, fruits, spices Textile and textile articles, building materials, medical and pharmaceuticals, fertiliser, household and furniture items, sugar and confectionery, beverages, clothing and accessories, mineral products, paper and paperboard and articles thereof, plastic and articles thereof, chemical Industry products, base metals, food preparations, machinery and equipment, vehicle and machinery parts, cosmetics and toiletries, transport equipment, printed materials and stationary, oils and fats, home appliances, rubber products, rubber and articles thereof, petroleum products, diamonds and precious or semi precious stones, arms and ammunition

Source: Sri Lanka Customs, Ceylon Petroleum Corporation, Lanka IOC PLC, Central Bank of Sri Lanka

Source: Central Bank of Sri Lanka

146 Country Performance / Sri Lanka ANNUAL REPORT 2018

147 Auditor’s Report ANNUAL REPORT 2018

ACU Operations

Clearing Operations

In 2018, volume of transactions1 (one In percentage terms, Nepal with 65.08 way plus accrued interest) booked at the percent increase registered the highest annual ACU Secretariat reached to USD 13,466.62 growth rate, followed by Bhutan, Pakistan, million, refl ecting an increase of 11.07 Maldives, India, Bangladesh, and Sri Lanka percent compared to the last year. The total with respectively 39.40, 24.61, 21.55, transactions (incl. receipts, payments, and 10.97, 10.71, and 2.51 percent. In contrast, accrued interest) channeled through the Myanmar booked negative growth of 25.44 ACU mechanism amounted USD 26,933.24 percent. (Table 2) million, revealing USD 2,683.88 million increase over the previous year. (Tables 1 and 2) Over the year under review, 10.16 percent of total transactions amounting to On average, monthly total transactions USD 1,368.82 million were cleared through credited/debited to the member central the ACU mechanism, while the outstanding banks picked up to USD 1,122.22 million amount of USD 12,097.80 million was compared with USD 1,010.39 million a year settled in hard currency. Payments in hard before. The level of total annual transactions currency rose by USD 1,172.61 million, indicates that India was at the top with illustrating 10.73 percent growth. Myanmar USD 12,394.11 million, depicting an increase with 69.00 percent clearing in the system of USD 1,225.50 million over the previous stood at the top, followed by Pakistan, year. It was followed by Bangladesh, Nepal, Sri Lanka, Bangladesh, India, and Sri Lanka, Pakistan, Nepal, Maldives, Maldives with 34.64, 16.42, 8.71, 2.59, Bhutan, Myanmar, and Iran with 1.46, and 0.17 percent, respectively. USD 8,060.44, 3,588.07, 2,669.81, 88.96, (Tables 1 and 3) 70.45, 59.69, 1.70, and 0.01 million, respectively. (Tables 1 and 2)

1 It includes ACU dollar transactions.

148 ACU Operations ANNUAL REPORT 2018

Transactions1 Cleared/Settled Through the ACU Mechanism Transactions1 Credited to the Member During 2009-2018 Central Banks in 2018 (In millions of USDs) (In millions of USDs)

Bangladesh 22 ,000 Bhutan (203. 17) 20 ,000 Sri Lanka (59. 69) Nepal (12. 55) 18 ,000 (287. 33) Pakistan 16 ,000 (686. 95) Maldives Myanmar 14 ,000 (0. 12) (0. 69) 12 ,000 10 ,000 Iran (0. 01) 8 ,000 6 ,000 4 ,000 2 ,000 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 India Cleared in the System Settled in Hard Currency (12,. 216 11) 1 Figures include ACU dollarand ACU euro transactions and accrued interest over the years, 1 except in 2017-2018 which it includes ACU dollar transactions and accrued interest. Figures include ACU dollar transactions, and accrued interest .

During 2018, the Secretariat has issued a The share of India in the total credit number of accounting vouchers, weekly transactions reached 90.72 percent which is statements, monthly statements, Allocation 0.21 percentage points less than the previous tables, monthly Newsletter, Annual Report, year. Over the year under survey, share of Swift messages, MMM1 messages, faxes, Sri Lanka and Bhutan rose by 0.13 and 0.09 letters, and e-mails. Since May 1, 2010, the percentage points, approaching 2.13 and 0.44 Secretariat ceased dispatching accounting percent, respectively. (Table 6) vouchers and monthly statements via mail. The Allocation tables and weekly statements In percentage terms, transactions credited were published electronically since February to Maldives grew remarkably by 300.00 2012 and May 10, 2012, respectively. percent. It was followed by Bhutan, Nepal, (Table 4) Sri Lanka, Pakistan, India, and Bangladesh with 39.40, 32.38, 18.61, 11.30, 10.81, and Credit positions 9.10 percent growth. However, Myanmar encountered with negative growth rate of In 2018, India was the main creditor among 61.24 percent. (Table 7) the ACU member countries, registering USD 12,216.11 million credit position. Debit positions The credit positions of Pakistan, Sri Lanka, Bangladesh, Bhutan, Nepal, Myanmar, During the period, Bangladesh with Maldives, and Iran respectively were USD 7,857.28 million was the main debtor, USD 686.95, 287.33, 203.17, 59.69, 12.55, followed by Sri Lanka, Pakistan, India, 0.69, 0.12, and 0.01 million. (Table 5) Nepal, Maldives, and Myanmar with USD 3,300.74, 1,982.86, 178.01, 76.41, 70.32, and 1.00 million, respectively. (Table 8)

1 It stands for Message Management Module.

149 ACU Operations ANNUAL REPORT 2018

Transactions1 Debited to the Member with the amounts of USD 7,654.11, 3,013.41, Central Banks in 2018 and 1,295.91 million respectively, followed (In millions of USDs) by Maldives, Nepal, and Myanmar. (Tables 3,

Sri Lanka (3,. 300 74) 11 and 12) India (178. 01) Pakistan Credit/Debit Positions1 of the Member (1,. 982 86) Central Banks in 2018 (In millions of USDs) Nepal (76. 41) 13, 000 Myanmar Bangladesh 12, 000 Maldives (1. 00) (7,. 857 28) 11, 000 (70. 32) 10, 000 9, 000 8, 000 1 Figures include ACU dollar transactions, and accrued interest . 7000, 6000, 5000, 4000, 3000, In percentage terms, Bangladesh was the 2000, 1000, 0 major contributor to total debit transactions Bangladesh Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka with share of 58.35 percent. Sri Lanka Credit Debit 1 Figures include ACU dollar transactions, and accrued interest . and Pakistan with 24.51 and 14.72 percent respectively, stood the next. India, Nepal, Maldives, and Myanmar totally booked the Interest received/paid remaining share of 2.42 percent. (Table 9) In 2018, the accrued interest credited/ Myanmar experienced the highest annual debited to the member central banks payment growth of 100.00 percent, followed amounted to USD 22.80 million which was by Nepal, Pakistan, India, Maldives, 0.19 percent of central banks’ net positions Bangladesh, and Sri Lanka with 72.06, and 0.17 percent of the total transactions 29.99, 23.82, 21.39, 10.75, and 1.31 percent, routed through the ACU mechanism. In the respectively. (Table 10) year under review, total interest received/ paid was USD 12.27 million more than Net credit/debit positions that of the preceding year. (Tables 3, 13 and 14) In 2018, India was the main net creditor among the ACU member central banks On average, monthly US Dollar and Euro with the amount of USD 12,038.10 million, interest rates applied in the ACU mechanism representing 10.63 percent increase compared during 2018, were respectively 1.90 and to that of a year ago. The second net creditor 0.00 percent. During 2018, the applied was Bhutan with USD 59.69 million, followed US Dollar interest rate has experienced an by Iran. Nevertheless, the main net debtors upward trend. However, the applied Euro were Bangladesh, Sri Lanka, and Pakistan interest rate remained unchanged. (Table 15)

150 ACU Operations ANNUAL REPORT 2018

Monthly Interest Rates Applied in the other participants during the three previous ACU Mechanism in 2018 calendar years. (In percent)

240. 220. In 2018, the total entitlement of each member 200. 180. central bank to avail Swap facility of other 160. 140. members were allocated as Bangladesh 120. 100. 080. stood at the top with USD 1,220.52 million, 060. 040. followed by Sri Lanka, Pakistan, India, 020. 000. Jan.18 Feb.18 Mar.18 Apr.18 May.18 Jun.18 Jul.18 Aug.18 Sep.18 Oct.18 Nov.18 Dec.18 Maldives, Nepal, Myanmar, and Bhutan. (Table 21) One-Month USD Deposit Rate One-Month EUR Deposit Rate

None of the ACU member central banks Contribution to growth applied Swap facility in 2018. Since the inception of this arrangement (September In 2018, total transactions (incl. accrued 1989-December 2018), the total amount of interest) increased by 11.07 percent, of which Swap facility used by the ACU members India, Bangladesh and Pakistan registered amounted USD 1,081.83 million. (Table 22) the highest contributions to the growth (5.06, 3.21, and 2.18 percentage points respectively) Measures and Achievements followed by Sri Lanka, Nepal, Bhutan, and Maldives with 0.36, 0.14, 0.07, and 0.05 The ACU was established in December percentage points, respectively. (Tables 17 1974 when the countries in the region were and 18) facing settlement diffi culties, mainly due to resource constraints. The ACU started its Swap facility operations a year later in November 1975. Over the years, the ACU has displayed a In accordance with the Article (VIIA) of sense of true commitment, consolidated and the Agreement Establishing the ACU, nurtured throughout its operations. By the Currency Swap Arrangement became applying sound strategies, it achieved available to all debtor participants during a predetermined objectives to facilitate settlement period, to avail two-month facility settlement on a multilateral basis, to promote for settling imbalances in clearing. the use of participants’ currencies, to improve monetary and banking cooperation, and to Every eligible participant shall be entitled to expand trade and economic activity among the facility from every other participant up to the countries of the Economic and Social 20.00 percent of the average gross payment Commission for Asia and the Pacifi c (ESCAP) made by it through the ACU mechanism to region.

151 ACU Operations ANNUAL REPORT 2018

The results of long-term initiatives to raise 4) Quality management and information the Union achievements are evident from the technology: Believing in the fact that following facts: developing an online access to information would be a worldwide requirement; the 1) Timely settlement: Under the ACU ACU has developed both the quality and Procedure Rules, the debtor members should quantity of the system. In order to accelerate pay up their dues in convertible currencies the process of presenting services and to make within 4 working days of the receipt of the dispersion of information smoother, the notice of payment from the Secretary participants were enabled to access their General. There has been no default by any ACU accounts on a daily basis through the member so far in meeting its obligation for Internet since May 1, 2010. Accordingly, the settlement of its net position within the allocation tables and weekly statements stipulated time. were published on the ACU website since February 2012 and May 10, 2012, 2) Establishment of multi-currency respectively. settlement system: Based on the approval of the ACU Board of Directors at the 37th The ACU website has been furnished with Meeting in Myanmar (June 2008), the Message Management Module (MMM) since accounts of the ACU are held in “Asian February 19, 2012. The Module is intended to Monetary Units” (AMUs), comprising better facilitate communication amongst the ACU dollar and ACU euro with effect from participants and the ACU Secretariat. January 1, 2009. Since then, the participants are authorized to settle transactions either in The ACU Secretariat has developed a US Dollar or Euro within the ACU mechanism. web-based accounting system, operating since May 1, 2015. The new system has a number 3) Regulation of the Membership of signifi cant advantages over traditional Application Policy and Procedure: Based on-premise ones. on “ACU Membership Application Policy and Procedure” approved by the ACU Board Over the year under scrutiny, the of Directors at the 39th Meeting in Bhutan ACU Secretariat has been in the process (June 11, 2010), a central bank or monetary of developing a web-based application for authority that is not a member of the United ACU messaging. Nations Economic and Social Commission for Asia and the Pacifi c (ESCAP) may apply 5) Expansion of the ACU: Based on a to become a participant and be admitted decision made at the 36th Board of Directors as a participant if the Board so decides by Meeting in Bangladesh (May 2006), the unanimous vote of all the Directors. expansion of the Union was put at the top

152 ACU Operations ANNUAL REPORT 2018 of its agenda. In this regard, representatives Sri Lanka (June 16, 2009). Maldives Monetary of target countries were invited to attend the Authority commenced operations within the annual meetings of the Board of Directors ACU mechanism since May 2010. as observers. Seminars/scheduled meetings were also conducted to introduce the Nevertheless, there is still a long way to ACU mechanism. Consequently, Maldives go. The ACU challenges are to strengthen, Monetary Authority was admitted to the smoothen, and streamline the mechanism to Union in 2009 by unanimous vote of cope with fast pacing developments in the all the Directors at the 38th Meeting in international markets.

153 ACU Operations ANNUAL REPORT 2018

Asian Clearing Union Transactions1 Channeled Through the ACU Mechanism During 1975-2018 (In millions of USDs)

Table (1)

Item Yearly Transactions Cleared in the System Settled in Hard Currency Share in yearly Share in yearly Growth Amount 2 Amount transactions Amount transactions (percent) Year (percent) (percent) 1975 0.44 - 0.09 20.00 0.35 80.00 1976 25.72 5,745.45 4.12 16.00 21.60 83.98 1977 79.36 208.55 16.67 21.01 62.69 78.99 1978 137.60 73.39 39.90 29.00 97.70 71.00 1979 161.31 17.23 83.88 52.00 77.43 48.00 1980 182.94 13.41 98.79 53.99 84.15 46.01 1981 269.39 47.26 166.92 61.96 102.47 38.05 1982 300.41 11.51 196.63 65.45 103.78 34.55 1983 498.66 65.99 192.32 38.57 306.34 61.44 1984 662.84 32.92 322.24 48.62 340.60 51.39 1985 605.20 -8.70 373.50 61.72 231.70 38.28 1986 690.62 14.11 581.12 84.14 109.50 15.86 1987 625.34 -9.45 396.97 63.48 228.37 36.50 1988 940.84 50.45 698.52 74.24 242.32 25.76 1989 1,041.78 10.73 832.39 79.90 209.39 20.10 1990 1,366.54 31.17 947.79 69.36 418.75 30.64 1991 1,851.44 35.48 1,424.35 76.93 427.09 23.07 1992 1,928.32 4.15 1,172.46 60.80 755.86 39.20 1993 1,448.88 -24.86 1,018.00 70.26 430.88 29.74 1994 1,965.38 35.65 1,110.71 56.51 854.67 43.49 1995 2,702.90 37.53 1,353.42 50.07 1,349.48 49.93 1996 3,161.10 16.95 1,448.30 45.82 1,712.80 54.18 1997 2,654.95 -16.01 1,251.60 47.14 1,403.35 52.86 1998 2,842.77 7.07 1,130.61 39.77 1,712.16 60.23 1999 2,630.74 -7.46 1,057.39 40.19 1,573.35 59.81

154 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Transactions1 Channeled Through the ACU Mechanism During 1975-2018 (Contd.) (In millions of USDs)

Table (1)

Item Yearly Transactions Cleared in the System Settled in Hard Currency Share in yearly Share in yearly Growth Amount 2 Amount transactions Amount transactions (percent) Year (percent) (percent) 2000 3,383.54 28.62 1,634.66 48.31 1,748.88 51.69

2001 3,553.67 5.03 1,643.56 46.25 1,910.11 53.75

2002 3,448.40 -2.96 1,446.40 41.94 2,002.00 58.06

2003 4,546.30 31.84 1,877.95 41.31 2,668.35 58.69

2004 6,679.79 46.93 3,163.25 47.36 3,516.54 52.64

2005 8,199.62 22.75 4,512.16 55.03 3,687.46 44.97

2006 12,049.84 46.96 5,864.27 48.67 6,185.57 51.33

2007 15,830.57 31.38 6,977.33 44.08 8,853.24 55.93

2008 20,966.74 32.44 8,031.32 38.31 12,935.42 61.69

20093 14,072.42 -32.88 5,780.46 41.08 8,291.96 58.92

20103 20,634.21 46.63 8,900.70 43.14 11,733.51 56.86

20113 14,542.39 -29.52 4,974.53 34.21 9,567.86 65.79

20123 9,095.79 -37.45 1,344.15 14.78 7,751.64 85.22

20133 8,411.12 -7.53 1,098.81 13.06 7,312.31 86.94

20143 10,178.31 21.01 1,187.59 11.67 8,990.72 88.33

20153 10,525.80 3.41 1,229.27 11.68 9,296.53 88.32

20163 10,249.25 -2.63 1,299.71 12.68 8,949.54 87.32

2017 12,124.68 18.30 1,199.49 9.89 10,925.19 90.11

2018 13,466.62 11.07 1,368.82 10.16 12,097.80 89.84

Total 230,734.53 - 79,453.12 34.43 151,281.41 65.57

1 Figures indicate one-way transactions, and accrued interest.

2 Figures relevant to years 1975 to 1995 converted from SDRs to US Dollars.

3 Figures for years 2009 to 2016 include ACU dollar and ACU euro transactions.

155 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Total Transactions1 Routed Through the ACU During 2017-2018 (In millions of USDs)

Table (2)

2017 2018 Item Growth Share in Total Share in Total Change Amount Transactions Amount Transactions (percent) Country (percent) (percent)

Bangladesh 7,280.85 30.02 8,060.44 29.93 779.59 10.71

Bhutan 42.82 0.18 59.69 0.22 16.87 39.40

India 11,168.61 46.06 12,394.11 46.02 1,225.50 10.97

Iran 0.01 0.00 0.01 0.00 0.00 0.00

Maldives 57.96 0.24 70.45 0.26 12.49 21.55

Myanmar 2.28 0.01 1.70 0.01 -0.58 -25.44

Nepal 53.89 0.22 88.96 0.33 35.07 65.08

Pakistan 2,142.60 8.84 2,669.81 9.91 527.21 24.61

Sri Lanka 3,500.34 14.43 3,588.07 13.32 87.73 2.51

Total 24,249.36 100.00 26,933.24 100.00 2,683.88 11.07

1 Figures include two-way ACU dollar transactions, and accrued interest.

156 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Transactions1 Cleared/Settled in the ACU Mechanism in 2018 (In millions of USDs)

Table (3)

Item Cleared in the Settled in Hard Total Credit Total Debit Net Balance System Currency Country (percent) (percent)

Bangladesh 203.17 7,857.28 -7,654.11 2.59 97.41

Bhutan 59.69 0.00 59.69 0.00 100.00

India 12,216.11 178.01 12,038.10 1.46 98.54

Iran 0.01 0.00 0.01 0.00 100.00

Maldives 0.12 70.32 -70.20 0.17 99.83

Myanmar 0.69 1.00 -0.31 69.00 31.00

Nepal 12.55 76.41 -63.86 16.42 83.58

Pakistan 686.95 1,982.86 -1,295.91 34.64 65.36

Sri Lanka 287.33 3,300.74 -3,013.41 8.71 91.29

Total 13,466.62 13,466.62 ±12,097.80 2 10.16 89.84

1 Figures include one-way ACU dollar and ACU euro transactions, and accrued interest.

2 Figure indicates net credit / net debit position.

157 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Paper Works and Communications of ACU Secretariat During 2014-2018 (Number)

Table (4)

Item Year 2014 2015 2016 2017 2018

Incoming Messages and Letters via SWIFT - - 373 389 380

Outgoing Messages and Letters via SWIFT --273-

Incoming Messages and Letters via MMM1 3,194 3,450 3,071 3,225 3,170

Outgoing Messages and Letters via MMM 563 552 577 520 523

Outgoing UNION Messages 147 163 160 73 103

Incoming Faxes 65 30 39 6 -

Outgoing Faxes 90 29 42 13 4

Incoming E-mails 434 532 682 591 522

Outgoing E-mails 572 712 975 823 1,040

Accounting Vouchers2 4,609 4,676 4,653 4,748 4,757

Weekly Statements3 1,162 1,174 1,234 1,231 1,375

Monthly Statements2 780 526 470 477 487

Allocation Table4 12 12 12 12 12

Newsletter 1,524 1,680 1,680 1,680 1,680

Annual Report 260 350 350 350 350

1 It stands for Message Management Module.

2 The ACU Secretariat ceased dispatching accounting vouchers and monthly statements via mail on May 1, 2010.

3 Since May 10, 2012, the ACU Secretariat commenced publishing the weekly statements.

4 The allocation table has been published since February 2012 by the ACU Secretariat.

158 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Transactions Credited to the Member Central Banks During 2014-2018 (In millions of USDs)

Table (5)

Year 20141 20151 20161 20172 20182 Country

Bangladesh 99.97 116.59 156.20 186.23 203.17

Bhutan 26.99 28.57 28.34 42.82 59.69

India 9,084.07 9,393.85 9,079.23 11,024.85 12,216.11

Iran 0.03 0.03 0.03 0.01 0.01

Maldives 0.05 0.00 0.01 0.03 0.12

Myanmar 2.52 2.20 2.86 1.78 0.69

Nepal 24.67 5.95 14.73 9.48 12.55

Pakistan 724.25 707.74 732.36 617.23 686.95

Sri Lanka 215.76 270.87 235.49 242.25 287.33

Total 10,178.31 10,525.80 10,249.25 12,124.68 13,466.62

1 Figures include one-way ACU dollar and ACU euro transactions, and accrued interest.

2 Figures include one-way ACU dollar transactions, and accrued interest.

159 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Share of the Member Central Banks in Total Credit Transactions During 2014-2018 (In percent)

Table (6)

Year 20141 20151 20161 20172 20182 Country

Bangladesh 0.98 1.11 1.52 1.54 1.51

Bhutan 0.27 0.27 0.28 0.35 0.44

India 89.25 89.25 88.58 90.93 90.72

Iran 0.00 0.00 0.00 0.00 0.00

Maldives 0.00 0.00 0.00 0.00 0.00

Myanmar 0.02 0.02 0.03 0.01 0.01

Nepal 0.24 0.06 0.14 0.08 0.09

Pakistan 7.12 6.72 7.15 5.09 5.10

Sri Lanka 2.12 2.57 2.30 2.00 2.13

Total 100.00 100.00 100.00 100.00 100.00

1 Figures include ACU dollar and ACU euro transactions, and accrued interest.

2 Figures include ACU dollar transactions, and accrued interest.

160 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Annual Growth of Transactions Credited to the Member Central Banks During 2014-2018 (In percent)

Table (7)

Year 20141 20151 20161 20172 20182 Country

Bangladesh -11.28 16.62 33.97 19.23 9.10

Bhutan 7.92 5.85 -0.81 51.09 39.40

India 22.73 3.41 -3.35 21.43 10.81

Iran -25.00 0.00 0.00 -66.67 0.00

Maldives -88.37 -100.00 θ3 200.00 300.00

Myanmar 77.46 -12.70 30.00 -37.76 -61.24

Nepal -6.16 -75.88 147.56 -35.64 32.38

Pakistan 7.96 -2.28 3.48 -15.72 11.30

Sri Lanka 24.84 25.54 -13.06 2.87 18.61

Total 21.01 3.41 -2.63 18.30 11.07

1 Figures include ACU dollar and ACU euro transactions, and accrued interest.

2 Figures include ACU dollar transactions, and accrued interest.

3 Calculation of percentage change is not possible.

161 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Transactions Debited to the Member Central Banks During 2014-2018 (In millions of USDs)

Table (8)

Year 20141 20151 20161 20172 20182 Country

Bangladesh 5,917.43 5,770.42 5,451.92 7,094.62 7,857.28

Bhutan 0.38 0.40 0.03 0.00 0.00

India 120.98 126.59 160.39 143.76 178.01

Iran 0.00 0.00 0.00 0.00 0.00

Maldives 31.39 50.61 49.99 57.93 70.32

Myanmar 1.53 1.13 0.50 0.50 1.00

Nepal 28.52 42.90 50.32 44.41 76.41

Pakistan 1,661.86 1,513.01 1,493.86 1,525.37 1,982.86

Sri Lanka 2,416.22 3,020.74 3,042.24 3,258.09 3,300.74

Total 10,178.31 10,525.80 10,249.25 12,124.68 13,466.62

1 Figures include ACU dollar and ACU euro transactions, and accrued interest.

1 Figures include ACU dollar transactions, and accrued interest.

162 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Share of the Member Central Banks in Total Debit Transactions1 During 2014-2018 (In percent)

Table (9)

1 1 1 2 2 Country Year 2014 2015 2016 2017 2018

Bangladesh 58.13 54.83 53.20 58.51 58.35

Bhutan 0.00 0.00 0.00 0.00 0.00

India 1.19 1.20 1.56 1.19 1.32

Iran 0.00 0.00 0.00 0.00 0.00

Maldives 0.31 0.48 0.49 0.48 0.52

Myanmar 0.02 0.01 0.00 0.00 0.01

Nepal 0.28 0.41 0.49 0.37 0.57

Pakistan 16.33 14.37 14.58 12.58 14.72

Sri Lanka 23.74 28.70 29.68 26.87 24.51

Total 100.00 100.00 100.00 100.00 100.00

1 Figures include ACU dollar and ACU euro transactions, and accrued interest.

1 Figures include ACU dollar transactions, and accrued interest.

163 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Annual Growth of Transactions Debited to the Member Central Banks During 2014-2018 (In percent)

Table (10)

1 1 1 2 2 Country Year 2014 2015 2016 2017 2018

Bangladesh 20.27 -2.48 -5.52 30.13 10.75

Bhutan θ 3 5.26 -92.50 -100.00 -

India 5.26 4.64 26.70 -10.37 23.82

Iran -----

Maldives 4 61.23 -1.23 15.88 21.39

Myanmar 91.25 -26.14 -55.75 0.00 100.00

Nepal -1.79 50.42 17.30 -11.74 72.06

Pakistan 1.71 -8.96 -1.27 2.11 29.99

Sri Lanka 41.29 25.02 0.71 7.10 1.31

Total 21.01 3.41 -2.63 18.30 11.07

1 Figures include ACU dollar and ACU euro transactions, and accrued interest.

2 Figures include ACU dollar transactions, and accrued interest.

3 Calculation of percentage change is not possible.

4 Growth is more than 500 percent.

164 ACU Operations / Tables ANNUAL REPORT 2018 Table (11) Table Credited to the Member Central Banks in 2018 to the Member Credited 1 (In millions of USDs) Asian Clearing Union Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Total 8.48 5.62 835.25 0.00 0.00 0.00 0.98 49.60 20.64 920.57 11.42 4.66 906.30 0.00 0.00 0.00 0.57 50.35 13.81 987.11 19.9715.60 6.0222.06 1,297.08 6.5717.44 1,124.12 3.6718.42 0.00 5.06 988.98 0.01 1,271.82 5.32 0.0015.25 0.00 1,125.41 0.0018.30 0.00 0.10 4.32 0.00 0.00 0.02 4.68 0.00 987.89 0.8016.83 0.05 0.00 862.58 1.2625.20 0.10 67.34 0.00 4.2814.20 1.05 0.07 65.20 0.00 3.23 24.27 942.21 1.19 0.00 1,415.58 6.26 59.16 23.63 847.94 0.59 0.00 52.63 0.00 1,026.53 1,236.41 0.10 19.74 55.15 0.00 0.00 19.02 1,094.71 0.00 0.00 0.75 1,367.26 24.78 0.12 1.46 1,229.74 0.00 59.18 0.00 0.10 58.39 30.76 1.04 0.15 1,098.25 22.67 1.39 61.56 1.47 968.08 52.97 31.45 55.42 1,057.37 28.41 28.15 959.36 1,132.18 Bangladesh Monthly Distribution of Total Transactions Total Monthly Distribution of Country Figures include ACU dollar transactions, and accrued interest. Figures include

Month January February March April May June July August September October November December Total1 203.17 59.69 12,216.11 0.01 0.12 0.69 12.55 686.95 287.33 13,466.62

165 ACU Operations / Tables ANNUAL REPORT 2018 Table (12) Table Debited to the Member Central Banks in 2018 Debited to the Member 1 (In millions of USDs) Asian Clearing Union Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Total 603.11 0.00 22.46 0.00 6.59 0.50 6.00 130.55 288.16 1,057.37 869.65729.39 0.00635.86 0.00 13.85795.78 0.00 15.96730.81 0.00 0.00 22.25565.41 0.00 0.00 7.21 6.49642.47 0.00 0.00 3.85 8.40544.95 0.00 0.00 0.00 5.21 6.92552.44 0.00 0.00 0.00 17.45 6.62 9.80 0.00 0.50 0.00 14.02 4.20 6.56505.86 197.02 0.00 0.00 9.21 3.62 6.38681.55 208.27 0.00 0.00 321.23 0.00 4.52 10.76 178.12 0.00 0.00 274.74 1,415.58 0.00 19.82 5.81 224.84 7.64 0.00 249.15 1,236.41 21.18 4.61 4.77 0.00 171.86 0.00 319.59 1,094.71 6.04 0.00 153.80 1,367.26 0.00 304.47 4.56 4.06 123.72 249.83 1,229.74 5.22 138.49 3.63 0.00 304.05 987.11 111.62 0.00 260.75 1,098.25 12.43 239.06 968.08 162.84 6.64 920.57 181.73 253.85 235.86 959.36 1,132.18 Bangladesh Monthly Distribution of Total Transactions Total Monthly Distribution of Country Figures include ACU dollar transactions, and accrued interest. Figures include

Month January February March April May June July August September October November December Total1 7,857.28 0.00 178.01 0.00 70.32 1.00 76.41 1,982.86 3,300.74 13,466.62

166 ACU Operations / Tables ANNUAL REPORT 2018 Table (13) Table 1 (In USDs) 8.91 0.00 1,080.51 0.00 0.00 0.00 22,800,258.69 Asian Clearing Union 22,686,241.55 Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Total 0.00 4,841.220.00 1,091,445.81 10,569.240.00 2,047,891.93 4,570.65 0.000.00 1,267,247.34 10,778.33 5.250.00 2,688,951.68 0.00 6,619.99 3.580.00 0.00 1,631,488.80 129.18 12,606.32 0.000.00 2,521,476.53 113.02 0.00 9,093.63 0.00 0.010.00 0.00 1,285,475.16 11,121.43 0.00 0.01 0.000.00 2,389,077.49 0.00 0.00 0.00 9,049.21 0.010.00 0.00 1,217,669.71 0.00 0.00 15,424.27 0.01 0.000.00 2,521,498.12 0.00 0.00 115.93 0.00 1,096,416.21 5,393.65 0.00 0.00 0.010.00 0.00 1,307,832.67 0.00 119.61 2,058,579.44 12,859.78 0.00 0.00 0.01 2,716,186.31 170.50 0.00 0.00 0.00 0.00 0.01 1,271,821.57 0.00 0.00 0.00 55.44 0.00 0.01 2,699,730.01 0.00 0.00 0.00 0.00 0.00 0.00 1,638,108.80 0.00 0.00 2,534,198.79 0.00 0.00 0.00 376.83 0.00 1,294,688.41 0.00 0.00 2,400,369.43 0.00 0.00 0.00 0.00 1,226,774.37 0.00 0.00 2,536,922.40 0.00 0.00 1,313,226.33 2,729,422.93 Monthly Distribution of Accrued Interest Credited to the Member Central Banks in 2018 to the Member Credited Accrued Interest Monthly Distribution of Bangladesh Country Figures include accrued interests of ACU dollar transactions. Figures include accrued interests of

January Total1 0.00 112,927.72 February March April May June July August September October November December Month

167 ACU Operations / Tables ANNUAL REPORT 2018 Table Table (14) 1 1,315.31 132,445.32 2,334,723.56 5,972,336.64 22,800,258.69 (In USDs) 127,325.35 Asian Clearing Union 0.00 0.00 0.00 Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Total Monthly Distribution of Accrued Interest Debited to the Member Central Banks in 2018 Debited to the Member Accrued Interest Monthly Distribution of 703,001.06 0.00800,007.92 0.00 0.00 0.00 0.00 6,754.44 0.00689,814.29 0.00 6,224.70 5,202.17 0.00 308.97 83,318.27772,949.04 3,469.52 0.00 298,140.27 0.00 150,558.22 1,096,416.21 0.00767,447.27 311,252.24 0.00 4,130.35 1,271,821.57 0.00 0.00 0.00 0.00 7,188.38 9,596.72 159,309.09 0.00 0.00 6,364.25 431,837.96 7,581.18 1,294,688.41 62.35 98,240.46 10,512.44 340,815.31 98,849.52 1,226,774.37 429,990.50 1,313,226.33 Bangladesh 1,336,144.29 0.001,705,842.19 0.001,020,688.94 0.00 0.001,586,505.81 0.00 0.00 9,696.43 0.00 0.00 0.001,523,973.42 0.00 15,833.27 0.00 0.00 7,979.67 0.00 10,568.25 583.83 228,596.25 0.001,634,447.79 13,190.83 15,797.33 0.00 476,162.80 16.41 342,245.53 0.00 2,058,579.44 9,081.50 622,034.36 0.00 0.001,691,290.49 12,889.31 180,523.39 14,757.86 0.00 2,699,730.01 0.00 417,230.31 277,924.24 0.00 0.00 1,638,108.80 639,213.55 16,866.45 11,949.28 0.00 2,534,198.79 179,938.30 343.75 0.00 10,760.04 671,619.12 15,012.19 181,300.60 2,400,369.43 693,203.77 0.00 28,364.11 2,536,922.40 353,919.69 640,836.45 2,729,422.93 14,232,112.51 Country Figures include accrued interests of ACU dollar transactions. Figures include accrued interests of

Month January Total 1 February March April May June July August September October November December

168 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Interest Rates1 Applied in the ACU Settlement Mechanism During 2014-2018 (In percent)

Table (15)

Year 2014 2015 2016 2017 2018

Month USD EUR USD EUR USD EUR USD EUR USD EUR

January 0.07 0.04 0.03 0.00 0.34 0.00 0.63 0.00 1.55 0.00

February 0.07 0.07 0.02 0.00 0.36 0.00 0.65 0.00 1.45 0.00

March 0.07 0.05 0.02 0.00 0.38 0.00 0.68 0.00 1.53 0.00

April 0.07 0.08 0.07 0.00 0.37 0.00 0.90 0.00 1.86 0.00

May 0.03 0.12 0.08 0.00 0.36 0.00 0.90 0.00 1.80 0.00

June 0.03 0.07 0.09 0.00 0.41 0.00 1.00 0.00 1.92 0.00

July 0.05 0.00 0.09 0.00 0.38 0.00 1.15 0.00 2.00 0.00

August 0.04 0.00 0.10 0.00 0.40 0.00 1.16 0.00 1.98 0.00

September 0.04 0.00 0.14 0.00 0.43 0.00 1.17 0.00 1.99 0.00

October 0.04 0.00 0.12 0.00 0.42 0.00 1.20 0.00 2.25 0.00

November 0.03 0.00 0.13 0.00 0.42 0.00 1.18 0.00 2.24 0.00

December 0.05 0.00 0.23 0.00 0.51 0.00 1.28 0.00 2.28 0.00

1 The interest rate applicable for a settlement period is the closing rate on the fi rst working day of the last week of the previous calender month offered by the Bank for International Settlements (BIS) for one month US Dollar (USD) and Euro (EUR) deposits.

169 ACU Operations / Tables ANNUAL REPORT 2018 0.85 0.00 1,000.86 Table (16) Table 70,196.75 76,276.41 178,009.44 7,843,041.02 1,980,527.16 3,294,770.14 1 (In thousands of USDs) Asian Clearing Union Transactions Matrix in 2018 Transactions Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Total 0.00 59,030.00 7,206,710.23 0.81 0.00 670.62 10,924.60 488,177.95 77,526.81 0.00 0.00 0.00 0.85 0.00 0.00 0.00 0.00 0.00 0.000.00 0.00 0.00 0.00 69,395.82 0.00 0.93 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 800.00 0.00 1,000.00 0.00 0.00 0.86 0.00 0.00 0.00 0.00 0.00 25,640.92 0.00 0.0056,598.54 1.18 550.0241,082.48 0.0078,853.00 0.00 0.00 0.00 1,869,767.60 0.00 3,047,547.87 0.94 0.00 1.02 16,870.00 135,497.34 1.07 2.52 0.00 120.00 22.46 0.00 0.00 789.10 0.00 835.01 14,486.27 167,413.19 4,615.66 0.00 68,886.96 0.00 Bangladesh Creditor Figures include ACU dollar transactions, excluding accrued interest. Figures include

Bangladesh Total1 203,174.94 59,580.02 12,193,421.52 7.66 122.52 693.08 12,548.71 686,947.41 287,326.77 13,443,822.63 Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Debtor

170 ACU Operations / Tables ANNUAL REPORT 2018

Table (17) Table Growth (percent) 2017 2018

Growth (percent) 2017 2018 (In millions of USDs) Asian Clearing Union Routed Cumulatively Through the ACU During 2017-2018 the Through Routed Cumulatively Growth Growth 1 (percent) Credit Debit Transactions Total Total Transactions Total 0.010.03 0.011.78 0.129.48 0.00 0.69 300.00 12.55 0.00 -61.24 57.93 32.38 0.00 0.50 70.32 44.41 1.00 21.39 - 76.41 100.00 57.96 72.06 0.01 2.28 70.45 53.89 0.01 21.55 1.70 88.96 0.00 -25.44 65.08 42.82 59.69 39.40 0.00 0.00 - 42.82 59.69 39.40 186.23 203.17 9.10 7,094.62 7,857.28 10.75617.23 7,280.85242.25 686.95 8,060.44 287.33 11.30 10.71 18.61 1,525.37 3,258.09 1,982.86 3,300.74 29.99 2,142.60 1.31 2,669.81 3,500.34 3,588.07 24.61 2.51 2017 2018 11,024.85 12,216.11 10.81 143.76 178.01 23.82 11,168.61 12,394.11 10.97 Item Figures include ACU dollar transactions, and accrued interest. Figures include

Country Bangladesh Bhutan India Maldives Myanmar Nepal Pakistan Sri Lanka Total1 12,124.68 13,466.62 11.07 12,124.68 13,466.62 11.07 24,249.36 26,933.24 11.07 Iran

171 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Contribution to Growth of the Member Central Banks During 2014-2018 (In percentage points)

Table (18)

Year 20141 20151 20161 20172 20182 Country

Bangladesh 5.85 -0.64 -1.32 8.16 3.21

Bhutan 0.01 0.01 0.00 0.07 0.07

India 10.05 1.54 -1.35 9.41 5.06

Iran 0.00 0.00 0.00 0.00 0.00

Maldives 0.17 0.09 0.00 0.04 0.05

Myanmar 0.01 0.00 0.00 -0.01 0.00

Nepal -0.01 -0.02 0.08 -0.05 0.14

Pakistan 0.48 -0.81 0.03 -0.41 2.18

Sri Lanka 4.45 3.24 -0.07 1.09 0.36

Total3 21.01 3.41 -2.63 18.30 11.07

1 Figures include two-way ACU dollar and ACU euro transactions, and accrued interest.

2 Figures include two-way ACU dollar transactions, and accrued interest.

3 Figures are in percent.

172 ACU Operations / Tables ANNUAL REPORT 2018 Table (19) Table at the End of Each Settlement Period in 2018 1 (In millions of USDs) Asian Clearing Union Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Total 0.000.00 12.590.00 2,391.39 8.730.00 2,232.06 9.98 0.010.00 2,016.39 9.000.00 0.00 1,819.00 0.00 9.90 0.00 1,745.79 9.49 0.00 0.00 0.12 1,833.47 0.00 0.00 0.00 0.00 0.00 0.00 0.07 0.00 0.00 0.00 0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.00 0.00 2,404.11 0.00 0.00 0.00 2,240.79 0.00 0.00 2,026.44 0.00 0.00 1,828.10 0.00 1,755.69 0.00 1,843.21 1,563.471,392.14 0.001,266.38 0.001,153.87 0.00 0.001,130.24 0.00 0.00 0.001,148.01 0.00 0.00 0.00 0.00 11.06 0.00 0.00 0.00 15.01 0.00 0.00 0.00 12.94 0.00 0.35 10.33 8.76 0.00 0.00 12.14 11.20 272.75 0.00 11.25 291.17 9.66 548.07 0.50 7.89 220.16 529.98 2,404.11 0.00 7.61 2,240.79 144.64 515.71 16.21 2,026.44 131.01 511.37 236.18 1,828.10 475.13 1,755.69 433.15 1,843.21 Net Creditor / Net Debtor Positions / Net Debtor Net Creditor Bangladesh Country

Month February April June August October December February April June August October December

Net Creditors Net Debtors Net Figures include ACU dollar transactions, and accrued interest. Figures include Total (A)Total 0.00 59.69 12,038.10 (B)Total (B) (A)-Total Total 0.011 -7,654.11 0.00 7,654.11 59.69 12,038.10 0.54 0.00 0.00 0.01 0.00 -70.20 0.00 0.00 -0.31 0.00 70.20 12,098.34 -63.86 -1,295.91 -3,013.41 0.85 63.86 0.00 1,295.91 3,013.41 12,098.34

173 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Exchange Rates Applied in the ACU Settlement Mechanism During 2014-2018 (US Dollar per Euro)

Table (20)

Year 2014 2015 2016 2017 2018 Month

January 1.3516 1.1305 1.0920 1.0755 1.2457

February 1.3813 1.1240 1.0888 1.0597 1.2214

March 1.3788 1.0759 1.1385 1.0691 1.2323

April 1.3850 1.1215 1.1403 1.0930 1.2079

May 1.3607 1.0970 1.1154 1.1221 1.1699

June 1.3658 1.1189 1.1102 1.1412 1.1658

July 1.3379 1.0967 1.1113 1.1727 1.1736

August 1.3188 1.1215 1.1132 1.1825 1.1651

September 1.2583 1.1203 1.1161 1.1806 1.1576

October 1.2524 1.1017 1.0946 1.1638 1.1318

November 1.2475 1.0579 1.0635 1.1849 1.1359

December 1.2141 1.0887 1.0541 1.1993 1.1454

Source: International Monetary Fund (IMF).

174 ACU Operations / Tables ANNUAL REPORT 2018

Asian Clearing Union Entitlement of the ACU Member Central Banks to Swap Facility During 2014-2018 (In millions of USDs)

Table (21)

Year 2014 2015 2016 2017 2018 Country

Bangladesh 984.74 1,019.12 1,107.10 1,142.46 1,220.52

Bhutan 0.00 0.03 0.05 0.05 0.03

India 228.70 24.70 24.17 27.20 28.72

Iran 34.24 9.19 0.00 0.00 0.00

Maldives 1.07 2.46 5.63 8.80 10.56

Myanmar 0.45 0.30 0.23 0.21 0.14

Nepal 7.13 6.41 6.70 8.11 9.17

Pakistan 287.48 302.78 320.57 311.22 302.07

Sri Lanka 590.48 480.57 476.44 565.18 621.10

Total 2,134.29 1,845.56 1,940.89 2,063.23 2,192.31

175 ACU Operations / Tables ANNUAL REPORT 2018 Payments Table (22) Table Receipts 1 Payments Receipts Payments Receipts Payments Receipts Payments (In millions of USDs) Asian Clearing Union Receipts Payments Receipts Payments Swap Receipts / Payments by the ACU Member Central Banks During 1989-2018 ACU Member Swap Receipts / Payments by the nancial data and ratios of some countries in the tables include opening balances. fi 0.00 0.00 0.000.00 210.25 0.000.00 0.00 0.00 0.000.00 0.00 18.01 0.00 0.000.00 0.00 0.00 0.00 0.00 0.00 10.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 16.41 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 124.00 0.00 0.00 0.00 1.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1989-1998 1999 2000 2001 2002-2007 2008 2009-2018 27.20 19.63 0.00 0.00 0.00 3.18 150.00 4.63 0.0031.32 0.00 70.97 0.00 0.00 1.60 0.00 0.00 0.00 0.00 3.46 0.00 6.55 0.00 0.00 451.00 0.00 0.00 0.00 172.09 67.52 0.00 0.00 0.00 11.24179.26 0.00 23.50 150.99 0.00 0.00 0.00 0.00 28.87 0.00 0.00 315.80 42.07 0.00 12.00 0.00 0.00 0.00 0.00 9.60 0.00 0.00 Receipts Item Since November 2010, : None of the ACU member central banks applied Swap facility during 1999, 2002-2007, and 2009-2018. None of the Note Bhutan India Iran Maldives Myanmar Nepal Pakistan Sri Lanka Bangladesh Total1 409.88 409.88 0.00 0.00 28.87 28.87 192.08 192.08 0.00 0.00 451.00 451.00 0.00 0.00 Country

176 ACU Operations / Tables ANNUAL REPORT 2018

Acronyms and Abbreviations

ACU Asian Clearing Union ADP Annual Development Program AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism APY Atal Pension Yojana AWDR Average Weighted Deposit Rate AWLR Average Weighted Lending Rate BB Bangladesh Bank BC Business Correspondent BFIs Bank and Financial Institutions BOP Balance of Payments bps Basis Points CAB Current Account Balance CAD Current Account Defi cit CBI Central Bank of Islamic Republic of Iran CBM Central Bank of Myanmar CBM-NET Central Bank of Myanmar Financial Network System CCPI Colombo Consumer Price Index CIC Currency in Circulation CIS Commonwealth of Independent States COPPY Corresponding Period of the Previous Year CPC Central Pay Commission CPEC China Pakistan Economic Corridor CPI Consumer Price Index CRR Cash Reserve Ratio CSD Central Securities Depository CSE Colombo Stock Exchange CSI Cottage and Small Industries CWP Currency with the Public DBT Direct Benefi t Transfer DIEs Direct Investment Enterprises DVP Delivery Versus Payment EPFO Employees’ Provident Fund Organization

177 Acronyms and Abbreviations ANNUAL REPORT 2018

EU European Union FBR Federal Board of Revenue FDI Foreign Direct Investment FER Foreign Exchange Reserves Fin-Tech Financial Technology FIP Financial Inclusion Plans FIs Financial Institutions FOB Free on Board FPIs Foreign Portfolio Investments FX Foreign Exchange FY Financial Year FYP Five Year Plan GCC Gulf Co-Operation Council GDP Gross Domestic Product GFCF Gross Fixed Capital Formation GFD Gross Fiscal Defi cit GIFT Global Interchange for Financial Transactions GIR Gross International Reserve GON Government of Nepal G-Sec Government Securities GST Goods and Services Tax GVA Gross Value Added HRA House Rent Allowance IBA International Bar Association IMF International Monetary Fund INR Indian Rupee IPR Indicative Policy Rate IRICA Islamic Republic of Iran Customs Administration ISBs International Sovereign Bonds JCB Japan Credit Bureau JCPOA Joint Comprehensive Plan of Action KYC Know Your Customer LFCs Licensed Finance Companies LNG Liquefi ed Natural Gas LPG Liquefi ed Petroleum Gas LSF Liquidity Saving Facility LSM Large Scale Manufacturing M2 Broad Money M2b Broad money

178 Acronyms and Abbreviations ANNUAL REPORT 2018

M3 Broad Money MCH Mechanized Clearing House MENAP Middle East, North Africa, Afghanistan, and Pakistan MFIs Monetary Financial Institutions MFSPs Mobile Financial Services Providers MMA Maldives Monetary Authority MMM Message Management Module MMQR Myanmar Quick Response MNOs Mobile Network Operators MP Monetary Program MPC Monetary Policy Committee MPS Monetary Policy Stances MPU Myanmar Payment Union MRR Minimum Reserve Requirement MSME Micro, Small and Medium Enterprises MVR Maldivian Rufi yaa NBFC Non-Banking Financial Companies NCPI National Consumer Price Index NDA Net Domestic Assets NEER Nominal Effective Exchange Rate NEPSE Nepal Stock Exchange NFA Net Foreign Assets NFNE Non-Food Non-Energy NPLs Non-Performing Loans NRB Nepal Rastra Bank NRI Non-Resident Indian Nu. Ngultrum OPEC Organization of the Petroleum Exporting Countries PAL Ports and Airports Development Levy PDs Primary Dealers PIBs Pakistan Investment Bonds PKR Pakistani Rupee PMGSY Pradhan Mantri Gram Sadak Yojana PMJBY Pradhan Mantri Jeevan Jyoti Bima Yojana PMJDY Pradhan Mantri Jan-Dhan Yojana PMKVY Pradhan Mantri Kaushal Vikas Yojana PMSBY Pradhan Mantri Suraksha Bima Yojana POL Petroleum, Oil and Lubricants PPI Producer Price Index

179 Acronyms and Abbreviations ANNUAL REPORT 2018

PSDP Public Sector Development Program PSEs Public Sector Entities PSIP Public Sector Investment Program PSL Priority Sector Lending QR Quick Response RBI Reserve Bank of India RE Revised Estimates REER Real Effective Exchange Rate Rf. Rufi yaa RGOB Royal Government of Bhutan RLNG Re-Gasifi ed Liquefi ed Natural Gas RM Reserve Money RMA Royal Monetary Authority SAE Second Advance Estimates SBP State Bank of Pakistan SCBs Scheduled Commercial Banks SCI Statistical Center of Iran SDFR Standing Deposit Facility Rate SDR Special Drawing Rights SEE State Economic Enterprise SFBs Small Finance Banks SLCs Specialized Leasing Companies SLDBs Sri Lanka Development Bonds SLFR Standing Lending Facility Rate SLR Statutory Liquidity Ratio SRR Statutory Reserve Ratio SSA Sub-Saharan Africa STO Security Token Offering STP Straight-Through Processing T-bill Treasury Bill T-bonds Treasury Bonds TEPIX Tehran Stock Exchange Price Index Tk. Taka UAE United Arab Emirates UB Union Budget UDAY Ujwal Discom Assurance Yonjana UK United Kingdom UPI Unifi ed Payment Interface US United States

180 Acronyms and Abbreviations ANNUAL REPORT 2018

VAT Value-Added Tax VIA Velana International Airport VRR Voluntary Retention Route WALRs Weighted Average Lending Rates YoY Year-on-Year

181 Acronyms and Abbreviations