Full Version

ASIAN CLEARING UNION

ANNUAL REPORT

2002

Bangalore, June 2003

ASIAN CLEARING UNION

ANNUAL REPORT 2002

Submitted to: The Thirty Second Meeting of the Board of Directors

Held at:

Reserve Bank of India

Bangalore

June 16 -17, 2003

BOARD OF DIRECTORS AT THE 31st ACU MEETING 30 - 31 May 2002 Colombo, Sri Lanka

PARTICIPANTS AT THE 31st MEETING OF THE ACU BOARD OF DIRECTORS 30 - 31 May 2002 Colombo, Sri Lanka

III

BOARD OF DIRECTORS

Fakhruddin Ahmed Sonam Wangchuk Bimal Jalan Ebrahim sheibany Governor Governor Governor Governor Bangladesh Bank Royal Monetary Authority Reserve Bank of India The Central Bank of the of Bhutan I. R. of Iran

Kyaw Kyaw Maung Tilak Rawal Ishrat Husain A. S. Jayawardena Governor Governor Governor Governor Central Bank of Myanmar Nepal Rastra Bank State Bank of Pakistan Central Bank of Sri Lanka

ALTERNATE DIRECTORS

M. A. M. Kazemi Dechen Tshering T. C. Nair Mohammad Jafar Mojarrad Deputy Governor Bangladesh Bank Deputy Managing Director Chief General Manager Vice Governor Royal Monetary Authority Reserve Bank of India The Central Bank of the of Bhutan I.R. of Iran

Than Lwin K. B. Manandhar Farhat Saeed K. R. M. Siriwardhane Deputy Governor Chief Controller Executive Director Director, Payments & Central Bank of Myanmar Foreign Exchange Dept. State Bank of Pakistan Settlements Dept. Nepal Rastra Bank Central Bank of Sri Lanka

OFFICERS-IN-CHARGE

Mahfuzur Rashid Namgay Tshering T. C. Nair Behrooz Nowbahar General Manager General Manager Chief General Manager Director International Dept. Reserve Bank of India International Dept. Foreign Exchange Division The Central Bank of the Bangladesh Bank Royal Monetary Authority I.R. of Iran of Bhutan

Naw Eh Hpaw Dharma K. Manandhar Muhammed Saleem Rehmani Padmasriya Sudasinghe Deputy Director Assistant Director Director , Accounts Dept. Senior Assistant Director Accounts Dept. Foreign Exchange Dept. State Bank of Pakistan Payments and Settlements Dept. Central Bank of Myanmar Nepal Rastra Bank Central Bank of Sri Lanka

VI CONTENTS

Page Administrative Organization VIII

Board of Directors IX

Officers in Charge XI

Letter of Transmittal XII

World Economic Developments and Outlook 1

Economic Highlights of the ACU Member Countries 5 Country Performance: Bangladesh 16

Bhutan 35

India 40

Iran 53

Myanmar 72

Nepal 77

Pakistan 92

Sri Lanka 109

Clearing Operations 132

Interest Paid / Received 143

SWAP Facility 145

Activities to Enlarge the Role of ACU in the Region 147

Twenty Seven Years of ACU Operations 150

Tables 154

VII

ASIAN CLEARING UNION (ADMINISTRATIVE ORGANIZATION, 2002)

CHAIRMAN OF THE BOARD: H. E. Dr. A. S. Jayawardena Governor Central Bank of Sri Lanka

SECRETARY GENERAL: Dr. Mohammad Firouzdor

DEPUTY SECRETARY GENERAL: Mr. Morteza Farshchi

SECRETARIAT LOCATION: Islamic Republic of Iran, Tehran P. O. Box 15875/7177 Tlx: 088-21-3120 & 6868 Tel: 0098-21-284-2076 Fax: 0098-21-284-7677 E-mail: [email protected] Internet:www.asianclearingunion.org Swift: BMJIIRTH

AGENT BANK: The Central Bank of the Islamic Republic of Iran

VIII

ASIAN CLEARING UNION ( BOARD OF DIRECTORS, 2002)

BANGLADESH BANK: H.E. Dr. Fakhruddin Ahmed Governor. (Director)

1 Mr. M. A. M. Kazemi Deputy Governor. (Alternate)

ROYAL MONETARY AUTHORITY H.E. Mr. Sonam Wangchuk OF BHUTAN: Governor. (Director)

Mr. Dechen Tshering Deputy Managing Director. (Alternate)

RESERVE BANK OF INDIA: H.E. Dr. Bimal Jalan Governor.(Director)

Dr. T. C. Nair Chief General Manager. (Alternate)

2 CENTRAL BANK OF THE H.E. Dr. Ebrahim Sheibany ISLAMIC REPUBLIC OF IRAN: Governor. (Director)

Dr. Mohammad Jafar Mojarrad Vice Governor. (Alternate)

CENTRAL BANK OF MYANMAR: H.E. Mr. Kyaw Kyaw Maung Governor. (Director)

Mr. Than Lwin Deputy Governor. (Alternate)

NEPAL RASTRA BANK: H.E. Dr. Tilak Rawal Governor. (Director)

Mr. K. B. Manandhar Chief Controller. (Alternate)

STATE BANK OF PAKISTAN: H.E. Dr. Ishrat Husain Governor. (Director)

Mr. Farhat Saeed Executive Director. (Alternate)

CENTRAL BANK OF SRI LANKA: H.E. Dr. A. S. Jayawardena Governor. (Director)

Mrs. K. R. M. Siriwardhane Director Payments & Settlements, Department. (Alternate)

1. From 27.02.2003. 2. From 03.05.2003.

ASIAN CLEARING UNION ( OFFICERS IN CHARGE, 2002 )

BANGLADESH BANK: Mr. Mahfuzur Rashid General Manager International Dept.

ROYAL MONETARY AUTHORITY Mr. Namgay Tshering OF BHUTAN: General Manager Foreign Exchange Division

RESERVE BANK OF INDIA : Mr. S. C. Misra Deputy General Manager, DEIO.

CENTRAL BANK OF THE Mr. Behrooz Nowbahar ISLAMIC REPUBLIC OF IRAN: Director, International Dept.

1 CENTRAL BANK OF MYANMAR: Ms. Naw Eh Hpaw Deputy Director, Accounts Dept.

NEPAL RASTRA BANK: Mr. Dharma Krishna Manandhar Assistant Director, Foreign Exchange Dept.

STATE BANK OF PAKISTAN: Mr. Muhammed Saleem Rehmani Director, Accounts Dept.

CENTRAL BANK OF SRI LANKA: Mrs. P. Sudasinghe Senior Assistant Director, Payments and Settlements Dept.

1. From 22.10.2002.

LETTER OF TRANSMITTAL TO THE BOARD OF DIRECTORS

June 16 , 2003

H. E. Dr. Bimal Jalan Chairman, ACU Board of Directors Reserve Bank of India Mumbai

Dear Mr. Chairman,

I have the honor to present to the Board of Directors, the Annual Report of the ACU for the year 2002, duly signed by me, in accordance with chapter III, Article VIII, section 3(c) of the Agreement Establishing the Asian Clearing Union.

Yours sincerely,

Mohammad Firouzdor Secretary General, ACU

XII

World Economic Developments

and

Outlook WORLD ECONOMIC DEVELOPMENTS AND OUTLOOK

In 2001, the world economy suffered its largest setback in a decade, with gross world product (GWP) increasing by only 1.3 per cent after growth of 4 per cent in 2000. Almost all countries grew less rapidly than in 2000 and the number of developing countries experiencing a decline in output per capita returned to the levels prevailing in the aftermath of the Asian crisis. The slowdown began in the United States of America with bursting of two “bubbles” related to the information and communication technologies (ICT) sector, one in the real economy and the other in the equity market. The slowdown was quickly transmitted around the world through a decline in international trade, the first in almost two decades. The terrorist attacks of 11 September 2001 briefly exacerbated the situation but recovery in the United States began before the end of 2001. The world economy is forecast to grow by less than 2 per cent in 2002, with the momentum of the rebound pushing global growth to above 3 per cent in 2003. Whereas the slowdown was rapid and quickly embraced many countries, the recovery is expected to be both slow and less synchronized among economies. Only a modest recovery is expected in the developed countries in 2002, while the economies in transition are forecast to experience a further deceleration. Among the developing countries, China and India were able to largely maintain their growth in 2001 and are expected to continue to do so in 2002 and 2003, but the majority are not expected to return until late in 2003 to the average rate of growth they had achieved in the years prior to the Asian crisis. Despite the inhospitable short-term economic conditions for developing countries and economies in transition, important new foundations laid in 2001 and early 2002 offer the prospect of enhanced international development cooperation over the medium term. In addition to addressing the short-term risks to the global economic recovery, policy makers worldwide should initiate actions to ensure that the Doha Development Agenda and the Monetary Consensus of the International

Conference on Financing for Development are fully implemented. The international economic environment failed to support growth in the world economy in 2001. The volume of world trade actually fell for the first time since 1982 (for comparison, trade growth averaged some 7 per cent per year in the 1990s). The fact that international prices of commodities declined, reaching historic lows in some cases, was especially difficult for many low-incoming commodity exporting countries. In addition, developing countries transferred almost US Dollars 150 billion of financial resources abroad, as net capital inflows were far less than net interest and other investment income payments for the fifth year in a row. Significant inflows of foreign direct investment (FDI) and access to international capital markets remained limited to a restricted number of countries. Official development assistance (ODA) declined once again, although overall official financial flows to developing countries increased, mainly owing to additional support by the International Monetary Fund (IMF) to certain middle- income developing countries in difficult situations. Prospects for 2002 and 2003 are cautiously favourable. A recovery in world trade is under way, but it will be a modest one owing to sluggish world economic growth. Similarly, international prices of most commodities began to rise in the spring of 2002 and are expected to continue to improve as global demand continues to recover into 2003. External financing conditions for developing countries and economies in transition are likely to improve only marginally in 2002, possibly strengthening further in 2003. While the interest rates on lending declined in early 2002, borrowing costs remain high for several countries and will rise when interest rates increase in key-currency countries later this year and in 2003. On a more positive note, the outlook for ODA, a key financing modality for many low-income countries, improved as several developed countries announced their intention to increase their development assistance budget in the next few years. Moreover, the international policy agenda advanced with the adoption of the Doha Development Agenda by the Fourth Ministerial Conference of the World Trade Organization and the Monetary Consensus by the International Conference

on Financing for Development. Implementation challenges are however considerable and need to the urgently tackled.

Economic Highlights ECONOMIC HIGHLIGHTS OF THE ACU MEMBER COUNTRIES

BANGLADESH: Bangladesh economy faced the challenge of sustaining growth at a moderate level during FY2002 mainly because of slowdown in the global economic activity. Pursuance of cautious monetary and credit policy, intensifying revenue raising efforts, downsizing the Annual Development Programme, adoption of effective measures for improvement of foreign exchange reserves, strong supportive measures in the external front resulted in sustaining the GDP growth rate around 4.4P per cent during FY2002. The economy is now expected to grow at a rate of 5.2 per cent during FY2003. Agricultural sector in FY2001 recorded a negative growth of 0.03 per cent which was significantly lower than 3.1 per cent growth achieved in FY2001. Growth in the industrial sector stood lower at 6.6 per cent as against 7.5 per cent in the preceding year. In this sector, power, gas, water supply and small industries sub-sector has some gains in growth rates while large and medium scale industries sub-sector experienced lower growth during the FY2002 due mainly to weakness in exports. GDS as percentage of GDP remained unchanged at the previous year’s level of 18.0 per cent during FY2002. Export earnings declined b 7.6 per cent to US Dollars 5,929.0 million as compared to US Dollars 6,419.0 million in the preceding year. Import payments also declined by 8.7 per cent to US Dollars 7,697.0 million as compared to US Dollars 8,430.0 million in FY2001. Workers’ remittances was 32.9 per cent higher than of the preceding year. The overall balance of payments position showed a surplus of US Dollars 365 million during FY2002 from a deficit of US Dollars 226 million in the previous year.

BHUTAN: In the FY2001-2002 numerous developments took place on the political as well as economic issues in the Royal Government of Bhutan. The Eighth Five Year Plan with real GDP 6.7 per cent on average concluded

P =Provisional

successfully, realizing the target growth of 6.5 per cent and moderate inflation. Bhutan continues to experience strong macroeconomic performance with real GDP growth estimated at 7.7 per cent in 2002, the first year of the Ninth Five Year Plan. Annual inflation as measured by the consumer price index continued to fall reaching 2.3 per cent as of December 2002, the lowest level in the last 20 years, as compared to the 2.7 per cent in June 2002. Foreign exchange revenue in FY2001- 2002 dropped to US Dollars 8.0 million as compared to US Dollars 11 million in the previous year. During 2001-2002, the economy experienced moderate monetary expansion in comparison to the past, M2 and M1 growing by 17.6 per cent and 12.1 per cent respectively. At the end of 2001-2002, the overall balance of payments continued to record a surplus, thus taking the level of foreign exchange reserves to over US Dollars 300 million, which is sufficient to cover 20 months of imports. The Ninth Five Year Plan was launched on July 1, 2002, with emphasis on strengthening infrastructure, improvement in the quality of social services and preservation and promotion of culture and environment.

INDIA: During FY2001-2002, the Indian economy exhibited resilience in an uncertain global environment dominated by the worsening of the economic conditions as evidenced in the slowdown in economic activity in several parts of the world. In fact, the Indian economy recorded a growth rate of 5.6 per cent in 2001-2002 as against 4.4 per cent in 2000-2001, benefiting from an unusually strong rebound in agricultural production. Agriculture and allied sector activities’ showed a robust growth at 5.7 per cent in 2001-2002 as against the poor growth rates in 2000-2001. Advance estimates of Agricultural Production showed an increase of 7.45 per cent over the previous year as against two successive declines recorded in 2000-2001. The index of industrial production (IIP) recorded a decelerated growth of 2.8 per cent during 2001-2002 as against 4.9 per cent during 2000-2001. The manufacturing sector, in particular, witnessed a higher growth of 5.4 per cent as compared with 2.6 per cent during the corresponding period of the previous year.

During 2001-2002, services sector witnessed a higher growth of 6.5 per cent as against 4.8 per cent during 2000-2001. The annual point-to-point inflation rate as measured by the Wholesale Price Index (WPI) stood at 1.6 per cent in 2001-2002 as compared with 4.9 per cent in 2000-2001. India’s exports at US Dollars 43.8 billion recorded a decline of 1.6 per cent during 2001-2002 as against the growth of 21.0 per cent during 2000-2001. On the other hand, imports at US Dollars 51.4 billion recorded an increase of 1.7 per cent during 2001-2002. During 2001-2002, while the oil imports declined by 10.5 per cent, the non-oil imports increased by 7.2 per cent. Trade deficit increased to US Dollars 7.6 billion during 2001-2002 from US Dollars 6.0 billion during 2000-2001. While the trade deficit on the oil account declined from US Dollars 13.8 billion during 2000-2001 to US Dollars 11.9 billion during 2001-2002, the trade surplus on the non-oil account declined from US Dollars 7.8 billion to US Dollars 4.3 billion, between these two years.

IRAN: The Iranian economy experienced notable developments in the third year of implementation of 3rd Five Year Development Plan (FYDP), (2000-2001 - 2004- 2005). The design of Third Plan triggered the start-up of bold measures for the gradual transition of the economy to a more market-oriented one. High economic growth in 2002-2003 took place in an environment of smooth inflationary path and improved external position against the background of sustained economic reforms. This performance has been facilitated by sound economic policies, particularly in using the increased oil revenues to reduce the external debt burden, build up international reserves, accumulate sizable savings in the Oil Stabilization Fund (OSF) and reduce foreign exchange and trade restrictions. Preliminary estimates for major economic variables indicate that the overall economic activity remained strong by the end of 1381 (2002-2003). Real GDP is projected to grow by 6.2 per cent, despite lower oil production, which was in turn

due to Iran’s adherence to the OPEC quotas. During 2002-2003, the projection for oil and gas shows that the value-added of this sector will decline by 6.0 per cent. The agriculture group output would grow by 10.1 per cent, which is significant as compared to the previous year (2001- 2002). It is predicted that the value-added of industry and mining group would grow by 11.2 per cent during the same period. Preliminary figures for national expenditures indicate that the upward trend of gross fixed capital formation, which has started since two years ago, continued and will grow by 7.7 per cent in 2002-2003 as compared with the previous year. In agricultural sector, the production of most basic farm crops increased in 2002-2003, owing to the rise in rainfall by 39.7 per cent compared to the previous year. The growing trend of activities in manufacturing and mining sector indicate private sector tendency for further investment in this sector. In the first nine month of Iranian fiscal year, more than 80 per cent of selected industrial products have shown significant growth. This growth has been attributed to the provision of foreign exchange for manufacturing sector due to good foreign exchange revenues, adoption of foreign exchange deregulation and access of this sector to credit facilities through the banking system. International crude oil market developments and gradual implementation of the new foreign exchange and trade regulations, being stipulated in the 3rd FYDP law, affected BOP in 2002-2003. Broad-based deregulations being implemented in foreign trade process, converting non-tariff barriers to tariff ones, domestic finance of foreign trade, and giving more freedom to non-oil exporters in the management of their foreign exchange proceeds were all among policies which helped the non-oil export rise in 2002-2003.

MYANMAR: In the first year of the Five Year Short-Term Plan (2001-2002), the Myanmar economy grew by 9.9 per cent spurred by strong agricultural output

supported by favourable weather conditions and, to a certain extent, the result of land reclamation efforts and more extensive use of high yielding seed varieties and proper use of imported fertilizers. Since Myanmar is still and agro-based nation, the agriculture output growth also supports the manufacturing and processing sector, which dominantly consists of agro-based industries. Therefore, manufacturing and processing grew by 9.3 per cent in 2001-2002. Services sector, including trade, also registered a growth rate of 12.2 per cent. Private real investment increased sharply in 2001-2002, registering a high growth rate of 29.6 per cent compared to 11 per cent in the previous year, while public sector investment increased slightly to 13.3 per cent from 11.6 per cent in the same period. The total investment reached a growth of 17.1 per cent in 2001- 2002, which is significantly higher than the 5.0 per cent growth achieved in 2000- 2001. The ratio of budget deficit to GDP in FY2001-2002 was 4.7 per cent, a decline from 8.3 per cent in the previous year.

NEPAL: During FY2001-2002 (mid-July through mid-July), GDP contracted by 0.6 per cent, the first such occurrence during the last 19 years. During the previous FY2000-2001, real GDP had increased by 4.7 per cent. The contraction of economic activities was mainly accounted for by the decline of manufacturing and trade and hotel sub-sectors due to unfavorable domestic and external situation. The nominal GDP, which had risen by 7.5 per cent in the previous year, grew by 2.4 per cent during FY2001-2002. The consumption/GDP ratio increased by 3.3 percentage points to 88.4 per cent. Consequently, gross domestic saving/GDP ratio declined by the same percentage points to 11.6 per cent. Total investment/GDP ratio increased marginally by 0.4 percentage points to 24.4 per cent.

The real GDP of agricultural sector went up by 2.2 per cent while that of the non-agricultural sector decreased by 2.4 per cent. In the preceding year, such

growth rates were 5.5 per cent and 4.3 per cent respectively. The overall production index of principal food grains and cash crops increased by 1.9 per cent compared to a growth of 3.9 per cent in the preceding year. The output of the livestock sub-sector and other crops remained normal, whereas the production of fishery witnessed a satisfactory growth of 5.2 per cent in FY 2001-2002.

On the industrial front, the overall scenario was not satisfactory due to the deteriorating internal security as well as the global economic downturn. The industrial production index of the major 33 products (base year 1986/87 = 100) increased by 2.6 per cent compared to the 5.7 per cent increase in the preceding year. However, based on export figures, the production of garments, carpets and Pashmina decreased by 40.4 per cent, 27.7 per cent and 69.8 per cent respectively. The number of industries registered remained constant while the number of industries licensed showed a declining trend. Similarly, 77 joint venture industries were approved with the total project cost amounting to Rs. 3.3 billion. The fixed capital of these joint venture industries amounted to Rs. 1.6 billion, of which total foreign investment stood at Rs. 1.2 billion. The total credit disbursed by Nepal Industrial Development Corporation (NIDC) declined by 8.9 per cent due mainly to its lack of financial resources. On the external sector, total exports declined by a rate higher than that of the decline in the total imports. However, there was a slight contraction in trade deficit owing mainly to large magnitude of imports. Net services receipts declined so sharply that current account deficit expanded markedly despite the increase in net transfer receipts. As a result, the surplus in the capital account failed to meet the current account deficit and the overall BOP turned into deficit

PAKISTAN: The overall performance of Pakistan’s economy in FY2002 was quite encouraging in the backdrop of post September 11, scenario. Most importantly, improvement in external sector turned current account into surplus and underpinned the unprecedented appreciation in the value of Pak rupee. An

upsurge in worker’s remittances increased official transfers coupled with savings in interest payments made SBP to increase foreign exchange reserves to an all time high. State Bank followed an accommodative monetary policy, which became more receptive with the acceleration of foreign exchange inflows. Inflation remained below 4 per cent. External debt rescheduling and lower interest rate on domestic debt led to reduction in debt servicing which aided government in its efforts to contain fiscal deficit. Despite uncertainty caused by adverse developments after September 11 event, Pakistan’s growth performance during FY2002 witnessed modest improvement supported by all sectors. Real GDP grew by 3.6 per cent compared to 2.5 per cent during the preceding year. The agriculture sector recorded a positive growth of 1.4 per cent for FY2002 compared to a negative growth of 2.6 per cent during FY2001. However, growth in manufacturing sector decelerated to 4.4 per cent mainly due to uncertainties in economic environment on account of conflict in Afghanistan and border tensions with India. However, textile sector showed marked recovery owing to increased access to key Western markets and substantial decline in interest rates. The services sector dominated the growth profile and showed an increase of 5.1 per cent compared to 4.8 per cent in FY2001. National savings stood at 13.9 per cent of GNP in FY2002 compared to 15.3 per cent of GNP last year. On the investment side, gross fixed investment (in nominal terms) showed a decline of 5.9 per cent in FY2002 and stood at 12.2 per cent of GNP as against 14.5 per cent last year. During FY2003, the country has targeted GDP growth at 4.5 per cent, which is expected to achieve because of better crops as a result of better availability of water for agriculture, modest-growth in large scale manufacturing and rising remittances. Inflation is also expected to be within the targeted level of 4 per cent. Pakistan’s external sector recorded sustained improvement during FY2002 despite global slowdown and weakened prices of major exports. The improvement resulted from a number of positive developments which include; lifting of

economic sanctions by the international community, relief on debt burden after rescheduling by the Paris club, greater institutional assistance and exceptional cash grants, enlarged access to US and European markets and up-gradation of Pakistan’s credit rating.

SRI LANKA: The Sri Lankan economy recovered in 2002 from the decline experienced in 2001, even though the recovery was not as strong as expected. Positive developments were seen in all major areas-the economic growth turned around from negative to positive growth, inflation decelerated, external reserves increased, the fiscal deficit was reduced, the external current account deficit declined, financial markets strengthened, exchange rate remained stable, monetary expansion remained compatible with the inflation reduction path, structural reforms were continued, business confidence improved and the Stand- By-Arrangement (SBA) with the IMF was completed successfully. Nevertheless, the recovery was not broadbased and was below initial expectations, mainly because world economic conditions, on which Sri Lanka depends heavily, did not improve as much as projected at the beginning of the year. The government has now enunciated its medium-term economic plans in a policy document titled 'The Future: Regaining Sri Lanka' which indicates the strong adjustment measures that are to be implemented to ensure sustainable growth and poverty alleviation. Several factors contributed to the improvement in economic performance in 2002. The first and most important was the improvement in the security situation in the country, following the cessation of hostilities and the commencement of peace negotiations. The resulting peaceful environment has raised confidence and has encouraged the expansion of economic activities. Secondly, even though the world economic recovery was slow and below expectations, international trade expanded in 2002 compared with 2001. In particular, the markets that are of major importance to Sri Lanka, namely, the USA, Europe and the Middle East, have improved their economic performance. Thirdly, the easing of the drought in Sri Lanka in the second half of 2002 helped to increase agricultural production.

Fourthly, the ending of the power cuts by mid 2002 had a clear positive impact on industry and services. Fifthly, the removal of the war risk premium on insurance on vessels calling on Sri Lanka assisted both trade and tourism. Finally, the improvement in macroeconomic management, continuation of structural reforms and stability under the floating exchange regime, have had a beneficial impact on economic performance. International trade recovered in 2002, although more slowly than initially expected. The significant decline in imports and exports experienced in the second half of 2001 continued into the first half of 2002. However, a recovery was observed in the second half containing the contraction in annual exports to about 4 per cent, while annual imports increased by about 0.6 per cent. Also, the growth in intermediate imports is an indicator of potential expansion in future exports.

ASIAN CLEARING UNION

INTRA-TRADE AND TRADE BALANCE OF ACU MEMBERS (IN MILLION US DOLLARS)

Surplus ( + ) * ** or Exports to ACU Imports from ACU Deficit ( - ) Country 2000 2001 2000 2001 2000 2001

BANGLADESH 126 129 1,097 1,326 -971 -1,197

BHUTAN ______

INDIA 2,264 2,595 1,647 1,808 617 787

IRAN 1,395 1,379 344 353 1,051 1,026

MYANMAR 301 324 72 80 229 244

NEPAL 183 200 539 593 -356 -393

PAKISTAN 306 294 609 530 -303 -236

SRI LANKA 132 137 880 911 -748 -774

TOTAL 4,707 5,058 5,188 5,601 -481 -543

Source: Direction of Trade Statistics, Year Book 2002, International Monetary Fund.

* F. O. B ** C. I. F

14 Country Performance of the

Members BANGLADESH

Bangladesh economy faced the challenge of sustaining growth at a moderate level during FY2002 mainly because of slowdown in the global economic activity. Pursuance of cautious monetary and credit policy, intensifying revenue raising efforts, downsizing the Annual Development Programme, adoption of effective measures for improvement of foreign exchange reserves, strong supportive measures in the external front resulted in sustaining the GDP growth rate around 4.4P per cent during FY2002. The economy is now expected to grow at a rate of 5.2 per cent during FY2003.

Economic Growth

Real GDP recorded a growth of 4.4P per cent during FY2002 compared to 5.3 per cent in FY2001 due mainly to lower growth in industrial and agricultural sectors during the year. Agricultural sector in FY2002 recorded a negative growth of 0.03 per cent which was significantly lower than 3.1 per cent growth achieved in FY2001. Fishing sub-sector recorded a significant growth of 2.2 per cent compared to a negative growth of 4.5 per cent during FY2001. On the other hand, growth in the industrial sector stood lower at 6.6 per cent during FY2002 as against 7.5 per cent in the preceding year. In this sector, power, gas, water supply and small industries sub-sector had some gains in growth rates while large and medium scale industries sub-sector experienced lower growth during the year due mainly to weakness in exports. The slowdown of growth in the construction sub-sector from 8.7 per cent of FY2001 to 8.4 per cent in FY2002 was largely due to the fiscal tightening that scaled down public sector spending. The overall growth in services sector marginally came down to 5.3 per cent in FY2002 from 5.5 per cent of FY2001.

P =Provisional

Savings and Investment

Gross domestic savings as percentage of GDP remained unchanged at the previous year’s level of 18.0 per cent during FY2002. Investment as percentage of GDP increased marginally in FY2002 to 23.2 per cent from 23.1 per cent of FY2001. The share of domestic resources in the Annual Development Programme (ADP) expenditure declined to 48.7 per cent in FY2002 from 54.2 per cent in the preceding year. The domestic savings-investment gap financed by foreign savings widened from 5.1 per cent of GDP in FY2001 to 5.2 per cent of GDP in FY2002.

Fiscal Developments

Government revenue earnings of Taka 202,244 million during FY2002 were 7.7 per cent higher than the receipts in the preceding year. Government’s revenue earnings as percentage of GDP improved to 9.8 in FY2002 as compared to 9.3 in FY2001. Though there was surplus in the revenue budget, Government had to take recourse to bank and non-bank borrowing to finance Annual Development Programme (ADP). Expenditure on ADP as percentage of GDP declined to 5.8P per cent during FY2002 from 6.3 per cent in the previous year. To partially meet this expenditure, government borrowing from the banking system was Taka 16,820 million, mainly treasury bill issues in weekly auctions. The other Taka 39,030 million of domestic financing of deficit mainly consisted of National Savings Certificate issues. The foreign financing, another component of the deficit was Taka 62,400 million, consisted mainly of concessional loans from bilateral and multilateral donors. The interest cost on the stock of foreign borrowing (around 35.0 per cent of GDP) was Taka 9,350 million or 4.1 per cent of revenue

P =Provisional

17 expenditure in FY2002. The overall budget deficit (excluding grants) as percentage of GDP stood at 4.4 per cent in FY2002 as compared to 5.5 per cent in the preceding year. Revenue earnings of the government during July 2002-February 2003 increased by 20.3 per cent to Taka 144,564 million as compared to Taka 120,207 million during the corresponding period last year.

Monetary and Credit Situation

In order to sustain the inflation rate at a lower level, a somewhat cautious monetary policy was pursued by Bangladesh during FY2002. Broad Money (M2) grew by 13.1 per cent during FY2002 as compared to the increase of 16.6 per cent in the preceding year and 10.0 per cent programmed expansion for the year. Total domestic credit increased by 12.9 per cent in FY2002 as compared to 17.6 per cent in the preceding year. The expansion target of domestic credit was 10.4 per cent for the FY2002. The growth was slightly higher than the target due mainly to increase in credit to the private sector. Net credit to the government and credit to the private sector increased by 14.1 per cent and 14.4 per cent respectively in FY2002 as compared to the growth of 19.7 per cent and 16.9 per cent in FY2001. Credit to the public sector (excluding government) recorded a decline of 1.6 per cent in FY2002 as compared to an increase of 19.2 per cent in the preceding year. Total domestic credit grew by 7.9 per cent during the first seven months of FY2003 (i.e.upto January 2003) as compared to the growth of 8.2 per cent during the corresponding period last year. Broad Money (M2) recorded a slightly higher growth of 7.7 per cent during the same period as compared to the growth of 6.1 per cent during the corresponding period last year. With a view to stimulating the economy by injecting adequate flow of credit to the productive sector of the economy and bringing down borrowing cost, Bank rate was reduced to 6.0 per cent from 7.0 per cent with effect from 24 October 2001. The Cash Reserve Requirement (CRR) with the Bangladesh Bank remained unchanged in FY2002 at

4.0 per cent of their total demand and time liabilities. The Statutory Liquidity Requirement (SLR) also remained unchanged at 20.0 per cent in FY2002. With a view to strengthening financial discipline as well as gearing up economic activities of the country, the following important measures were undertaken in the monetary and financial front. • Amendments to the Bangladesh Bank Order 1972, Bangladesh Banks (Nationalization) Order 1972 and Bank Company Act 1991 have been recently passed by the National Parliament. These amendments would, besides providing adequate operational and policy autonomy for the Bangladesh Bank, speed up decision making and operational efficiency in the NCBs and in the Bangladesh Bank. • With the amendments to the Bank Company Act, the minimum capital requirement for banks will be Taka 1,000 million instead of the present 200 million which would induce merger of the smaller and weaker banks. • Permissible single borrower/single borrower-group exposure limit has been lowered from 100 per cent to 50 per cent of capital of a lending bank. This would lead to better appraisal of the larger loan proposals, with assessment by multiple (rather than single) lenders. • More demanding accounting disclosure requirements for banks are being finalized in the Bangladesh Bank, further to the already adopted requirement of compliance with ISA-30. • Bangladesh Bank has developed a Code of Corporate Governance in banks, defining more clearly the roles of the Board and the Management and the accountabilities of individual directors. • Bangladesh Bank has started work on developing a Code of Ethics for bankers. • Loan rescheduling guidelines have been further tightened to discourage accommodation of repayment delinquencies by undue evergreening.

• Bangladesh Bank has started work with the NCBs for formulation of an integrated strategy towards efficient and cost-effective roll-out of computerization of the NCBs. • Overnight and 7-day Repo auctions have been introduced in July 2002 by the Bangladesh Bank, towards a better functioning interbank call money market, facilitation of overall liquidity management and of efficient fund management in commercial banks. • Bangladesh Bank is working on measures and institutional arrangements for secondary trading of Treasury bills. • Capital adequacy threshold for banks has been raised from 8.0 per cent to 9.0 per cent of risk-weighted assets to be attained by June 2003. • Money Laundering Prevention Act 2002 has been enacted for controlling illegal monetary transactions.

Price Situation

The declining price trend witnessed during FY2000 and FY2001 was bottomed out in September 2001 and crept upward slowly thereafter. Lower import levels, increase in the administered prices of utilities and petroleum and the decline in food crops output were the main factors contributing to the upward pressure on prices. The annual rate of inflation as measured by CPI (base: 1985-86=100) for national on twelve-month average basis increased to 2.4 per cent in FY2002 from 1.6 per cent in the preceding year. This rate further accelerated to 3.9 per cent in January 2003. The rise of food prices component of CPI based inflation was slower (from 1.0 per cent as of end June 2001 to 1.2 per cent as of end June 2002) as compared to the non-food component which increased at a higher rate from 2.8 per cent as of end June 2001 to 4.5 per cent as of end June 2002.

Exports (fob)

Exports receipts of Bangladesh declined in FY2002 because of the decline of demand in the international market owing to global slowdown. During FY2002, country's export earnings declined by 7.6 per cent to US Dollars 5,929.0 million as compared to US Dollars 6,419.0 million in the preceding year. The decline in export earnings was mainly reflected in lower earnings from fertilizer of US Dollars 47.9 million (-29.7 per cent), frozen shrimps and fish of US Dollars 276.1 million (-24.0 per cent), tea of US Dollars 17.4 million (-19.5 per cent), leather of US Dollars 207.3 million (-18.4 per cent), raw jute of 61.1 million (-9.0 per cent) and ready-made garments of US Dollars 3,124.6 million (-7.1 per cent). However, export earnings from jute goods registered an increase of 5.5 per cent to US Dollars 241.6 million during FY2002. Export earnings in recent time is showing an increasing trend and registered an increase of 5.5 per cent to US Dollars 3,134.0 million during July- December 2002 as compared to a decline of 11.5 per cent during the same period of the preceding year. The decline in the prices of major export commodities (mainly RMG) in the international market was compensated by increase in volumes. If the above trend can be sustained, export earnings may reach a level of US Dollars 6,129.0 million by the end of FY2003.

Imports (fob)

During FY2002, import payments declined by 8.7 per cent to US Dollars 7,697.0 million as compared to US Dollars 8,430.0 million in FY2001. The import payments for textile and articles thereof, fertilizer, POL, cotton, yarn, crude petroleum and iron, steel & other base metal decreased by 17.7 per cent, 17.1 per cent, 15.0 per cent, 13.3 per cent, 12.1 per cent, 11.4 per cent and 11.0 per cent respectively during the year under review.

The decline of import in FY2002 is attributable largely to the lower input import requirements of the export-manufacturing activities and partly to the demand containment impact of the regulatory duties, mandatory margins and the generally tightened fiscal and monetary policy. However, import of industrial machinery increased significantly reflecting a positive investment outlook. Import payments remained more or less at the same level of US Dollars 3,758.0 million during July-December 2002 as compared to US Dollars 3,759.0 million during the corresponding period last year.

Bangladesh's Total Exports and Imports (In Million US Dollars)

Sectors 1999-2000 2000-2001 2001-2002 Exports 5,701 (7.9%) 6,419 (12.6%) 5,929 (-7.6%) (fob including EPZ) Imports 7,566 (4.8%) 8,430 (11.4%) 7,697 (-8.7%) (fob including EPZ) Trade Balance -1,865 -2011 -1,768

Source: Statistics Department, Bangladesh Bank. Note: Figures in the brackets indicate percentage changes over the previous year.

Workers’ Remittances

Workers’ remittances during FY2002 which stood at US Dollars 2,501 million was 32.9 per cent higher than US Dollars 1,882 million of the preceding year. This strong growth was underpinned by concerted, resolute efforts by the authorities towards facilitating remittances by encouraging new drawing arrangements between banks in Bangladesh and exchange houses in source countries. Moreover, Nationalised Commercial Banks (NCBs) strengthened their collection efforts in the source countries as well as opened some new subsidiaries

22 in new locations. Anti-hundi and anti-money laundering steps also appear to have aided in this high growth of remittances through official channels. Workers’ remittances during July 2002- February 2003 stood at US Dollars 1,970 million as against US Dollars 1,578 million in the same period last year.

Foreign Exchange Reserves

Bangladesh’s foreign exchange reserves which stood at US Dollars 1,307 million at the end of June 2001 increased to US Dollars 1,583 million as on June 30, 2002. The level of reserves was equivalent to 2.5 months’ import payments of the country. Foreign exchange reserves stood at US Dollars 1,754 million on 25 March 2003.

Exchange Rate Policy

During FY2002, Bangladesh pursued the policy of leaving the authorized banks to deal in foreign exchange, free to set their spot and forward exchange rates for customer transactions and inter-bank transactions and allowing the Bangladesh Bank to announce a one-Taka wide band within which it will buy and sell US Dollars from and to the Authorized Dealer banks on a spot basis. This band was revised once in FY2002 on 6 January, 02 to Taka 57.40-58.40 per US Dollars as against the previous Taka 56.50 to 57.50 reflecting 1.6 per cent depreciation of Taka.

Balance of Payments

The overall balance of payments position of the country swung to a surplus of US Dollars 365 million during FY2002 from a deficit of US Dollars 226 million in the previous year. This may be attributed mainly to significant improvement in

23 current account position originating mainly from a marked rise in workers’ remittances. The current account registered a substantial surplus of US Dollars 240 million during FY2002 as against a deficit of US Dollars 1,018 million in the preceding year due mainly to decrease in trade deficit and remarkable increase in current transfers. The deficit in trade balance declined to US Dollars 1,768 million during FY2002 from the level of US Dollars 2,011 million during FY2001. Current transfers increased substantially to US Dollars 2,826 million during FY2002 from US Dollars 2,171 million in FY2001. The deficit in the services account declined to US Dollars 499 million during FY2002 from US Dollars 914 million in FY2001. Workers’ remittances markedly increased to US Dollars 2,501 million in FY2002 from US Dollars 1,882 million during FY2001. Financial account position worsened from US Dollars 407 million during FY2001 to US Dollars 71 million in FY2002. Capital account position also showed some deterioration from US Dollars 432 million during FY2001 to US Dollars 410 million in FY2002.

Trade with ACU Member Countries

Total trade transactions of Bangladesh with Asian Clearing Union (ACU) member countries increased slightly in FY2002 compared to the preceding year. As in the previous year, Bangladesh remained a net debtor in all the six settlements during this year. Bangladesh’s exports to ACU member countries declined while her imports from ACU member countries increased during the year under report. Receipts of Bangladesh under the ACU arrangements recorded a decline of ACU $* 12.0 million or 14.6 per cent to ACU $ 70.0 million during FY2002 from ACU $ 82.0 million during FY2001 while payments increased by ACU $ 33.0 million or 2.9 per cent to ACU $ 1,184.1 million during FY2002 from ACU $ 1,151.1 million during FY2001. As a result, the net debtor position of Bangladesh widened by ACU $ 45.2 million to ACU $ 1,114.2 million during the

* 1 ACU $= 1 US Dollar

24 year under report as compared to ACU $ 1,069.0 million in the preceding year. Bangladesh availed of the SWAP facility of the ACU for US Dollars 150.0 million in November 2001 due to the uncomfortable reserve position prevailed at that time.

MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2002 (In Million Taka)

EXPORTS

Country/Commodity Value

Bhutan 95

Woven garments 3 Others 92

India 3,222

Frozen food 141 Raw jute 1,514 Jute goods 206 Leather 80 Chemical products 931 Knitwear 16 Woven garments 59 Others 275

Iran 2,856

Jute goods 2,578 Raw jute 38 Tea-all sorts 111 Others 129

Myanmar 60

Chemical products 36 Others 24

Nepal 21

Chemical products 6 Others 15

Pakistan 3,279

Jute goods 6 Raw jute 1,388 Agricultural products 19 Tea-all sorts 291 Chemical products 40 Others 1,535

Sri Lanka 165

Jute goods 61 Chemical products 37 Others 67 Total 9,698

Source: Export Promotion Bureau

IMPORTS

Country/Commodity Value

Bhutan 204

Vegetable products 130 Mineral products 45 Other commodities 29

India 65,314

Live animals, animal products 650 Edible vegetables and certain roots and tubers 2,725 Edible fruits and nuts peel of citrus fruits of melons 951 Organic and inorganic chemicals 3,229 Plastics and rubber and articles thereof 2,328 Textile and textile articles 12,239 Coffee tea mate and spices 638 Cereals 10,993 Prepared foodstuffs, beverages, spirits and vinegar 4,781 Base metals and article of base metals 5,439 Machinery and mechanical appliances, electrical equipment and parts thereof 5,945 Vehicles, aircraft, vessels and associated transport 4,601 Salt, sulphur, earth and stone, plastering materials 1,819 Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes 3,305 Tanning and dyeing extracts 1,241 Paper and paperboard and articles thereof 1,138

Others commodities 3,292

Iran 585

Edible fruits and nuts peel of citrus fruits or melons 76 Textile and textile articles 113 Mineral products 287 Other commodities 109

Myanmar 1,375

Cereals 266 Wood and articles of woods and wood charcoal 794

Other commodities 315

Nepal 313

Edible vegetables and certain roots and tubers 159

Other commodities 154

Pakistan 3,592

Prepared foodstuffs, beverages, spirits and vinegar 243 Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes 63 Textile and textiles articles 1,900 Machinery and mechanical appliances, electrical equipment and parts thereof 175 Salt, sulphur, earths and stone, plastering materials,

lime and cement 108 Other commodities 1,103

Sri Lanka 310

Animals and animal products 44 Plastics, rubber and articles thereof 77 Textile and textiles articles 29 Other commodities 160 Total 71,693

Source: Statistics Department, Bangladesh Bank.

Bangladesh's Trade in Major Services With ACU Countries In 2002 (In Million Taka)

Bhutan

Services (net) (A-B) -5 A. Receipts 5 B. Payments 10 1.Transportation 5 1.Transportation 0 2.Travel 0 2.Travel 5 a)Commercial 0 a)Commercial 1 b)Education 0 b)Education 0 c)Tourist 0 c)Tourist 0 d)Other 0 d)Other 4 3.Communication Services 0 3.Communication Services 0 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 0 5.Bank Commission and Charges 0 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 0 & Technical Services 0 7.Government Services n.i.e 0 7.Government Services n.i.e 5

India

Services (net) (A-B) 33 A. Receipts 831 B. Payments 798 1.Transportation 117 1.Transportation 36 2.Travel 64 2.Travel 504 a)Commercial 1 a)Commercial 51 b)Education 1 b)Education 47 c)Tourist 34 c)Tourist 1 d)Other 28 d)Other 405 3.Communication Services 3 3.Communication Services 0 4.Insurance Services 0 4.Insurance Services 1 5.Bank Commission and Charges 38 5.Bank Commission and Charges 28 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 305 & Technical Services 94 7.Government Services n.i.e 304 7.Government Services n.i.e 135

Iran

Services (net) (A-B) -37 A. Receipts 9 B. Payments 46 1.Transportation 0 1.Transportation 0 2.Travel 0 2.Travel 13 a)Commercial 0 a)Commercial 1 b)Education 0 b)Education 0 c)Tourist 0 c)Tourist 0 d)Other 0 d)Other 12 3.Communication Services 0 3.Communication Services 0 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 8 5.Bank Commission and Charges 0 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 1 & Technical Services 2 7.Government Services n.i.e 0 7.Government Services n.i.e 31

Myanmar

Services (net) (A-B) -35 A. Receipts 1 B. Payments 36 1.Transportation 0 1.Transportation 0 2.Travel 0 2.Travel 7 a)Commercial 0 a)Commercial 1 b)Education 0 b)Education 0 c)Tourist 0 c)Tourist 0 d)Other 0 d)Other 6 3.Communication Services 0 3.Communication Services 0 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 0 5.Bank Commission and Charges 0 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 0 & Technical Services 0 7.Government Services n.i.e 1 7.Government Services n.i.e 29

Nepal

Services (net) (A-B) 226 A. Receipts 263 B. Payments 37 1.Transportation 240 1.Transportation 0 2.Travel 14 2.Travel 16 a)Commercial 0 a)Commercial 1 b)Education 8 b)Education 1 c)Tourist 5 c)Tourist 0 d)Other 1 d)Other 14 3.Communication Services 0 3.Communication Services 0 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 0 5.Bank Commission and Charges 0 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 4 & Technical Services 4 7.Government Services n.i.e 5 7.Government Services n.i.e 17

Pakistan

Services (net) (A-B) 31 A. Receipts 149 B. Payments 118 1.Transportation 7 1.Transportation 21 2.Travel 55 2.Travel 30 a)Commercial 48 a)Commercial 4 b)Education 1 b)Education 2 c)Tourist 5 c)Tourist 0 d)Other 1 d)Other 24 3.Communication Services 0 3.Communication Services 27 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 1 5.Bank Commission and Charges 3 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 30 & Technical Services 3 7.Government Services n.i.e 56 7.Government Services n.i.e 34

Sri Lanka

Services (net) (A-B) 49 A. Receipts 95 B. Payments 46 1.Transportation 46 1.Transportation 2 2.Travel 4 2.Travel 22 a)Commercial 0 a)Commercial 3 b)Education 2 b)Education 3 c)Tourist 2 c)Tourist 0 d)Other 0 d)Other 16 3.Communication Services 0 3.Communication Services 0 4.Insurance Services 1 4.Insurance Services 0 5.Bank Commission and Charges 0 5.Bank Commission and Charges 0 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 33 & Technical Services 9 7.Government Services n.i.e 11 7.Government Services n.i.e 13

TRADE THROUGH EPZ IN 2002

(In Million Dollars)

2001-2002 Export Import ACU countries 1.90 39.80 Per cent of ACU countries over 0.20 6.30 total trade routed through EPZ • We have no FTZ (Free Trade Zone).

BHUTAN

Economic Developments

The fiscal year 2001-2002 saw numerous developments take place on the political as well as economic front, with significant reforms in the Royal Government of Bhutan's continuous decentralization efforts. Drafting of the Constitution, that was embarked in September 2001 is still under preparation, while elections have commenced at the Gewog1 level heralding a new era in governance for Bhutan. Similarly, the personal income tax system took full effect from January 2002, while Bhutan's major power project, Tala, has crossed its halfway mark, and the Kurichhu and Basochu projects have completed their first phases. The additional availability of electricity will not only stimulate revenue and exports, but is expected to create new business opportunities in the country, and benefit rural communities through the expansion of rural electrification.

Domestic Economy

The fiscal year 2001-2002 concluded successfully the Eighth Five Year Plan, with real GDP growing at around 6.7 per cent on average, realizing the target growth of 6.5 per cent and with moderate inflation. Bhutan continues to experience strong macroeconomic performance, with real GDP growth estimated at 7.7 per cent in 2002 – the first year of the 9th Five Year Plan. Annual inflation, as measured by the consumer price index (CPI), continued to fall, reaching 2.3 per cent (year-to-year rate of change) as of December 2002 - the lowest level in the last 20 years - as compared to the 2.7 per cent in June 2002. The Agricultural Sector is expected to continue to gradually give way to the Industrial Sector, contributing around 33 per cent of the total nominal GDP. The share of Electricity is also

1 Gewog: Block made up of several villages.

35 estimated to continue to decline, reaching 9.7 per cent of total nominal GDP, the lowest since 1999. In the tourism sector, the Bhutanese tourism industry faced negative growth in the number of visiting tourists and earnings for the second consecutive year. There was a substantial decline in tourist arrivals by 27.8 per cent to 5,490 from 7,609 in 2000-2001. Similarly, foreign exchange revenue for 2001-2002 dropped to US Dollars 8 million, a 27.3 per cent reduction from the previous fiscal year's earnings of US Dollars 11 million.

Fiscal sector

The Royal Government continued to follow cautious fiscal management, which helped to reduce the budget deficit by 35 per cent from 2000-2001. Domestic revenue sufficiently financed current expenditure, while also meeting part of capital expenditure. Nonetheless, Bhutan still remains highly dependent on external assistance through grants and concessional loans from its development partners to finance infrastructure and capital-related projects. Grants financed 32 per cent of total expenditure, while soft borrowing helped to narrow the budget deficit by 63 per cent. External debt rose by 24.1 per cent to US Dollars 291.8 million, though debt servicing remains manageable at 5.1 per cent of the total export of goods and services.

Monetary and Credit Developments

During 2001-2002, the economy experienced moderate monetary expansion in comparison to the past, with money supply (M2) and narrow money (M1) growing by 17.6 per cent and 12.1 per cent, respectively. The expansion in M2 can be attributed mostly to the rise in net foreign assets by 12.2 per cent. Domestic credit maintained its upward growth during the period and increased by 12 per

36 cent over 2000-2001. Credit to the private sector grew at a slower rate of 29.3 per cent, from 48.3 per cent in the previous fiscal year, reflecting spill-over effects from the prevailing slump in the tourism sector.

External Sector

In the external sector, at the end of 2001-2002, the overall balance of payments continued to record a surplus, thus taking the level of foreign exchange reserves to over US Dollars 300 million, which is sufficient to cover 20 months of imports. The trade deficit recorded an improvement over the preceding year as a result of a small decline in imports from India. Despite substantial invisible receipts, the current account worsened to approximately 2 per cent of GDP. Nonetheless, the deficit, outsized by large inflows in the financial account from foreign direct investment and concessional loans, led to a 33 per cent rise in the overall balance. Notably, the Royal Government and Government of India have renewed the Bilateral Free Trade Agreement up till 2005, while there are also plans to widen the product coverage with Bangladesh under the existing Preferential Trade Agreement. These countries are the two largest markets for Bhutan's exports. With these achievements, Bhutan successfully concluded the 8th Five-Year Plan (July 1, 1997-June 30, 2002). The 9th Plan, with a budget outlay of Ngultrum (Nu.) 70 billion, was launched on July 1, 2002, with emphasis on strengthening infrastructure, improvement in the quality of social services, and preservation and promotion of culture and environment. Unlike the earlier eight plans implemented by the Central Government, the implementation in the 9th Plan takes a leap in the decentralization process and is fully devolved to the local administrations. All development plans will be framed at the block level through a participatory process, whereby the local communities shall determine their own priorities and strategies.

MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2002

EXPORTS

To Bangladesh:

Goods Vegetables., fruits, nuts, coffee, tea and spices, mineral products, wood and wood products, prepared foodstuffs

Services -

To India:

Goods Mineral products, base metals and base metal products, products of chemical industries, vegetables, fruits, nuts, coffee, tea and spices, wood and wood products, prepared foodstuffs, plastic and rubber products, miscellaneous manufactured articles, stone, plaster, cement products, raw hides and skins, textiles, wood pulp products, transport equipment, machinery and mechanical appliances

Services Transportation services (Airline), travel, insurance services

To Nepal:

Goods Mineral products, wood pulp products

Services -

IMPORTS

From Bangladesh:

Goods Textiles, prepared foodstuffs, ceramic and melamine products, machinery and mechanical appliances, plastics and

rubber products, products of chemical industries Services -

From India:

Goods Mineral products, machinery and mechanical appliances, base metals and base metal products, cereals, vegetables, fruits, nuts, coffee, tea and spices, products of chemical industries, prepared foodstuffs, transport equipment, animal products, vegetables fats and oil, textiles, plastics and rubber products, wood pulp products, wood and wood products, stone, plaster, cement products

Services Transportation services (Airline op), travel, insurance services and premiums, medical services, education services

From Nepal:

Goods Prepared foodstuffs, base metals and base metal products, products of chemical industries, textiles, plastics and rubber products

Services -

INDIA

During the fiscal year 2001-2002, the Indian economy exhibited resilience in an uncertain global environment dominated by the worsening of the economic conditions as evidenced in the slowdown in economic activity in several parts of the world. In fact, the Indian economy recorded a growth rate of 5.6 per cent in 2001-2002 as against 4.4 per cent in 2000-2001, benefiting from an unusually strong rebound in agricultural production. The data for 2002-2003 fiscal so far indicates the continued strength of the Indian economy in line with the last year trend and real GDP growth is placed at 6.0 per cent and 5.8 per cent in first quarter and second quarter of 2002-2003 respectively. During the second quarter of 2002-2003 industry and services have picked up, while agriculture recorded no growth.

Agriculture

Agriculture and allied sector activities’ GDP at constant prices (base year: 1993-1994) showed a robust growth at 5.7 per cent in 2001-2002 as against the poor growth rates in 2000-2001 (– 0.2 per cent) and 1999-2000 (1.3 per cent). This growth, however, is lower than that achieved in 1998-1999 (6.2 per cent). Advance estimates of Agricultural Production (in terms of index number of all principal crops; base year: 1993-1994) showed an increase of 7.45 per cent over the previous year as against two successive declines recorded in 2000-2001(– 6.6 per cent) and 1999-2000 (– 1.4 per cent). This increase was fueled by a 9.1 per cent and 4.5 per cent rise in the indices of foodgrains and non-foodgrains production, respectively. Advance estimates for the year 2001-2002 indicate record production of foodgrains (211.3 million tonnes) and oilseeds (21.16 million tonnes). The kharif prospects in 2002-2003 show a decline in the production of foodgrains (90.64 million tonnes) and oilseeds (9.89 million tonnes) due to the poor rains during the South West Monsoon 2002.

Industry

The index of industrial production (IIP) recorded a decelerated growth of 2.8 per cent during 2001-2002 as against 4.9 per cent during 2000-2001. However, the growth of IIP accelerated to 5.3 per cent during April-November 2002-2003 as against 2.5 per cent recorded during April-November 2001-2002. The manufacturing sector, in particular, witnessed a higher growth of 5.4 per cent as compared with 2.6 per cent during the corresponding period of the previous year. The mining and electricity sectors also recorded a substantially higher growth of 5.7 per cent and 4.0 per cent respectively, during April-November 2002-2003 as against 0.7 per cent and 2.5 per cent during April-November 2001-2002. As per the use-based classification, all sectors recorded a lower growth during 2001-2002. Consumer goods, basic goods and intermediate goods sectors recorded lower growth of 6.0 per cent, 2.7 per cent and 1.6 per cent respectively during 2001-2002 as against 8.0 per cent, 3.6 per cent and 4.7 per cent during 2000-2001. Capital goods sector witnessed a negative growth of 3.4 per cent during 2001-2002 as compared with a positive growth of 1.8 per cent during 2000-2001. During 2002-2003 so far (April-November) all the sectors except consumer durables showed an accelerated growth. The basic goods and consumer goods sectors recorded a higher growth of 4.7 per cent and 7.3 per cent, respectively during April-November 2002 as compared to 2.0 per cent and 5.8 per cent during April-November 2001. Within consumer goods sector, consumer durables recorded a negative growth of 6.0 per cent as compared with 12.9 per cent, while consumer non-durables recorded a substantially a higher growth of 12.7 as compared with 3.2 per cent during April-November 2001. The capital goods sector registered a positive growth of 9.9 per cent during April-November 2002 as against a negative growth of 4.9 per cent during the corresponding period of the previous year. Intermediate goods sector recorded a higher growth of 2.6 per cent during April-November 2002 as against 2.1 per cent during April-November 2001.

Services

During 2001-2002, services sector witnessed a higher growth of 6.5 per cent as against 4.8 per cent during 2000-2001. During 2001-2002, ‘trade, hotels, transport and communication’ and ‘financing, insurance, real estate & business services’ recorded a higher growth of 6.2 per cent and 7.8 per cent respectively as compared with 5.3 per cent and 2.9 per cent during 2000-2001. On the other hand, ‘community, social & personal services’ recorded a marginal lower growth of 5.9 per cent during 2001-2002 as against 6.0 per cent during 2000-2001. The buoyancy in the services continued during 2002-2003 as reflected in the 7.6 per cent growth in the first and second quarters as compared with 5.6 per cent and 6.4 per cent in the corresponding quarters of 2001-2002. ‘Trade, hotels, transport & communications’ and ‘financing, insurance, real estate & business services’ witnessed a higher growth in the first and second quarters of 2002-2003 as compared with the corresponding quarters of 2001-2002. ‘Community, social & personal services’ recorded a lower growth in the first quarter while in the second quarter it registered a higher growth.

Savings and Investment

The rate of gross domestic savings edged up to 23.4 per cent in 2000-2001 from 23.2 per cent in 1999-2000 and 22.0 per cent in 1998-99. This was mainly on account of improvement in household savings rate from 20.3 per cent of GDP in 1999-2000 to almost 21.0 per cent of GDP in 2000-2001. Private corporate sector savings also showed an improvement from 3.7 per cent of GDP in 1999-2000 to 4.2 per cent of GDP in 2000-2001. Gross domestic investment has, however, exhibited a mixed trend. After rising from 23.0 per cent in 1998-1999 to 24.3 per cent in 1999-2000, it declined modestly to 24.0 per cent in 2000-2001.

Price Developments

The annual point-to-point inflation rate as measured by the Wholesale Price Index (WPI) stood at 1.6 per cent in 2001-2002 as compared with 4.9 per cent in 2000-2001. The significant fall in inflation by the end of the year could be attributed to a number of factors- correction in the base effect (a higher base in 2000-2001 due to administered price revisions), continued weakness in aggregate demand, supply side factors like presence of excess capacity and inventory accumulation reflecting the current phase of disinflation in global business cycle, comfortable buffer stocks and lower international crude prices. The waning of inflationary pressures was reflected in the consistently falling underlying inflation (measured by annual average WPI) which fell from around 7.0 per cent at the beginning of the year (as on April 7, 2001) to 3.6 per cent by the end of 2001-2002. The annual average inflation rate for 2000-2001 was 7.2 per cent. During 2002-2003 so far (as on January 4, 2003), the annual point-to-point inflation rate accelerated to 3.7 per cent from 1.9 per cent during the corresponding week last year. This reflects some recovery in the prices of the manufactured products group. The annual manufacturing inflation has accelerated to 3.4 per cent from a zero level last year. In contrast, the annual average inflation rate decelerated to 2.5 per cent from 4.9 per cent during the same period.

Fiscal Developments

The gross fiscal deficit (GFD) of the Central Government during 2001-2002 (revised estimates) at Rs. 131,721 crore was higher by 13.2 per cent than the budgeted level of Rs. 116,314 crore. GFD as a per cent of GDP at 5.7 per cent is higher by one percentage point in the revised estimates over the budgeted level of 4.7 per cent. The revenue deficit in the revised estimates for 2001-2002 at Rs. 91,733 crore exceeded the budgeted level of Rs. 78,821 crore by 16.4 per cent

43 and constituted 4.0 per cent of the GDP as against 3.2 per cent in the budget estimates. Primary deficit at Rs. 24,464 crore (1.1 per cent of GDP) was more than six times of the budget estimates of Rs. 4,014 crore ( 0.2 per cent of GDP). The increase in deficit indicators of the Centre was the outcome of relatively high decline of Rs. 19,173 crore (8.3 per cent) in the net revenue collection as compared with the reduction of Rs. 10,787 crore ( 2.9 per cent ) in aggregate expenditure in the revised estimates. The revenue receipts declined due to shortfall in tax collection by 12.7 per cent, while non-tax revenue registered a modest increase of 2.2 per cent over the budget estimates. Expenditure reduction in the revised estimates for 2001-2002 was to the extent of 2.9 per cent over the budgeted level. The reduction was effected in non-Plan expenditure by 3.6 per cent, whereas Plan expenditure showed a rise of 4.3 per cent over the budgeted level. The information available in respect of State finances indicates that the consolidated gross fiscal deficit of States in 2001-2002 (RE) at 4.6 per cent of GDP was higher than 4.0 per cent of GDP for the year 2000-2001. The revenue deficit of the States in revised estimates for 2001-2002 at 2.6 per cent of GDP and gross primary deficit at 1.8 per cent of GDP were same as in 2000-2001. Accordingly, the combined fiscal deficit of the Centre and States together increased to 9.9 per cent of GDP in the revised estimates for 2001-2002 as compared to 9.5 per cent in 2000-2001. Combined revenue deficit and primary deficit were also higher at 6.6 per cent and 3.7 per cent of GDP in the revised estimates for 2001-2002 as against 6.5 per cent and 3.4 per cent, respectively, in 2000-2001. The Central Government finances witnessed some slowdown in the growth of revenue receipts, while expenditure growth remained marginally lower than the budget projection during the first eight months of the current fiscal year (April- November 2002). During April-November 2002, gross fiscal deficit at Rs. 83,394 crore was higher by Rs. 4,261 crore over April-November 2001 (Rs. 79,133 crore) and constituted 61.5 per cent of the budget estimates (Rs. 135,524 crore). Revenue deficit at Rs. 67,888 crore (71.2 per cent of budget estimates) was higher by 14.5 per cent over the level of the previous year. Primary deficit at Rs. 16,210 crore

44 during April-November 2002 was, however, lower by 16.2 per cent over the level during April-November 2001 (Rs. 19,333 crore). The State Budgets for 2002-2003 lay emphasis on fiscal consolidation through revenue augmentation and expenditure containment measures. The resource gap of all States taken together measured in terms of revenue deficit and gross fiscal deficit as a ratio of GDP is expected to improve in 2002-2003. In terms of GDP, the revenue deficit and gross fiscal deficit are budgeted to decline from 2.6 per cent and 4.6 per cent, respectively, in 2001-2002 (RE) to 1.9 per cent and 4.0 per cent, respectively, in 2002-2003. The fiscal outturn of the States during the current year so far reveals a mixed trend. While the outstanding WMA and overdrafts from the Reserve Bank to the State Governments were generally higher during April-July 2002 as compared with the level in the comparable period of the previous year, these have been generally lower during August to December 2002.

Monetary Policy Developments

Broad Money (M3) increased by 14.2 per cent (Rs. 186,783 crore) during 2001-2002 as compared with 16.8 per cent (Rs. 189,046 crore) in 2000-2001. In the current financial year upto January 10, 2003, M3 rose by 12.6 per cent (Rs. 189,082 crore) and by 9.8 per cent (Rs. 146,490 crore) net of mergers, as compared with 11.2 per cent (Rs. 146,437 crore) in the corresponding period of previous year. On an annual basis, the growth in M3 at 12.8 per cent, net of mergers, was lower than that of 14.5 per cent observed a year ago. During the fiscal year so far (up to January 10), non-food bank credit increased by 19.7 per cent (Rs. 105,753 crore), 11.4 per cent (Rs. 61,209 crore) net of merger, as against 9.1 per cent (Rs. 43,018 crore) in the corresponding period of the previous year, reflecting the revival in industrial activity. Scheduled commercial banks’ investments in Government securities at Rs. 91,986 crore this year (upto January 10, 2003) have been higher than Rs. 82,384 crore in the corresponding period of the previous year.

Reserve Money increased by 11.4 per cent (Rs. 34,660 crore) during 2001-2002 as compared with 8.1 per cent (Rs. 22,756 crore) in 2000-2001. During the current financial year so far (up to January 10, 2003), Reserve Money increased by 4.8 per cent (Rs. 16,332 crore) as compared with an increase of 2.5 per cent (Rs. 7,701 crore) in the corresponding period of the previous year. An important feature of monetary development during this year has been lower increase in reserve money despite liquidity pressure emanating from high increase in RBI’s foreign currency assets. Reserve Bank’s foreign currency assets rose by Rs. 78,187 crore during the current year so far (upto Jan 10, 2003) as against an increase of Rs. 39,576 crore during corresponding period of the previous year. On the other hand, net RBI credit to the Central Government showed a decline of 3.5 per cent (- Rs. 5,150 crore) as compared with an increase of 4.8 per cent (Rs. 6,705 crore) in the corresponding period of the previous year reflecting substantial open market operations (OMO).

External Sector

Trade

According to the data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), India’s exports at US Dollars 43.8 billion recorded a decline of 1.6 per cent during 2001-2002 as against the growth of 21.0 per cent during 2000-2001. On the other hand, imports at US Dollars 51.4 billion recorded an increase of 1.7 percent during 2001-2002. During 2001-2002, while the oil imports declined by 10.5 per cent, the non-oil imports increased by 7.2 per cent. Trade deficit increased to US Dollars 7.6 billion during 2001-2002 from US Dollars 6.0 billion during 2000-2001. While the trade deficit on the oil account declined from US Dollars 13.8 billion during 2000-2001 to US Dollars 11.9 billion during 2001-2002, the trade surplus on the non-oil account declined from US Dollars 7.8 billion to US Dollars 4.3 billion, between these two years.

During April-November 2002, exports at US Dollars 32.9 billion recorded a sharp growth of 15.6 per cent as against the decline of 1.1 per cent during the corresponding period of the previous year. Imports also increased sharply by 14.2 per cent as against the decline of 0.8 per cent during the corresponding period of the previous year. Accordingly, India’s trade deficit stood marginally higher at US Dollars 6.2 billion during April-November 2002 as compared with that of US Dollars 5.8 billion during April-November 2001.

Foreign Exchange Reserves

India’s foreign exchange reserves comprising of foreign currency assets, gold and Special Drawing Rights (SDRs) held by the government increased by US Dollars 11.8 billion to US Dollars 54.1 billion during 2001-2002. During the current financial year so far (January 17, 2003), there has been a significant accumulation of foreign exchange worth US Dollars 18.3 billion resulting in foreign exchange reserve touching US Dollars 72.4 billion on January 17, 2003. The import cover of reserves improved from more than 10 months of imports as on January 18, 2002 to more than 14 months of imports as on January 17, 2003.

External Debt

India’s external debt declined from US Dollars 99.7 billion as at end-March 2001 to US Dollars 98.2 billion as at the end of March 2002. At the end-June 2002, it showed an upward trend and increased by US Dollars 3.1 billion or 3.2 per cent touching US Dollars 101.3 billion. Increase in the external debt was mainly due to rise in long-term debt in the first quarter of 2002-2003. Bilateral debt and long– term NRI deposit increased by 7.4 and 8.5 per cent respectively in the corresponding period. Short-term debt also increased by 12.6 in the same period. Nevertheless, there has been a considerable improvement in the major debt sustainability indicators. The external debt-GDP ratio declined from 23.3 per cent

47 at end March 2001 to 20.8 per cent at end March 2002. Short-term debt remained modest in proportion to total debt and reserves. The proportion of short-term debt to total debt declined from 4.0 per cent as at end March 2000 to 3.5 per cent as at end March 2001 and further to 2.8 per cent at end March 2002. At the end of June 2002, short-term debt to total debt ratio increased marginally to 3.1 per cent. As a proportion to reserves, short-term debt declined from 8.2 per cent at end March 2001 to 5.1 per cent at end March 2002, but increased marginally to 5.3 per cent at end June 2002.

Exchange Rate

The exchange rate of the Indian Rupee vis-à-vis the US dollar has moved within a range of Rs. 47.80-49.06 per US dollar during the year 2002-2003 so far (April 01, 2002 to January 31, 2003). On the basis of monthly average exchange rate, the rupee has appreciated by 2.1 per cent from Rs. 48.92 per US dollar in April 2002 to Rs. 47.93 per US dollar in January 2003. The rupee averaged at Rs. 47.69 per US dollar during the financial year 2001-2002 (April-March). The rupee remained broadly stable during the first four months of the current financial year except for a brief period of uncertainty due to the border tensions in May 2002. Orderly conditions prevailed in the foreign exchange market during the last six months (August-January) on account of comfortable supply position in the market, with the rupee appreciating by 1.7 per cent between July 2002 and January 2003.

MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2002

(In Million US Dollars)

EXPORTS

Commodity (1) 2001-2002 (April-March p)

Engineering goods 640.9 Chemicals & related products 461.3 Cotton yarn, fabrics, made-ups etc. 223.1 Sugar & molasses 149.4 Wheat 92.8 Paper/wood products 71.6 Manmade yarn, fabrics, made-ups 51.4 Oil meals 50.9 Coal 49.8 Pulses 35.8 Spices 33.3 Rice 32.1 Fresh vegetables 31.2 Misc processed items 27.7 Readymade garments 25.5 Fresh fruits 22.9 Other ores & minerals 21.6 Processed minerals 16.4 Iron ore 15.6 Tea 13.8 Others 245.9

Total Exports 2,313.1 P: Provisional Source: DGCI & S.

49 IMPORTS

Commodity (1) 2001-2002 (April-March p)

Pulses 299.4 Wood & products 118.8 Chemicals, organic & inorganic 102.0 Non-ferrous metals 96.5 Fruits & nuts excl cashew nuts 78.3 Textile yarn, fabrics, made-up articles 69.4 Essential oil, cosmetic preparation 44.8 Spices 42.4 Iron & steel 27.0 Jute, raw 20.1 Metalliferrous ores & metal scrap 15.7 Fertilizers 14.9 Medicinal & pharmaceutical products 9.7 Sugar 6.8 Leather 5.7 Paperboard & manufactures 5.1 Other crude minerals 4.5 Cereal & preparation 4.1 Cotton raw, comb/uncomb & waste 3.5 Petroleum, crude & products - Others 260.6

Total Imports 1,229.3 P: Provisional Note: Data on total imports from the ACU Countries from 2000-01 onwards exclude the imports of 'petroleum, crude and products'. As such these may not be comparable with the data for earlier years. Source: DGCI & S.

50 India's Foreign Trade (In Million US Dollars)

April-March Year 2000-2001 2001-2002 p

Exports 44,560.3 43,826.7 (21.0) (-1.6) Imports 50,536.5 51,413.3 (1.7) (1.7) Trade Balance -5,976.2 -7,586.6

P: Provisional. Note: Figures in brackets relate to percentage variation over the corresponding period of previous year. Source: DGCI & S.

India's Trade with ACU Countries (In Million US Dollars) April-March Country 2000-2001 2001-2002 Exports Imports Exports Imports 1. Bangladesh 935.0 80.4 1,002.2 59.1 2. Bhutan 1.1 21.1 7.6 23.9 3. Iran 227.0 211.2 253.0 283.8 4. Myanmar 52.7 181.7 60.9 374.4 5. Nepal 140.8 255.1 214.5 355.9 6. Pakistan 186.8 64.0 144.0 64.8 7. Sri Lanka 640.1 45.0 630.9 67.4

ACU 2,183.5 858.5 2,313.1 1,229.3 ACU's Percentage (4.9) (1.7) (5.3) (2.4) India's total trade 44,560.3 50,536.5 43,826.7 51,413.3

P : Provisional. Note : 1. Figures in brackets relate to share in India's total for the respective period. 2. Data on total imports from the ACU Countries from 2000-2001 onwards exclude the imports of ' petroleum, crude and products '. As such these may not be comparable with the data for earlier years. Source: DGCI & S.

51 TRADE THROUGH EPZ AND EOU (In Million US Dollars)

India's Exports Through EPZs/EOUs

Year EPZ's EOU's Total

1994-95 845.0 1,500.1 2,345.0 (3.2) (5.7) (8.9) 1995-96 967.3 2,095.4 3,062.7 (3.0) (6.6) (9.6) 1996-97 1,222.2 2,458.8 3,681.0 (3.7) (7.3) (11.0) 1997-98 1,296.2 2,765.7 4,061.9 (3.7) (7.9) (11.6) 1998-99 1,248.5 2,866.2 4,114.7 (3.8) (8.6) (12.4) 1999-2000 1,548.0 3,161.9 4,709.9 (4.2) (8.6) (12.8) 2000-2001 1,872.0 3,483.0 5,355.1 (4.2) (7.8) (12.0) 2001-2002P 909.4 1,270.6 2,180.0 (April-September) (4.3) (6.0) (10.3)

P : Provisional Note : Figures in brackets relate to share in India's total exports. Source : Annual Report 2001-2002, Ministry of Commerce.

52 IRAN

The Iranian economy experienced notable developments in the third year of implementation of 3rd Five-Year Development Plan (FYDP), (2000-2001 - 2004-2005). The design of Third Plan triggered the start-up of bold measures for the gradual transition of the economy to a more market-oriented one. High economic growth in 2002-2003 took place in an environment of smooth inflationary path and improved external position against the background of sustained economic reforms. This performance has been facilitated by sound economic policies, particularly in using the increased oil revenues to reduce the external debt burden, build up international reserves, accumulate sizable savings in the Oil Stabilization Fund (OSF) and reduce foreign exchange and trade restrictions.

National Income

Preliminary estimates for major economic variables indicate that the overall economic activity remained strong by the end of 1381 (2002-2003). Real GDP is projected to grow by 6.2 per cent, despite lower oil production, which was in turn due to Iran’s adherence to the OPEC quotas. During 2002-2003, the projection for oil and gas shows that the value- added of this sector will decline by 6.0 per cent. The agriculture group output would grow by 10.1 per cent, which is significant as compared to the previous year (2001-2002). It is predicted that the value-added of industry and mining group would grow by 11.2 per cent during the same period. Preliminary figures for national expenditures indicate that the upward trend of gross fixed capital formation, which has started since two years ago, continued and will grow by 7.7 per cent in 2002-2003 as compared with the previous year.

Agriculture

Based on preliminary figures released by the Ministry of Agriculture Jihad, the production of most basic farm crops increased in 2002-2003, owing to the rise in rainfall by 39.7 per cent compared to the previous year. During the first nine month of Iranian fiscal year ending Dec. 2002, production of grains increased by 30.4 per cent and reached 18,090 thousand tons. Wheat output grew by 26.9 per cent and reached 12,000 thousand tons. In the period under consideration, the production of livestock (red meat, milk, poultry and eggs) increased by 3.4 per cent as compared to the previous year. The outstanding balance of facilities extended by banks and credit institutions to agriculture sector also grew 21.9 per cent in the first nine months.

Manufacturing and Mining

The growing trend of activities in manufacturing and mining sector indicate private sector tendency for further investment in this sector. According to the ministry of industry and mining, in the first nine month of Iranian fiscal year, more than 80 per cent of selected industrial products have shown significant growth. This growth has been attributed to the provision of foreign exchange for manufacturing sector due to good foreign exchange revenues, adoption of foreign exchange deregulation and access of this sector to credit facilities through the banking system. The outstanding of facilities extended by banks and non-bank credit institutions to the manufacturing sector (non-public) grew by 19.4 per cent in the first nine month of Iranian year compared to the previous period and amounted to Rls. 90.9 thousand billion.

Balance of Payments

International crude oil market developments and gradual implementation of the new foreign exchange and trade regulations, being stipulated in the 3rd FYDP law, affected BOP in 2002-2003. Broad-based deregulations being implemented in foreign trade process, converting non-tariff barriers to tariff ones, domestic finance of foreign trade, and giving more freedom to non-oil exporters in the management of their foreign exchange proceeds were all among policies which helped the non-oil export rise in 2002- 2003. In the first nine month of Iranian year, non-oil exports and imports grew by 17.1 and 23.0 per cent, respectively and the trade balance enjoyed a surplus of US Dollars 3,075 million, including oil exports in same period. The current account balance decreased by 53.4 per cent compared to previous year and amounted to US Dollars 2,385 million in this period. Total external debt amounted to US Dollars 8,734 million, of which US Dollars 2,357 million was short-term debt. Central bank’s international reserves and the OSF increased by US Dollars 2,334 million in the first nine months.

Labor Market

Employment has been one of important priorities in the government program in recent years. According to the statistical center of Iran, the unemployment rate decreased from about 14.7 per cent of the total active labor force in 2001-2002 to average of 12.8 per cent in third quarter of Iranian year (1381). The young age structure and high growth rate of the active population, migration from rural to urban areas, considerable number of refugees, and inflexibility of Labor Act are among notable issues of labor market in Iran. Along with the macro-economic policies in creating new job opportunities, also

a specified mechanism was designed to tackle the unemployment. The article 56 of third five year development plan stipulates that the banks have to provide interest free loan to Entrepreneurs for employment purposes.

Fiscal Policy and Budget Performance

The stabilizing effects of budget on the national economy and the non- inflationary feature of budget continued in 2002-2003, and brought about further fiscal discipline for the government. In first nine month of Iranian year, the government general revenues grew by 14.6 per cent compared to the previous period. Crude oil export revenues in rial terms, constituted major part of government revenues. Tax revenues also grew by 19.7 per cent and was realized by 23.3 per cent less than the approved figures. In 2001-2002, the Direct Tax Act was revised, so that the tax rates were lowered and helped simplify corporate and personal income tax rates. Tax administration also improved as a result of establishment of State Tax Organization. In the period under review, the government current and development outlays increased by 45.1 and 50.4 per cent, respectively compared to the similar previous year. Public sector employees’ wage increase raised government current expenditures in 2002-2003. Thus, the general budget faced a deficit of Rls. 8,350 billion, which was financed mainly through the use of OSF resources.

Monetary Policy

In 2002-2003, monetary policy objective was aimed at curbing inflation, while providing financial requirements of the economic sectors. Objectives of liquidity and inflation were determined in the framework of monetary policies set in the 3rd FYDP. Due to the foreign exchange unification and its likely impact on inflation, the main concern in Iranian current fiscal year (1381) in designing monetary policy has been the liquidity control.

In first nine month of Iranian year, the liquidity (M2) grew by 19.1 per cent and facilities extended by banks and non-bank credit institutions to non- public sector grew by 20.1 per cent. The main reasons behind the growth of liquidity are, first the acceleration of money multiplier from 3.3 to 3.6 in first nine month of 1381; second, the growth of reserve money by 9.2 per cent during this period.

Capital Market

With the improvement in economic conditions in 2002-2003, the Tehran Stock Exchange (TSE) activities enjoyed a boom. In first nine month of Iranian year, the price and cash dividend indices grew respectively by 36.5 and 11.3 per cent as compared to similar period in pervious year. Number of traded shares, and their price indices improved significantly. Traded shares grew by 95.3 per cent in number, and reached 2,381.8 million. The value of shares increased by 161.2 per cent and amounted to Rls. 14,542.9 billion. On the basis of 1381 (2002-2003) budget law, a total of Rls. 5,800 billion participation papers were issued of which Rls. 5,400 billion were sold out. The Central Bank also issued Rls. 2,000 billion new participation papers, in compliance with the 3rd FYDP law, which totally were sold out in first nine month of Iranian fiscal year ending Dec. 2002. During the same period, the central bank also replaced Rls. 6,000 billion paper which was issued in year 1380 (2001-2002).

Price Trends

The growth of CPI, which being measured as inflation index was 15.2 per cent in first nine month of Iranian fiscal year ending Dec. 2002, comparing with the previous year. The average growth rate of CPI during 12 month ending Dec. 2002 was 14.3 per cent as compared with previous 12 months. The lagged effects of liquidity growth on inflation is the main factor in raising inflation. It must be noted that the Positive impact of increased foreign exchange revenues

on government fiscal position, improvement in the BOP, increase in imports and supply of goods and services, and more importantly increase in public confidence to economic stability with the help of reduction in inflationary expectations were altogether among factors which prevented more inflationary expansion in 2002-2003.

Gross Domestic Product (GDP) (In Billion Iranian Rials)

Table (1) 1997-1998 1998-1999 1999-2000 2000-2001□ 2001-2002* 1376 1377 1378 1379 1380 Current Prices

Agriculture 42,742.4 56,750.7 65,420.6 79,120.9 85,188.1

Oil 40,724.8 28,266.5 63,292.8 101,416.1 100,873.4

Manufacturing & mining(1) 56,014.1 62,316.3 81,223.4 110,105.0 136,836.1

Services 149,011.0 185,189.4 2,309,430 294,792.6 357,509.5

GDP 285,126.7 32,8473.6 434,299.9 575,895.2 667,175.8

Constant Prices of 1990

Agriculture 8,979.1 9,529.4 8,713.1 8,966.4 9,341.3

Oil 3,983.6 4,085.5 3,847.8 4,164.3 3,815.1

Manufacturing & mining(1) 8,858.1 9,130.3 10,000.1 10,878.3 12,302.5

Services 25,740.5 27,418.2 28,479.3 29,585.1 31,023.2

GDP 47,134.0 49,769.3 50,597.1 53,135.8 55,980.8

GDP Growth (percent) 5. 0 5.6 1.7 5.0 5.3

□ Figures are provisional.

* Figures are estimated.

(1) Includes” water, electricity and gas” sub sector.

Gross Domestic Expenditure (In Billion Iranian Rials) Table (2) 1997-1998 1998-1999 1999-2000 2000-2001* 2001-2002* 1376 1377 1378 1379 1380 Current Prices Private consumption expenditure 139,929.1 181,172.4 225,769.9 276,612.0 323,659.0 Public consumption expenditure 40,127.7 47,036.6 55,997.5 80,554.0 96,208.9 Gross domestic investment 84,611.1 96,050.8 125,201.5 153,462.2 18,322.0 Private 54,401.3 63,142.5 78,795.3 101,904.9 128,504.7 Public 30,209.8 32,908.3 45,406.2 51,557.3 54,817.3 Net export 6,456.8 -6,710.3 28,578.0 30,620.3 10,624.6 Export 51,006.6 44,856.8 93,508.6 131,810.7 136,825.1 Import 44,549.8 51,567.1 64,930.6 101,190.4 126,200.5 Gross domestic expenditure 284,000.3 329,085.9 436,540.3 579,875.1 668,152.3 Constant Prices of 1990

Private consumption expenditure 26,236.2 28,159.4 29,107.7 31,183.5 32,639.1 Public consumption expenditure 5,495.6 4,914.9 4,590.8 5,248.6 5,132.3 Gross domestic investment 11,719.3 11,937.3 12,620.5 13,183.5 14,415.9 Private 7,591.7 7,815.3 7,861.6 8,467.9 9,779.7 Public 4,127.6 4,122.0 4,758.9 4,715.6 4,636.2 Net export 584.0 1,529.1 3,515.0 2,929.4 2,760.6 Export 6,302.0 7,251.2 8,853.4 8,771.7 9,568.7 Import 5,718.0 5,722.1 5,338.4 5,842.3 6,808.7 Gross domestic expenditure 47,161.4 49,242.8 50,126.0 52,715.3 55,730.8 GDE growth (percent) 5.3 4.4 1.8 5.2 5.7

*Preliminary

Balance of Payments (In Million US Dollars)

Table (3) 1998-1999 1999-2000 2000-2001 2001-2002* First 9 month of 1377 1378 1379 1380 Iranian fiscal year*

1380 1381

Current account -2,140 6,589 12,500 5,985 5,122 2,385

Trade balance -1,168 7,597 13,375 5,775 5,605 3,075

Exports 13,118 21,030 28,461 23,904 18,953 19,489

Oil and gas 9,933 17,089 24,280 19,339 15,553 15,508

Other 3,185 3,941 4,181 4,565 3,400 3,981

Imports 14,286 13,433 15,086 18,129 13,348 16,414

Services -1,469 -1,533 -1,485 -495 -910 -1,341

Receipts 2,023 1,396 2,012 3,488 1,186 4,878

Payments 3,492 2,929 3,597 3,983 2,096 6,219

Transfers 497 525 610 705 427 651

Capital account 2,270 -5,894 -4,573 1,150 -1,629 2,704

Long-term -1 -3,342 -3,218 2,361 306 3,622

Short-term 2,271 -2,552 -1,355 -1,211 -1,935 -918

Overall balance -1,572 1,845 6,529 4,760 2,702 2,334

External debt (Stock) 13,999 10,357 7,953 7,214 6,502 8,735 * Preliminary

Summary of Government Budget (In Billion Iranian Rials) Table (4) 1998-1999 1999-2000 2000-2001 2001-2002* First 9 month of 1377 1378 1379 1380 Iranian fiscal year 1380 1381

Revenues 31,006.1 47,828.2 45,192.3 50,522.3 36,693.7 42,048.7

Tax 18,686.6 25,831.4 32,842.1 38,796.6 29,978.3 35,895.7

Other 12,319.5 21,996.8 12,350.2 11,725.7 6,715.4 6,153.0

Expenses 53,545.6 68,219.385,847.3 104,772.0 73,799.7 107,092.7 Operating Balance -22,539.5 -20,391.1 -40,655.0 -54,249.0 -38,511.1 -658,08.1 Surplus(+) Deficit(-) Disposals and Consumption of fixed 22,619.9 44,487.6 59,448.5 74,957.1 54,674.0 85,087.1 capital Disposals of crude oil assets 22,619.9 44,487.6 59,448.5 74,957.1 54,674.0 83,596.6

Other 0.0 0.00.0 0.0 0.0365.5

Acquisition of non financial assets 17,424.7 25,023.6 23,559.8 24,087.6 18,374.4 27,629.2 Net acquisition of non financial 5,195.2 19,464.0 35,888.7 50,869.5 36,299.6 57,457.9 assets Surplus (+) Deficit (-) -17,344.3 -927.1 -4,766.3 -3,380.1 -2,211.4 -8,350.2

Disposals of financial assets 17,344.3 927.1 4,766.3 3,380.1 2,211.4 24,099.2

Acquisition of financial assets 0.0 0.0 0.0 0.0 0.0 -15,749.0

Net acquisition of financial assets 17,344.3 927.1 4,766.3 3,880.1 2,211.4 8,350.2

Banking Survey end year stocks (In Billion Iranian Rials) Table (5) First 9 month of

1998-1999 1999-2000 2000-2001 2001-2002 Iranian fiscal year 1377 1378 1379 1380 1380 1381

Net foreign assets -636.6 3,329.4 5,510.2 10,075.1 14,666.5 60,684.4

Net domestic assets 161,037.1 189,359.8 243,600.4 310,882.1 282,543.6 321,417.1

Net claims on government 49,196.9 48,807.0 39,653.3 38,285.2 32,887.8 42,550.9

Net claims on public enterprises 39,416.1 42,657.6 46,568.2 62,202.3 56,135.3 66,923.1

Claims on non-public sector 84,073.2 115,840.9 151,544.9 203,792.1 182,860.0 246,446.7

Other Items (net) -11,649.1 -17,944.9 5,834.0 6,602.5 10,660.5 -34,503.6

Broad money (M2) 160,401.5 192,689.2 249,110.7 320,957.3 297,210.1 382,101.5

Money (M1) 74,784.4 86,751.0 114,420.5 142,956.7 127,890.8 161,543.6

Currency with the public 18,773.1 22,119.3 25,158.3 29,188.7 21,606.9 25,635.4

Demand deposits 56,011.3 64,631.7 89,262.2 113,768.0 106,233.9 135,908.2

Quasi money 85,617.1 105,938.2 134,690.2 178,000.6 169,369.3 220,557.9

Saving deposits 12,420.0 16,296.0 22,014.4 29,847.5 26,346.9 34,498.1

Term investment deposits 62,429.1 79,532.0 103,363.6 141,066.5 135,340.2 175,567.9

Other deposits 10,768.0 10,110.2 9,312.2 7,086.6 7,682.2 70,491.9

Growth of Board Money (M2)% 19.4 20.1 29.3 28.8 19.3 19.1

Price Indices (1997=100)

Table (6) 1998-1999 1999-2000 2000-2001 2001-2002 First 9 month of

1377 1378 1379 1380 Iranian fiscal year 1380 1381 (percentage change over previous period) Consumer Price index 18.1 20.1 12.6 11.4 11.3 15.2

Goods 16.7 20.2 9.0 5.8 5.3 12.9

Services 18.8 22.9 17.1 20.4 20.2 16.1

Housing, fuel & lighting 20.8 18.7 18.4 18.8 19.6 18.8

Wholesale price index 16.7 24.2 14.7 5.1 4.9 9.1

Domestically produced goods 18.8 22.8 14.8 6.8 6.5 10.7

Imported goods 10.0 22.0 13.3 0.8 0.7 3.8

Exported goods 21.9 60.7 19.7 -0.5 0.8 7.1

Producer price index 18.7 22.9 16.3 10.9 10.9 12.7

Manufacturing 17.0 24.5 15.6 5.2 5.2 9.6

Mining 22.8 6.2 17.1 -4.4 -12.1 8.0

Water, Electricity and Gas 31.4 27.0 14.3 10.9 10.4 6.7

Services 17.2 19.1 16.0 23.1 22.6 19.4

Agriculture, Animal Husbandry, Forestry & 22.7 24.5 17.9 8.3 9.9 10.6 Fishing

64 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2002

EXPORTS

To Bangladesh: Sector Agriculture Meat, shrimp, walnut, pistachio, date, fig, fresh and dried fruits, cumin

Industry White clay, marble and architectural stones, derivatives of coal, petrochemicals (such as naphthalene, vaseline, paraffin), tar, chemicals, resins, plastic products, wooden frames, paper and paper products, cotton, carpets, glass and ceramic products, copper and copper products, cloth, textiles made of natural and synthetic, iron alloys, floor covering, air conditioner, container, tractor, spare parts of vehicles, dentistry equipment, wall clock, cartridge, luster, sandstone, sheet and foils, pigment, drying agents, artificial flower and herbs, stone products, steel products, aluminium, pastries

To Bhutan:

Industry Plastic products, stainless steel sink

To India:

Sector Agriculture Dried vegetables, legume, walnut, date, pistachio tea, fresh and dried fruits, saffron, almond, fig, cumin, agricultural products, spices, resins, juices

Industry Saps, chocolate and pastries, clay, marble and architectural stones, ores, lime, cement, chemical, mineral, derivatives of coal, oil products, tar and its by-products, carbon black, petrochemicals (such as vaseline, paraphine), sulfur products, medicine tanning products, pigment, solvents, resins. Polimer products. Plastic products, caoutchouc and caoutchouc products, tanned skin, wooden frame, wooden and metal furniture. Paper and paper products, new wool and fleece, carpet and floor covering, publications, ceramic and ceramic products, cloth, detergents, chinaware, glass products. Cast iron products, iron alloys. Copper and copper products. Aluminium, lead, centra fugal machines for filtering, furnace, vehicle, printed goods, luster, wool, sheets and foils, machines and motores, mold, electrical products. Exercise equipment

To Myanmar:

Sector Industry Vaseline, carbon black, caoutchouc and cautchouc products, vehicle, sword, dagger, poniard

To Nepal: Sector Industry Various waxes, spare parts

To Pakistan:

Sector Agriculture Fish, honey, cream, milk, flower, dried vegetables, legume, pistachio, almond, date, fig, fresh and dried fruits, spices, cumin, saffron, meat

Industry Chocolates and pastries, resins, agricultural products, oils and shortenings, gum, sulfur products, mineral water, biscuit, clay, marble and architectural stones, minerals, sand, copper and copper products, chemicals, petrochemicals (such as paraffin, vaseline, naphthalene), oil and oil waste, ester, detergents, pigment, ink, solvents, enzime, resins, plastic products, plastic adhesive sheets, packaging equipment, drape, caoutchouc and products made of caoutchouc, leather and tanned skins, wooden frames, paper and paper products, various cable, cotton textile, mercerized threads, threads of cotton, carpet, cloth, dictionary, threads of synthetic, blanket, tar and its by-products, ceramic products, glass bubbles, bottle, glass laboratory equipment, iron alloys, steel and steel products, sewing machines, aluminium alloys, carbon, lead, zinc, sheets, buckles, wooden and metal furniture, lime, seeds, bakery, waistes and ash, tanning products, drying agents, anti freeze, emery powder, stone products, cast iron products, household appliances, air conditioners, agricultural machines, computer, spare parts, publications, synthetic and polishing stones, household equipment, fuse, equipment, dentistry equipment, tank and military equipment

To Sri Lanka:

Sector Agriculture Pea, fruit, juice

Industry Lime, vaseline, tar, chemicals, plastic, products, cast iron products, caoutchouc and caoutchouc products, paper and paper products, carpet, unwoven floor covering, chocolates and pastries, cloth, carbon black, stainless steel sink, copper and copper products, lead, wooden and metal furniture

IMPORTS

From Bangladesh: Sector Agriculture New wool and fleece

Industry Mercerized threads, household equipment,

Services Transportation costs, miscellaneous charges

From India:

Sector Agriculture Rice, new wool and fleece, juice, oregano, saffron, spices, cotton product, date, banana, pineapple, nutmeg, coconut, walnut

Industry Steel and steel products, iron and iron products, packaging machines, bottle cleaning and drying, labeling machines, mechanical rollers, threads of cotton or various wools, metal ores (enriched and ordinary), cigarette papers, ether and esters, pharmaceuticals, resins (except ester saps), shifting and separating machines, bandages, pigment, wheel chairs, fire extinguishing equipment, vehicles and related spare parts, iron and steel ingot, plumbing equipment, equipment, aluminium pipes, leather, cotton textiles, tank and military equipment, paper and paper products, textiles made of natural and synthetic vending machines, cement products, mercerized threads, physiotherapy equipment, graphite and related products, sender and receiver and radars, caoutchouc and products made of caoutchouc, meters, led oxide, spare parts of vehicles, mould and casting equipment, synthetic and natural waxes, furnaces, sanding and mill stone, torches, ores, sewing machinery for stone and ceramic work, typewriters, glass

products, agricultural equipment, starches, oil waste, glass bubbles for insulation, centra fugal machines filtering, tar and its by products, petrochemicals (such as paraffin, vaseline), glass laboratory equipment, copper and copper products, photographic equipment, glues and gelatin, cutlery, insulative brick, natural sanding, calculators, buckles, chemical, x-ray and radiology equipment, food products, various cables, strips, bells, lenz, prisoms, mirrors, sulfer products, electrical resisters, scales, microphones and related parts, wool fat, iron and steel rods, buttery, textiles used in binding books, clay, lighting fixtures, anoids, oil and shortenings, barbed wires, electrical equipment (starters), felt, wood oils, containers for chemicals, axles, gears, energy transfers, compressors, air conditioning equipment, spinning equipment, straw polymers and resins, white clay, cast iron, flooring tiles, sleam equipment, non burnable, equipment for converters, safes, enzymes, high carbon steel products, marble and architectural stones, gravours and images used in printing

Services Transportation costs, emergency purchases, short-term refinance, subscriptions, miscellaneous charges, treatment cost, tariff, fairs cost

From Myanmar:

Sector Agriculture Saffron, spices, oregano

From Pakistan:

Sector Industry Wall paper and plastic adhesive sheets, labels, mercerized threads, glass bubbles for insulation, physiotherapy equipment, physician

equipment, gelatin, glues, moulds and casting equipment, steel products, glass, synthetic plastic, cutlery, equipment for converters, blades and files

Services Transportation costs, emergency purchases

From Sri Lanka:

Sector Agriculture Date, banana, pineapple, coconut, walnut, nutmeg, pear, natural caoutchouc and saps, cardamom

Industry Caoutchouc and products made of caoutchouc, meters and measuring equipment, rubber products

Services Transportation costs, subscriptions

Import From ACU member countries (year 2002)

Country Weight Value in Iranian Rial Value in US Dollars

Bangladesh 61,685,867 307,932,659,682 44,657,249 India 1,991,450,950 2,998,717,635,877 562,683,710 Myanmar 56,340 203,945,035 25,750 Pakistan 155,680,895 459,620,134,258 71,668,971 Sri Lanka 976,628 6,095,585,989 941,117

Export to ACU member countries (year 2002)

Country Weight Value in Iranian Rial Value in US Dollars

Bangladesh 40,999,788 62,809,672,251 9,396,205 Bhutan 23,362 79,862,430 10,084 India 1,130,061,937 1,137,442,658,832 177,504,461 Myanmar 7,592,535 22,620,378,076 2,922,223 Nepal 217,143 506,583,790 68,633 Pakistan 335,694,428 820,704,619,630 123,826,785 Sri Lanka 17,484,530 22,691,223,993 3,018,751

MYANMAR

Myanmar had been able to achieve average annual growth rate of 7.5 per cent for the first short term plan (from 1992-1993 to 1995-1996) and 8.4 per cent for the second short term plan (from 1996-1997 to 2000-2001) against the targets of 5.1 per cent and 6.0 per cent respectively. Myanmar has now embarked on a new Five-Year Short Term Plan, which spans from 2001-2002 to 2005-2006. In the first year of this new short-term plan, FY2001-2002, the Myanmar economy grew by 9.9 per cent spurred by strong agricultural output supported by favourable weather conditions and, to a certain extent, the result of land reclamation efforts and more extensive use of high yielding seed varieties and proper use of imported fertilizers. Since Myanmar is still and agro-based nation, the agriculture output growth also supports the manufacturing and processing sector, which dominantly consists of agro-based industries. Therefore, manufacturing and processing grew by 9.3 per cent in 2001-2002. Services sector, including trade, also registered a growth rate of 12.2 per cent. Private real investment increased sharply in 2001-2002, registering a high growth rate of 29.6 per cent compared to 11 per cent in the previous year, while public sector investment increased slightly to 13.3 per cent from 11.6 per cent in the same period. The total investment reached a growth of 17.1 per cent in 2001- 2002, which is significantly higher than the 5.0 per cent growth achieved in 2000- 2001.

Fiscal Sector

The ratio of budget deficit to GDP in FY2001-2002 was 4.7 per cent, a decline from 8.3 per cent in the previous year. This improvement was contributable to higher revenue collection due to better application of tax-

compliance, and limiting tax exemptions, as well as to further cuts in nonproductive expenditures. Moreover, the budget deficit in 2002-2003 is expected to decrease to 3.1 per cent due to further efforts at enhancing tax revenue while at the same time reducing expenditure including the Government’s Energy Saving Plan.

Monetary and Banking Sector Developments

Monetary growth in terms of M1 decreased to 42.8 per cent in 2001-2002 from 47.8 per cent in 2000-2001. On the other hand, domestic credit growth slightly increased to 41.8 per cent in 2001-2002 from 41.1 per cent in 2000-2001. The interest rates remain unchanged from that of the previous year. The Central Bank’s discount rate is 10 per cent and the maximum lending and deposit rates are fixed at 15 per cent and 10 per cent respectively. Sales of 3 year and 5 year government treasury bonds, initiated in December 1993 to partly finance the budget deficit reached Kyat 148.38 billion at the end of March 2002. As private banks are introducing new products, one private bank has introduced trust service since 2001. Aggregate bank lending by the private banks increased by 81.9 per cent in FY2001-2002, while aggregate deposits increased by 48.3 per cent during the same period. Loans to the manufacturing sector have shown and upward trend not only in terms of value but also as percentage share of aggregate bank lending. The proportion of non-performing loans to total loans averaged was around 2.1 per cent for the private banks as at end-march 2002, a decline from that of 2.9 per cent in the previous year. The Central Bank is encouraging the private banks to reduce these NPLs and is also strengthening its supervisory and regulatory functions.

Price Trend

CPI inflation has risen to 34.5 per cent in FY2001-2002 driven by 73

such factors as the rise in public sector wages followed by that of the private sector, depreciation in the value of the Kyat, subsequent rise in import prices and a significant fiscal deficit.

Balance of Payments

The external current account deficit registered an improvement to reach Kyat 682.5 million in 2001-2002 from that of Kyat 747.7 million in 2000-2001, mainly due to substantial increase in natural gas export. Total value of exports, including border trade, reached Kyat 16,742.5 million in 2001-2002 while the value of imports totaled Kyat 16,539.9 million during the same period. Total exports in terms of value increased significantly by 42.2 per cent in 2001-2002 while imports increased by 21.9 per cent. As a result of improvements in the current account, Myanmar posted an overall surplus of Kyat 1,733.3 million, mainly due to the increase in export earnings and other capital inflows. Reflecting these development, gross international reserves increased from Kyat 1,765.7 million at end-March 2001 to Kyat 3,583.0 million in March 2002, which is equivalent to 2.6 months of import cover.

Trade with ACU Countries

Myanmar continued to register a favourable trade balance with other ACU countries in 2001-2002. The trade surplus increased to US Dollars 345.6 million in 2001-2002 from that of US Dollars 250.8 million in 2000-2001, mainly reflecting a sharp growth in exports to India, Bangladesh and Pakistan. Exports to ACU countries increased by 28.4 per cent in 2001-2002 while imports from ACU countries grew by 1.6 per cent during the same period. Among ACU members India is the leading buyer of Myanmar’s exports.

SELECTED ECONOMIC INDICATORS

(In Million Kyats)

2001/2002 (Provisional) (At 1995/96 constant prices) Gross domestic product 987,223

Agriculture 472,105 Livestock & fishery and forestry 82,311 Manufacturing and processing 82,042 Mining 8,766 Services 76,094 Others 265,905 Growth rate of GDP (per cent) 9.9

Price

Consumer price index 1/ 204.1 (1997=100) Inflation rate (per cent) 30.5

Balance of payments

Current account Goods Exports 16,742.5 Imports -16,539.9 Trade balance 202.6 Services(net) -2,781.3 Transfers(net) 1,896.2 Current account (net) -682.5 Capital account (net) 1,257.4 Errors and omissions 1,158.4 Overall balances 1,733.3 Monetary movements -1,733.3

MYANMAR : GOODS AND SERVICES ACCOUNT (In Million Kyats)

2000/2001 2001/2002 Trade Balance -1,788.7 202.6 Exports 11,777.0 16,742.5 Imports -13,565.7 -16,539.9

Services Balance -519.9 -2,781.3 Receipts 3,005.4 3,211.4 Payments -3,525.3 -5,992.7

Source: Central Bank of Myanmar 1/ Provisional actual data 2/ Provisional data

MYANMAR TRADE WITH ACU COUNTRIES IN 2001/2002 (In Million US Dollars)

1/ 2/ Exports Imports

BANGLADESH 61.7 2.4 BHUTAN - - INDIA 345.7 82.3 IRAN 2.3 2.2 NEPAL 0.5 0.1 PAKISTAN 24.4 2.8 SRI LANKA 0.8 *2/

TOTAL 435.4 89.8

Memorandum Item: Share of trade with ACU Countries as percentage 17.5 3.7 of total trade

Source: Central Statistical Organization 1/ Provisional data 2/ less than US Dollars 0.1 million

NEPAL

During fiscal year (FY) 2001-2002 (mid-July through mid-July), the real gross domestic product (GDP) contracted by 0.6 per cent, the first such occurrence during the last 19 years. During the previous FY2000-2001, real GDP had increased by 4.7 per cent. The contraction of economic activities was mainly accounted for by the decline of manufacturing and trade and hotel sub- sectors due to unfavorable domestic and external situation. The nominal GDP, which had risen by 7.5 per cent in the previous year, grew by 2.4 per cent during FY2001-2002. The consumption/GDP ratio increased by 3.3 percentage points to 88.4 per cent. Consequently, gross domestic saving/GDP ratio declined by the same percentage points to 11.6 per cent. Total investment/GDP ratio increased marginally by 0.4 percentage points to 24.4 per cent.

The real GDP of agricultural sector went up by 2.2 per cent while that of the non-agricultural sector decreased by 2.4 per cent. In the preceding year, such growth rates were 5.5 per cent and 4.3 per cent respectively. The overall production index of principal food grains and cash crops increased by 1.9 per cent compared to a growth of 3.9 per cent in the preceding year. The output of the livestock sub-sector and other crops remained normal, whereas the production of fishery witnessed a satisfactory growth of 5.2 per cent in FY 2001-2002.

77 1.6 billion, of which total foreign investment stood at Rs. 1.2 billion. The total credit disbursed by Nepal Industrial Development Corporation (NIDC) declined by 8.9 per cent due mainly to its lack of financial resources.

The major tourism indicators comprising tourist arrivals, average duration of stay, hotel beds and per capita expenditure showed mixed picture in the calendar year 2001. The number of tourist arrivals registered a decline of 21.8 per cent to 363 thousand following a decline of 5.7 per cent in the calendar year 2000. The decline in tourism resulted from the adverse law and order situation both at home and outside the country as well as the global economic slowdown. Contraction of the global economy not only reduced the inflow of tourists but also adversely affected the Nepalese exports along with the foreign assistance inflow during FY2001-2002. The number of tourist arrivals by air from both India and third countries decreased, by 31.9 per cent and 19.2 per cent respectively. Despite the decrease in the tourist arrivals, the per capita expenditure of the tourists increased by 6.8 per cent to Rs. 34,345.00. However, the hotel bed capacity, i.e., the number of hotel beds, remained at par to that of the previous year. With regard to the duration of stay, there was no change from the last year's average of 12 days.

Monetary Situation

The monetary policy for FY2001-2002 aimed at (i) containing inflation below 5 per cent, (ii) attaining a reasonable level of surplus in the balance of payments (BOP), and (iii) facilitating the economic growth by providing an adequate level of liquidity. Monetary policy was also directed at lowering nominal interest rates. During FY2001-2002, monetary aggregates, both narrow money (M1) and broad money (M2), decelerated. M2 registered a growth of 6.1 per cent compared to the 15.2 per cent growth in the preceding

78 year. M1 also posted a decelerating growth of 10.7 per cent compared to an increase of 15.7 per cent in the preceding year.

The net foreign assets (NFA), an expansionary factor of money supply, decreased by 2.7 per cent, after adjusting the exchange valuation gain of Rs. 4.0 billion. Such NFA had gone up by 6.5 per cent in the previous year. The decline in inflows from both exports and services resulted in the decline in the NFA. Similarly, domestic credit, the other expansionary factor of money supply, grew by 11.2 per cent compared to a growth of 18.6 per cent in the preceding year. Relatively higher growth of net claims on government pushed up the domestic credit. However, time deposits posted a lower growth of 3.9 per cent compared to the 15.0 per cent increase in the preceding year. Net non-monetary liabilities, the contractionary factor of money supply, went up by 8.9 per cent compared to an increase of 11.9 per cent in the preceding year.

Reserve money (Rm) (currency held by the public and commercial banks and deposits of commercial banks and others in the Nepal Rastra Bank - NRB) expanded by 11.9 per cent compared to a growth of 15.7 per cent in the preceding year. The value of M1 multiplier (M1/reserve money) remained less than unitary (0.99) compared to unitary in the previous year, while the value of broad money multiplier declined to 2.88 from 3.04 a year ago. Decelerated growth of private sector credit resulted in the fall in the broad money multiplier. Likewise, the income velocity of both monetary aggregates showed a declining trend. Income velocity of M2 declined to 1.85 from 1.91 a year ago.

Income velocity of M1 also went down to 5.38 from 5.81 a year ago. A gradual increase in monetisation and a fall in nominal interest rates were the major factors responsible for such a decline in income velocity.

Total assets/liabilities of commercial banks increased by 7.2 per cent and stood at Rs. 263.1 billion. Such assets/liabilities had increased significantly by 18.7 per cent in the preceding year. On the liabilities side, total deposits of commercial banks increased by 3.1 per cent compared to the 17.3 per cent growth in the preceding year. On the assets side, total loans and advances of commercial banks expanded by 8.7 per cent compared to the 18.2 per cent

79 growth in the preceding year due mainly to the deceleration in credit flow to the private sector.

Among the monetary policy measures, the bank rate was lowered to 5.5 per cent from the earlier 6.5 per cent and refinance rates were also lowered to a range between 2.0 per cent and 4.0 per cent from the earlier range between 4.0 per cent and 5.5 per cent. Similarly, the cash reserve requirement was also lowered by 100 basis points to the average of 8 per cent from the earlier 9 per cent. The financial sector reforms included revision of prudential norms on capital adequacy ratio, classification of loan, loan loss provisioning, interest income recognition, corporate governance, etc. The new bank licensing policy was also introduced.

Banks and Other Financial Institutions

The number of commercial banks reached 16. With the financial sector reforms, a number of other financial institutions (OFIs) such as development banks, rural development banks, finance companies, financial cooperatives, and financial NGOs have also expanded their operations. Similarly, non-bank financial institutions (NBFIs) such as Employees' Provident Fund (1), Insurance Companies (18), Citizen Investment Trust (1), and Stock Exchange Center (1) are in operation. The aggregate sources of fund of OFIs recorded a growth of 2.6 per cent to Rs. 45.3 billion compared to an increase of 17.3 per cent in the previous year. The outstanding loans of these institutions also increased by 9.9 per cent to Rs. 32.3 billion compared to an increase of 14.7 per cent in the preceding year. The financial resources as well as lending activities of these institutions also decelerated during the year. The NBFIs such as insurance companies, Employees Provident Fund and Citizen Investment Trust showed a satisfactory performance during the year.

80 Stock Market

The stock market showed a considerable decline in its indicators. The deteriorating law and order situation and the declaration of the emergency throughout the country coupled with the recession in the world economy adversely affected the Nepalese economy and set to the economic recession. The number of listed companies decreased to 96 from 115 a year earlier. The turnover fell sharply by 34 per cent to Rs. 1.5 billion and the market capitalization of the listed companies also declined by 25.1 per cent to Rs. 3.5 billion. Only the stock turnover in terms of the number of units rose by 20.4 per cent.

Government Finance

The government budget for FY2001-2002 focused on improving the law and order situation along with the performance of the economy. The FY2000- 2001 marked satisfactory growth rates in GDP (4.7 per cent), revenue collection (14.0 per cent) and total resource mobilization (14.5 per cent). At the same time, higher growth rates of regular expenditure (23.9 per cent), development expenditure (16.8 per cent) and fiscal deficit (36.9 per cent) characterized the year. During FY2001-2002, the government budgetary operation resulted in a fiscal deficit amounting to Rs. 23.2 billion, 4.2 per cent lower than that in the previous year. Total government expenditure increased by 3.2 per cent while total resources grew by 6.4 per cent. As per cent of GDP, total expenditure, total resources and fiscal deficit stood at 19.6 per cent, 14.1 per cent and 5.5 per cent respectively compared with the respective ratios at 19.5 per cent, 13.6 per cent, and 5.9 per cent during the previous year.

Among the resources, tax revenue increased by 3.9 per cent, reflecting an achievement of 85.6 per cent of the target. Non-tax revenue grew by 2.9 per cent, showing 77.3 per cent realization of the target. On the expenditure side, regular expenditure increased by 14.9 per cent due to the increasing debt

81 service obligation of external loan and increasing expenditure on security whereas development expenditure declined by 10.3 per cent. Regarding the public debt, the stock of the total outstanding debt amounted to Rs. 292.6 billion in mid-July 2002, registering an increment of 11.9 per cent. The outstanding debt/GDP ratio rose to 69.6 per cent (domestic 17.5 per cent and external 52.1 per cent) compared to 63.8 per cent (domestic 14.7 per cent and external 48.1 per cent) last year.

Inflation

The annual average inflation rate based on National Urban Consumer Price Index (1995/96 = 100) registered a rise of 2.9 per cent compared to an increase of 2.4 per cent in the preceding year. On point-to-point basis, the rate of inflation rose by 3.5 per cent compared to an increase of 3.4 per cent in the previous year. Componentwise, the index of food and beverages group rose by 3.7 per cent compared to a decline of 2.3 per cent in the previous year. On the other hand, the index of non-food and services group decelerated by 2.1 per cent compared to a rise of 8.1 per cent in the previous year. Regionwise, the annual average inflation for Hills, Terai, and Kathmandu remained at 5.2 per cent, 3.4 per cent and 2.0 per cent respectively, compared to the inflation rates at 3.7 per cent, 1.1 per cent, and 3.2 per cent respectively in the previous year.

External Sector

On the external sector, total exports declined by a rate higher than that of the decline in the total imports. However, there was a slight contraction in trade deficit owing mainly to large magnitude of imports. Net services receipts declined so sharply that current account deficit expanded markedly despite the

82 increase in net transfer receipts. As a result, the surplus in the capital account failed to meet the current account deficit and the overall BOP turned into deficit.

On the export front, total exports declined by 14.6 per cent to Rs. 47.5 billion against an increase of 11.7 per cent during the previous year. Destinationwise, exports to India increased by 10.9 per cent compared to a sharp growth of 22.7 per cent a year ago. On the other hand, exports to other countries, which had increased by 3.6 per cent during the previous year, registered a negative growth of 37.0 per cent. Total imports decreased by 7.7 per cent to Rs. 106.7 billion against an increase of 6.6 per cent in the previous year. Such a negative growth in imports was attributable mainly to the decline in imports from other countries.

Trade deficit contracted by 1.4 per cent and stood at Rs. 59.2 billion as against an expansion of 2.3 per cent in the preceding year. Net transfer receipts increased by 13.3 per cent to Rs. 30.5 billion. However, net service receipts declined sharply by 58.4 per cent to Rs. 9.3 billion. As a result, the current account deficit expanded by 78.4 per cent to Rs. 19.5 billion compared to a much lower deficit of Rs. 11.0 billion in the previous year. On the capital account, net official capital registered a decline of 57.5 per cent and stood at Rs. 3.0 billion, reflecting the decline in official loan and the increase in amortization. However, miscellaneous capital items, net reflected an inflow of Rs. 14.2 billion compared to an inflow of Rs. 9.2 billion in the previous year. Consequently, the net position of external payments resulted in a deficit of Rs. 2.3 billion (2.7 per cent decline) as against a surplus of Rs. 5.2 billion (6.5 per cent rise) in the preceding year.

The receipts and payments of the convertible currency showed both receipts and payments declining by 15.2 per cent and 13.9 per cent respectively. In the preceding year, total receipts and payments had risen by 39.8 per cent and 55.6 per cent respectively. Accordingly, the net position of the convertible currency resulted in a surplus of Rs. 5.0 billion compared to a surplus of Rs. 7.3 billion in the preceding year.

83 The NFA of the banking system, without adjusting exchange valuation gain, recorded an increase of 1.9 per cent and reached Rs. 89.4 billion compared to an increase of 9.1 per cent in the preceding year. The NFA of NRB increased by 8.3 per cent while that of the commercial banks went down by 36.9 per cent. In the preceding year, the NFA of NRB had increased by 14.8 per cent and that of the commercial banks had gone down by 15.5 per cent. Total foreign exchange reserves of the banking system reached Rs. 106.5 billion (US Dollars 1.4 billion) from Rs. 105.2 billion last year. The total reserve level was sufficient to finance merchandise and service imports for ten months. The convertible currency reserve rose by 0.6 per cent to Rs. 80.7 billon while the non-convertible currency reserve witnessed a growth of 2.4 per cent to Rs. 25.6 billion.

84 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2002

(In Nepalese Rupees)

BANGLADESH

EXPORTS Value (Rs) Dried Vegetables 41,393 Lentils (Pulses) 199,565,221 Vegetable seeds 1,744,444 Radish seeds 160,379 Prepared foods 6,288 Food preparations 506,149 Water, non alcoholic beverages 1,179 New pneumatic rubber tyre for buses or lorries 765,163 Window, French windows and their frames 29,933 Doors and their frames 60,176 Printed books, brochures, leaflets and similar printed matter in single sheets 1,952 Printed books 1,915 Newspaper, appearing at least four times a week 6,336 Newspapers, journals and periodicals 13,583 Multiple (folded)or cabled yarn containing 85% or more by weight of acrylic or modacrylic staple fibres 25,315,462 Yarn of polyester staple fibres 7,309,467 Woolen shawls, scarves, mufflers, mantillas, veils and the like 7,901 Bed linen, knitted or crocheted 7,828 Hats and headgears, knitted or crocheted 5,000 Refined copper wire 1,605,061 Wooden furniture 7,685 Original sculptures and statuary in any material 383 Total 237,162,898

IMPORTS Value (Rs) Potatoes 329,794 Vegetable seeds 4,000 Biscuits, waffles and wafers 343,871 Homeopathic medicaments not put up in measured doses or in forms or packings for retail sale 758,475 Medicaments containing penicillin or derivatives thereof 796,105 Medicaments containing antibiotic for therapeutic or prophylactic uses 4,322,260 Homeopathic medicaments, put up in measured doses or in forms or packings for retail sale 3,818,089 Fertilizer, urea 275,389,531 Diammonium Hydrogenorthophosphate 105,467,154 Monofilament Plastic 403,035

85 Plate, sheet, film, foil and strip of plastic 868,501 Article for the conveyance or packing of goods, of plastic 46,356 Plastic apparel and gloves 135,487 Articles of plastic 1,982,666 Toilet paper 312,489 Printed paper and paperboard labels 556,426 Unused postage, stamps, banknote, cheque forms 29,768 Printed matter 3,100 Jute and other textile bast fibers raw or retted 184,737,980 Synthetic monofilament of 67 decitex or more and of which no cross - sectional dimension exceeds 1mm 2,704,744 Synthetic staple fibre of nylon or polyamides not carded combed or otherwise processed for spinning 5,365,775 Lopped file fabrics of other textile materials 1,064,000 M&B cotton ensembles, knitted or crocheted 57,638 M&B jackets and blazers of textile materials, knitted or crocheted 33,055 Cotton t - shirts, vest knitted 6,208 Shawls, scarves, mufflers, knitted 440,304 M&B ensembles of synthetic fibres 88,699 Textiles 131,005 W&G cotton trousers, bibs and brace overalls, breeches and short 68,952 M&B cotton shirt, not knitted 52,904 W&G cotton blouses, shirt, not knitted 41,104 M&B bathrobes, dressing gown of other textiles materials 105,807 Babies garments of wool or fine animal 47,108 Babies garment and clothing accessories of synthetic fibres 8,178 W&G garments of wool or fine animal hair 23,115 Shawls, scarves, mufflers, mantillas,veils and like of textile material 4,205 Ties, bow ties and cravats of manmade fibres 32,166 Curtains of textile materials, knitted 79,322 Footwear with outer sole leather 80,863 Footwears 500 Hair - nets 104,427 Hats and headgears, knitted or crocheted 1,314,177 Headgear, whether or not lined or trimmjed 8,232,734 Ceramic articles 520,454 Gold, unwrought 21,070 Machinery used in milling industry 14,790 Machinery parts for industrial preparation 1,200 Parts and accessories of automatic data processing machines 121,500 Vacuum moulding machine 265,355 Electro-magnetic couplings, clutches and brakes 1,185,800 Primary cell and primary batteries 3,122,288 Electric accumulators of lead acid, used for starting piston engines 25,287,011 Lead acid accumulators 7,543,792 C.D. cassette 10,700 Video recording or reproducing apparatus (deck) 5,000 Colour Television 36,500 86 Articles of graphite or carbon 2,532,516 Synnges 129,982 Parts and accessories of hydrometers 237,498 Press fastners 1,011,019 Parts of slide fastners 435,000 Total 642,873,552

BHUTAN

EXPORTS Value (Rs) Uncooked pasta, not stuffed or otherwise prepared 15,421,440 Juice of single citrus fruit 240,225 Food preparations 31,230 Soaps 7,278,961 Hangbags 35,807 Wood marquetry and inlaid wood, casket and cases for jewellery or Cutlery, of wood 100,608 Printed Books 145,247 Carpet, knotted of wool or fine animal hair 33,353 Cotton t-shirts, vest knitted 35,129 M&B cotton overcoat, carcoat, capes, cloaks and similar articles, not knitted or crocheted 28,060 W&G cotton overcoat, carcoat, raincoat, capes cloaks and similar articles, not knitted 7,685 M&B cotton jacket, not knitted 61,308 W&G cotton dresses, not knitted 24,382 W&G cotton blouses, shirt, not knitted 10,186 M&B cotton underpants and briefs, not knitted 21,984 M&B cotton nightshirt and pyjama, not knitted 14,405 Cotton sacks and bags 316,867 Sacks and bags 85,373 Cotton tent 265,618 Refined copper wire of which maximum cross-sectional dimesion exceeds 6mm 1,560,055 Refined copper wire 819,237 Steam turbine of an output exceeding 40mw 25,456 Parts of electrical transformers 436,874 Sleeping bags 5,471 Original sculptures and statuary in any material 12,029 Total 27,016,990

IMPORTS Value (Rs) Gypsum 791,577 Coal 13,023,000 Coke and semi-coke of coal 70,564,811

87 Antibiotics 135,942 Handmade paper and paperboard, use for writing and printing or graphic purposes in rolls or sheets 509,094 Parts and accessories of automatic data processing machines 23,115 Total 85,047,539

IRAN

EXPORTS Value (Rs)

Original sculptures and statuary in any material 4,000 Total 4,000

IMPORTS Value (Rs) Natural honey 38,656 Sunflower oil 3,799,829 Paraffin wax 7,421,364 Alkyd resins 817,200 Musks 74,423 Fans with self contained electric motor of an output exceeding 125w 619,037 Parts of knitting machine 198,752 Total 12,969,261

PAKISTAN

EXPORTS Value (Rs) Black tea fermented 5,000 Cardamom (Large) 46,291,201 Plants and parts of plants (including seeds and fruits) of akind used primarily in perfumery in pharmacy or for insecticidal or similar purposes 2,005,896 Cream and like preparations 921,320 Raw hides and skin (freshed or salted, dried etc or otherwise preserved, but not tanned) whether or not dehaired or split or goats of kids 5,621,456 Clothing accessories or leather 4,611 Handmade paper and paperboard, use for writing printing or graphic purposes in rolls or sheets 77,478 Printed books 6,663 Newspaper, appearing at least four times a week 8,476 Carpet, knotted of wool or line animal hair 186,699 Woolen gloves, knitted 1,631,372 Woolen shawls, scarves, mufflers, mantillas, veils and the like 3,964,004 Cotton sacks and bags 41,525 Articles of silver jewellery, whether or not plated or clad with other precious 770,520 Original sculptures and statuary in any meterial 22,000 Total 61,558,221

88 IMPORTS Value (Rs) Dates 19,480,725 Figs 672,652 Raisin 1,969,517 Fresh apricots 97,717 Dried apricots 157,885 Natural gum, resin 248,898 Mucilages and thickners whether or not modified, derived from vegetable products 558,683 Glycosides, natural or reproduced by synthesis and their derivatives 1,465,460 Medicaments containing penicillin or derivatives thereof 360,948 Incense sticks 71,130 Chemical preparation for photographic uses 101,355 Spools cops, bobbin and similar supports 1,955,525 Articles of plastic 135,272 Goat or kid skin leather, perchament-dressed or after tanning 1,198,860 Hand bags 49,368 Printed books 38,000 News papers, journals and periodicals 42,551 Printed matter 105,440 Cotton yarn waste 9,436,440 Woven fabric of cotton, unbleached, containing 85 % or more by weight of cotton weighing not more than 200g/m2 9,439,139 Woven fabric of cotton, dyed plain weave , containing 85 % or more by weight of cotton weighing more than 100g/m2 120,258 Woven denim fabric of cotton, containing 85% or more by weight of cotton weighing more than 200g/m2 12,244,387 Woven fabric of cotton, dyed, weighing not more than 200g/m2 874,233 Woven fabric of cotton, printed, weighing not more than 200g/m2 1,087,273 Unbleached woven fabric of cotton weighing not more than 200g/m2 3,588 Woven fabric of vegetables textile fibres, woven fabric of paper yarn 4,074 Synthetic monofilament of 67 decitex or more and of which no cross-sectional dimension exceeds 1mm 770 Woven fabric of staple fibres containing 85% or more by weight of polyester 10,824 Textile Wall Coverings 49,184 Lopped file fabrics of other textile materials 647,442 Cotton fabric, warp knit 7,296,722 W&G woolen suits 3,016 M&B cotton shirt, not knitted 3,250 M&B bathrobes, dressing gown of other textiles materials 7,216 Ski suit 1,387 W&G cotton Dhoti and Lungi, not knitted 7,700 Cotton bed linen, printed 4,169 Bedspreads, not knitted or crocheted 37,004 Tarpaulins of textile materials 8,352 Waterproof footwear with outer soles and upper of rubbers and of plastics 240,708

89 Footwears 500 Hats and headgears, knitted or crocheted 1,003 Milestone, grindstones, grinding wheels of agglomerated abrasives or of 272,769 Glass beads, bangles 70,350 Circular saw blades including parts 9,397 Blades 921,642 Combined refrigerators- freezers, fitted with separate external doors 55,179 Machinery parts for industrial preparation 6,745 Parts and accessories of automatic data processing machines 7,500 Electric accumulators of lead acid, used for starting piston engines 1,751,773 Lead acid accumulators 1,734,736 C.D.cassette 10,963,000 Magnetic tape type video recording or reproducing apparatus 13,000 Video recording or reproducing apparatus (deck) 11,000 Magnetic tape of width not exceeding 4mm 1,033,403 Prepared unrecorded media for sound recording or similar recording of other fenomenal 38,660,000 Audio cassette tape 45,400 Winding wire 10,082 Suspension shock absorber 909,357 Motorcycle parts 13,249 Electro-diagnostic apparatus 59,326 Cathelers, cannulae 124,139 Electro-medical instruments and appliances 4,079,350 Dental fittings 457,151 Orthopedic appliances 158,901 Watch straps, watch bands 10,824 Wooden furniture of a kind used in office 1,510,061 Toys, recreational models 3,000 Total 133,129,959

SRI LANKA

EXPORTS Value (Rs) Printed books, brochures, leaflets and similar printed matter in single sheets 625 Printed books 613 Newspaper, appearing at least four times a week 1,836 Newspapers, journals and periodicals 3,090 Silk fabrics 9,747 M&B collon shirt, not knitted 4,000 Shawls, scarves, mufflers, mantillas, veils and the like of textile material 33,327 Brooms and brushes 137,951

90 Artists brushes 60,277 Original Scuiptures and statuary in any material 9,511 Total 260,977

IMPORTS Value (Rs) Green tea fermented in immediate packing of a content not exceeding 3kg. 178,196 Crude palm oil 113,565,834 Prepared or preserved fish, whole or in pieces, but not minced 980,272 Beer, made from malt 842 Mixtures of odoriferous substances and mixtures 1,466,229 Plastic apparel and gloves 106,644 Articles of plastic 2,120,035 Natural rubber latex, whether or not prevulcanised 897,346 New pneumatic rubber, tyre for motor car 5,049,908 New pneumatic rubber, tyre for buses or lorries 4,825,008 New pneumatic rubber, tyre having a "herring bone" or similar tread 5,852 New pneumatic rubber tyre 162,778 Inner rubber tube for motor car, buses, lorries 23,563 Surgical gloves 55,911 Printed paper and paperboard labels 192,088 M&B cotton shirt, not knitted 296,474 Tiles cubes and similar articles 313,300 Padlocks 1,067,055 Crown corks of base metal 19,677,195 Parts and accessories of automatic data processing machines 1,061,100 Colour Television 168,580 Pedestrian controlled tractors 967,022 Concrete - mixture lorries 7,605,631 Bodies of motor vehicle 38,287 Total 160,825,150

91 PAKISTAN

The overall performance of Pakistan’s economy in FY2002 was quite encouraging in the backdrop of post September 11, scenario. Most importantly, improvement in external sector turned current account into surplus and underpinned the unprecedented appreciation in the value of Pak rupee. An upsurge in worker’s remittances increased official transfers coupled with savings in interest payments made SBP to increase foreign exchange reserves to an all time high. State Bank followed an accommodative monetary policy, which became more receptive with the acceleration of foreign exchange inflows. Inflation remained below 4 per cent. External debt rescheduling and lower interest rate on domestic debt led to reduction in debt servicing which aided government in its efforts to contain fiscal deficit.

Economic Growth, Savings And Investment

Despite uncertainty caused by adverse developments after 9/11 event, Pakistan’s growth performance during FY2002 witnessed modest improvement supported by all sectors. Real GDP grew by 3.6 per cent compared to 2.5 per cent during the preceding year. The agriculture sector recorded a positive growth of 1.4 per cent for FY2002 compared to a negative growth of 2.6 per cent during FY2001. However, growth in manufacturing sector decelerated to 4.4 per cent mainly due to uncertainties in economic environment on account of conflict in Afghanistan and border tensions with India. However, textile sector showed marked recovery owing to increased access to key Western markets and substantial decline in interest rates. The services sector dominated the growth profile and showed an increase of 5.1 per cent compared to 4.8 per cent in FY2001. National savings stood at 13.9 per cent of GNP in FY2002 compared to 15.3 per cent of GNP last year. On the investment side, gross fixed investment (in nominal terms) showed a decline of 5.9 per cent in FY2002 and stood at 12.2 per cent of 92

GNP as against 14.5 per cent last year. During FY2003, the country has targeted GDP growth at 4.5 per cent, which is expected to achieve because of better crops as a result of better availability of water for agriculture, modest-growth in large scale manufacturing and rising remittances. Inflation is also expected to be within the targeted level of 4 per cent.

Price Trends

Price inflation showed deceleration during the FY2002 and all the three price indices viz Consumer Price Index (CPI), Wholesale Price Index (WPI) and Sensitive Price Indicator (SPI) depicted lower increases. CPI showed an increase of 3.54 per cent during FY2002 compared to an increase 3.62 per cent last year. WPI showed significant deceleration and rose by 2.13 per cent compared to a hike of 6.21 per cent last year while SPI recorded an increase 3.37 per cent compared to a rise of 3.97 per cent in the FY2001. The deceleration in inflation was mainly attributable to good wheat and cotton crops and strengthening of domestic availability of essential commodities. Further around 7 per cent appreciation of rupee-dollar parity, more than US Dollars 6 billion foreign reserves build-up and structural reforms due to IMF programme also put a salutary impact in containing inflation to the low level. During Jul-Dec 2002 price inflation showed some rising trend CPI, WPI and SPI increased by 3.55 per cent, 4.70 per cent and 4.33 per cent respectively compared with their respective increases of 3.25 per cent, 3.03 per cent and 2.51 per cent during July-December, 2001.

Public Finance and Fiscal Policy

The emphasis on fiscal reforms encompassing documentation, transparency,

and improving tax compliance continued during FY2002. However, efforts to reduce the overall budget deficit to the targeted level of 4.9 per cent of GDP were not successful and the deficit rose to 7.0 per cent of GDP due to sharp rise in expenditure and lower than targeted revenue collections. An unpremeditated increase in defense spending due to tension on the eastern border, grant to Central Board of Revenue to clear accumulated income tax refunds, substantial investment in Karachi Electric Supply Corporation (KESC) to prepare it for privatization and the settlement of Water and Power Development Authority (WAPDA) arrears were the main causes of higher expenditure which not only pushed up the overall budget deficit, but also masked the benefits of lower interest payments realized on account of rescheduling and re-profiling of external debt and low interest rates on domestic debt instruments. In spite of a reasonable growth of 18.1 per cent in total revenue, the overall tax collections were well below the FY2002 target. The lower tax collections were largely attributed to slowdown in economic activity, resulting decline in imports and unusually high tax refunds. Further a continuing decline in domestic inflation and the appreciation of the Rupee against US Dollar, which lowered ad-valorem tax revenue also contributed to low tax collection. However, the increase in total revenue over the last year was largely contributed by non-tax receipts (51.1 per cent) and tax receipts (10.5 per cent) last year. The budget for FY2003 focused on fiscal consolidation and overall fiscal deficit was targeted at 4.0 per cent of GDP. During the year, total expenditure was estimated at Rs. 854.4 billion, which was 5.5 per cent lower than last year, largely on account of lower current expenditures. Development expenditure, on the other hand, was estimated to increase by 7.5 per cent than last year. Total revenues were budgeted at Rs. 691.9 billion - 6.9 per cent higher than the revised estimates of FY2002. Of the total revenue, tax revenues were expected to increase by 11.1 per cent while non-tax receipts were projected to fall by 6.3 per cent over the revised estimates of FY2002. Financing of budget deficit for FY2003 was envisaged mainly

through external sources. The projected domestic borrowing was entirely through non-bank sources while borrowing from the banking system was estimated substantial retirement. Actual developments on fiscal front during July-December, 2002 are encouraging. Total revenue receipts during the period amounted to Rs. 332.8 billion while total expenditure stood at Rs. 398.6 billion leaving a budget deficit of Rs. 65.7 billion or 1.6 per cent of GDP compared to 2.7 per cent of GDP in the same period last year. This performance could be attributed to an impressive growth in tax revenue and serious efforts on the part of the government to check the overrun of expenditures.

Performance and Development of Capital Market

During FY2002, capital market exhibited better performance due to overall improvement in economic fundamentals, various reform measures, improvement in corporate profitability prospects and comfortable financial liquidity. Karachi Stock Exchange (KSE) proved to be one of the best performing and profitable market in the region followed by Sri Lanka and India. Although the KSE-100 index ranged between 1,075 and 1,930, systemic risk was largely contained due to effective risk management measures introduced at the stock exchanges. The KSE- 100 index closed the year at 1770, up by 29.5 per cent in contrast to the sharp decline of 10.1 per cent last year. The capitalized value of shares (Rs. 407.6 billion) increased by 20.2 per cent as compared to a rise of 13.4 per cent a year earlier. The turnover of shares at 29.1 billion in FY2002 was almost the same as in FY2001. During the year, 17 new TFCs were launched compared to 10 in the preceding year. Post - September 11, 2001 developments created uncertainties in the business environment throughout the globe as well as in Pakistan. A number of measures were taken during FY2002 to put stock market on track and for its smooth functioning. These included nomination of 40 per cent independent and 95

professional directors on the Boards of all the three stock exchanges, enhancement of net capital balance requirement by 10 times to Rs. 2.5 million for the Karachi Stock Exchange (KSE), Rs. 1.5 for Lahore Stock Exchange (LSE) and Rs. 0.75 million for Islamabad Stock Exchange (ISE), implementation of T+3 settlement system and issuance of a number of rules & regulations. Effective July 1, 2002 all non-bank financial institutions (NBFIs) were given under the supervision of Securities & Exchange Commission of Pakistan (SECP). SECP also issued “Code of Corporate Governance” in order to establish a framework of good corporate governance.

Balance of Payments (2001-2002)

Pakistan’s external sector recorded sustained improvement during FY2002 despite global slowdown and weakened prices of major exports. The improvement resulted from a number of positive developments which include; lifting of economic sanctions by the international community, relief on debt burden after rescheduling by the Paris club, greater institutional assistance and exceptional cash grants, enlarged access to US and European markets and up-gradation of Pakistan’s credit rating. These developments were followed by massive increase in private inflows especially under workers’ remittances and foreign direct investment as well as sharp contraction in trade deficit, which led to strengthening of the BOP position. The current account balance (excluding official transfers) posted a sizeable surplus, which easily out weighed the net deficit under capital account and generated an overall BOP surplus of US Dollars 2.6 billion. Thus improvement in current account balance along with additional financial assistance and cash grants in turn contributed towards massive build-up of foreign reserves, which not only provided much needed sustained stability in the exchange market but also strengthened the rupee/dollar parity.

Pakistan’s trade deficit (customs-based) shrank by 21.1 per cent to US

Dollars 1.2 billion during FY2002 exclusively due to deceleration of 3.6 per cent in imports, caused by subdued prices of POL in international markets as well as reduced payments for some food items i.e. sugar, tea and soybean oil. Exports stood at US Dollars 9.1 billion in FY2002 and remained almost close to the last year’s level but exceeded the revised export target of US Dollars 8.5 billion. Pakistan’s exports performance was better when compared with substantial decline in exports experienced by major Far-Eastern countries i.e. South Korea, Indonesia, Malaysia, Thailand and Taiwan as well as China. The contribution of manufactured and semi-manufactured components of exports augmented further raising their share from 87.4 per cent in FY 01 to 89.2 per cent in FY2002. Export of value-added textiles increased due to enlarged volume of exports of bed-wear, readymade garments and towels as a result of 15 per cent increase in quota by EU and other incentives offered by the government.

Imports aggregated US Dollars 10.3 billion showing a fall of 3.6 per cent in contrast to a rise of 4.1 per cent in the previous year. Major decline in imports occurred in petroleum group (-16.5 per cent) and food group (-16.9 per cent). As against the overall decline in imports, non-oil component of imports rose by 2.2 per cent to US Dollars 7.5 billion. Total non-oil, non-food imports also edged up by 5.1 per cent due to higher imports of a variety of items including textile machinery, construction and mining machinery, iron and steel, synthetic and artificial silk yarn and paper and paper board etc.

Current Account

The current account balance (excluding official transfers) posted a sizable surplus of US Dollars 1.25 billion in FY2002 as against the deficit of US Dollars 0.5 billion in the preceding year largely from a hefty inflow of workers’ remittances, significant contraction in the trade balance and enlarged services

receipts under other goods services & income. The buoyancy in the inflow of workers' remittances by 151 per cent to US Dollars 2.4 billion was attributed mainly to virtual elimination of premium between the inter-bank and the kerb market exchange rates, stricter laws to check informal web of money trail in USA and Middle Eastern countries and reverse capital flight from USA. State Bank also purchased foreign exchange worth US Dollars 1.38 billion from the kerb market, which was, however, 36.2 per cent lower than last year. The current account surplus with the support of official transfers increased to US Dollars 2.7 billion in FY2002 reflecting mainly the impact of Saudi oil facility (US Dollars 579 million) and exceptional cash grants from donor countries especially US Dollars 600 million from the US.

Capital Account

The capital account of the BOP exhibited sharp deterioration as net outflow surged by 63.3 per cent to US Dollars 1,050 million in FY2002 in spite of considerable improvement in FDI and reduction in amortization of long- term loans to Paris Club and other bilateral countries. This was exclusively the outcome of a sharp rise of 22.9 per cent in gross outflows emanating largely from a) Incremental repayments (official short-term capital) to foreign commercial banks (+US Dollars 607 million) and IDB (+US Dollars 219 million); b) Enlarged outflow of US Dollars 320 million on account of closure of private sector swaps with various commercial banks; c) Higher outflow of US Dollars 491 million under portfolio investment (including public securities) on account of heavy encashment of maturing special US Dollars bond worth US Dollars 452 million and d) Rise in net outflow under non-resident FCAs from US Dollars 96 million to US Dollars 173 million.

Gross inflows also increased by 14.0 per cent due to: a) Rise in program aid from IFIs by 30.5 per cent to US Dollars 885 million; b) Significant rise in FDI

inflows (+50.5 per cent to US Dollars 486 million; c) Enlarged official short-term credit from foreign commercial banks (+US Dollars 200 million payable at least after 1 year) and d) Inflow of US Dollars 66 million on account of realization of export bills. The hefty current account surplus more than offset the capital account deficit and therefore the overall balance of payments position ended up with a larger surplus of US Dollars 2.63 billion during FY2002. The financing gap dwindled by 80.5 per cent, which includes the impact of debt relief of US Dollars 1.2 billion and rollover/repayments of FE-45 deposits (US Dollars 775 million).

Foreign Exchange Reserves

Foreign exchange reserves held by SBP showed a steep rise to US Dollars 4.8 billion at the end of June 02 compared to US Dollars 1.7 billion at the end of previous year. Reserve accumulation primarily resulted from SBP’s purchases from the kerb market and receipt of cash grants from the USA. After including the balances held by other banks, country’s total reserves augmented to US Dollars 6.4 billion at end-June 2002 which were sufficient to finance about 32 weeks of imports.

Balance of Payments (July-December 2002)

Pakistan’s balance of payments position depicted considerable improvement during July-December 2002 despite hefty rise in imports and nil purchases of foreign exchange from the Kerb market. The current account balance (excluding official transfers) posted a hefty surplus of US Dollars 1,192 million compared to the surplus of US Dollars 297 million in the same period last year. The improvement resulted from a substantial rise in workers’ remittances (+118 per cent), contraction in the deficit under services account (-30.3 per cent) and higher exports earnings (+13.8 per cent). The current account surplus with the support of

inflows under official transfers (including receipts of US Dollars 350 million under Saudi Oil Facility) rose from US Dollars 1,288 million to US Dollars 1,715 million in July-December 2002. The capital account of the BOP also improved and posted a net inflow of US Dollars 106 million. The performance of FDI was also encouraging wherein inflows more than doubled to stand at US Dollars 540.3 million during July-December, 2002. With these developments, the overall balance of payments position ended up with a hefty surplus of US Dollars 2,209 million, which was nearly double the level obtained in the same period last year. The level of SBP held FE reserves, which stood at US Dollars 4.8 billion as at end June 2002 crossed the US Dollars 8.0 billion mark at end December 2002. The Standard & Poor’s Rating Services also raised its long-term sovereign credit rating on Pakistan and ADB also reduced Pakistan’s country risk premiums for its political risk guarantee (PRG) facility. During July-December 2002 Pakistan’s trade deficit widened by 41.4 per cent to US Dollars 590.4 million entirely due to a rise of 18.7 per cent in imports especially under petroleum and petroleum products, edible oils, machinery (power generating and electrical), fertilizers and other chemicals. Exports recorded a healthy growth of 16.6 per cent to US Dollars 5.2 billion despite the recent appreciation of Pak-rupee. Cotton and textile manufactures were on the top and contributed about 66 per cent to total exports mainly due to greater market access allowed by the European Union and USA as well as the clearance of the goods stuck up at the American ports since last year. Export of value-added textiles increased by 19.4 per cent mainly on account of substantial rise in the volume of exports of hosiery, bed-wear, towels and synthetic textiles. Chemicals & pharmaceuticals and sports goods also exhibited significant growth of 71.2 and 12.8 per cent respectively. Imports bill also grew sharply by 18.7 per cent to US Dollars 5.8 billion during July-December 2002 in contrast to a fall of 9.6 per cent in July-December 2001 reflecting largely the impact of significant pick up in country’s industrial

100

activities. Non-oil component of imports rose by 22.8 per cent to US Dollars 4.3 billion whereas non-oil, non-food imports also increased by 22.2 per cent to US Dollars 3.9 billion during July-December 2002.

Monetary and Credit Developments 2001-2002

Monetary policy was sufficiently tight during the last couple of years in order to check prices, and buttress exchange rates to build up foreign exchange reserves. After achieving macroeconomic stability, stable exchange rate, build up of foreign exchange reserves and enforcement of fiscal and monetary discipline, SBP eased its monetary policy during the FY2002 under changed circumstances. The discount rate was gradually lowered from 14 per cent to 9 per cent effective January 23, 2002. As a result, SBP was also able to reduce the yield on Treasury Bills of different maturities. Monetary policy, which was accommodative even prior to 9/11 events, became even more receptive with the acceleration of foreign exchange inflows of Overseas Pakistani Workers, which found their way through the banking channel. This massively improved the net foreign assets of the entire banking system and hence foreign exchange reserves position, and initiated the process of rupee appreciation for the first time in the recent economic history of Pakistan. Thus the emphasis of monetary policy shifted from preventing a depreciation of the Rupee, to avoiding a very abrupt appreciation. As rising foreign currency inflows swamped foreign currency markets, SBP quickly increased its foreign currency purchases from the interbank market in order to hold down the rise of Pak Rupee that threatened to debilitate Pakistan’s export growth. The high reserves reduced the risk perception of the country, and helped lower the risk of speculative pressure against the local currency in future, because of SBP’s increased ability to intervene aggressively in the interbank market. The Credit Plan targets for 2001-2002 under went major revisions in the

101

wake of new developments within and outside the country. Net Foreign Assets (NFA) of the banking system were revised upward on the expectations that the country would attract more foreign exchange inflows resulting from positive developments in the external sector including increased remittances. Government sector credit retirement target was also enhanced mainly from commodity operations in view of the realization that commodity operations would be transferred to the private sector. Consequently, credit allocation for non- government sector was raised by Rs. 13.2 billion. Since these changes in the Credit Plan between government and non-government offset each other, the resultant monetary expansion remained almost unchanged. Actual developments in the monetary and credit field during FY2002 showed significant increase in money supply (15.4 per cent) exceeding both the revised credit plan target (10.0 per cent) and the actual monetary expansion (9.0 per cent) during the same period last year. The principal factor that gave rise to such a large monetary expansion was hefty build-up of NFA of the banking system (Rs. 206.2 billion) compared with the build-up of NFA (Rs. 72.7 billion) in the same period of last year. Net Domestic Assets (NDA) rose by 2.0 per cent during FY2002 as against the increase of 3.7 per cent during FY2001. Government borrowings for budgetary support increased by Rs. 14.3 billion and those for commodity operations by Rs. 5.3 billion during FY2002 in sharp contrast to a retirement of Rs. 32.3 billion for budgetary support and Rs. 12.5 billion for financing commodity operations. Credit to private sector extended by commercial banks increased by Rs. 43.5 billion during FY2002, which was 20.4 per cent lower than the credit expanded last year. Although on the face value government borrowings for budgetary support seemed to have breached the credit plan target, taking into account the waiver given by IMF on account of KESC re-capitalization and the tax refunds to banks, the government borrowings remained well within the target. Credit expansion in the private sector was low during the year but it was expected taking into account the uncertainties emanating from global

102

recession, border tension and cancellation of export orders.

Monetary and Credit Developments (July-December 2002)

FY2003 started with no fundamental shift in monetary policy stance. It remained focused on two fundamental aspects: stability of exchange rate essential to maintain trade competitiveness and provision of benign interest rate environment necessary to stimulate economic growth. During July-December 2002, the economy witnessed further improvement on external front with higher foreign exchange inflows resulting accelerated accumulation of NFA of the banking system and hence money supply. In the wake of these developments and the likelihood of sizable foreign exchange inflows in the coming months, the National Credit Consultative Council in its recent mid-year review meeting revised some of the annual credit plan targets for 2002-2003. In consequence, NFA of the banking system was revised upward to Rs. 271 billion from Rs. 91.5 billion and the monetary expansion was projected to be 16 per cent compared with original target of 10.8 per cent. Credit targets for NDA was also revised downward to Rs. 10.5 billion from the original target of Rs. 98.5 billion due to anticipated higher retirement of borrowing by the government (Rs. 44.2 billion against earlier estimate of Rs. 14.2 billion). Credit to private sector was also revised to Rs. 50.2 billion from Rs. 94.7 billion since significant credit needs are being met by self- financing through unprecedented foreign inflows of remittances etc and through other than bank sources like TFCs, leasing and others. During July-December 2002, money supply (M2) increased by 9.5 per cent compared to 8.1 per cent in the corresponding period last year. The higher growth in M2 was entirely attributable to the massive growth of NFA of the banking system, which increased by Rs. 196.2 billion due to unprecedented foreign inflows. The NFA had increased by Rs. 71.3 billion in the same period last year. NDA of the banking system, however, depicted a decline of Rs. 29.6 billion in spite of a

103

significant expansion of credit by the private sector. It was the net retirement of government borrowings both for budgetary support and commodity operations and a higher contractionary impact of balancing entries i.e. “Other items” (net) that reduced the NDA of the banking system. The overall net government borrowings including commodity operations registered a net retirement of Rs. 55.1 billion as compared to a smaller retirement of Rs. 13.1 billion in the corresponding period last year indicating significant improvement in the government budgetary position. Break-up of government borrowing from the banking system showed that during July-December 2002, government retired Rs. 34.0 billion for budgetary support compared to Rs. 6.8 billion in the corresponding period last year. Higher tax collection due to improved tax administration, availability of more than budgeted external financing, higher growth in imports due to strong rupee, comparatively lower tax refunds, and dwindling of debt servicing burden due to debt rescheduling were some factors which improved the budgetary position of government. Government also retired a larger amount of Rs. 21.0 billion to scheduled banks borrowed to support commodity operations compared to a smaller amount of Rs. 5.4 billion in the same period last year. Credit supply to the private sector picked up fast this year in the backdrop of comfortable liquidity position of banks resulting from substantial inflows of workers’ remittances, and benign interest rate environment resulting from recent discount rate cuts. Credit to the private sector by commercial banks expanded by Rs. 76.8 billion during July-December 2002, reflecting 43 per cent increase over credit availed by the private sector last year. The credit off-take by the private sector inclusive of export finance was even higher and amounted to Rs. 86.2 billion compared with Rs .71.9 billion during July-December last year. The net credit demand by the private sector is expected to climb significantly in the near future in view of better external-sector performance, easing of boarder tension, stable political situation, and most importantly

104

declining T-bill and lending rates and banks’ potential involvement in consumer and mortgage financing.

105

INVISIBLE RECEIPTS AND PAYMENTS RELATED TO SERVICES WITH ACU COUNTRIES IN 2002 (In 000 US Dollars)

Bangladesh

RECEIPTS PAYMENTS 1.Miscellaneous Services 383 1.Miscellaneous Services 905 2.Transportation 424 2.Transportation 0 3.Travel 73 3.Travel 50 4.Insurance 0 4.Insurance 0 ------Total: 880 Total: 955 ------

Bhutan

RECEIPTS PAYMENTS 1.Miscellaneous Services 30 1.Miscellaneous Services 0 2.Transportation 0 2.Transportation 0 3.Travel 0 3.Travel 0 4.Insurance 0 4.Insurance 0 ------Total: 30 Total: 0 ------

India

RECEIPTS PAYMENTS 1.Miscellaneous Services 778 1.Miscellaneous Services 571 2.Transportation 139 2.Transportation 100 3.Travel 12 3.Travel 39 4.Insurance 1 4.Insurance 0 ------Total: 930 Total: 710 ------

106

Iran

RECEIPTS PAYMENTS 1.Miscellaneous Services 218 1.Miscellaneous Services 93 2.Transportation 6 2.Transportation 0 3.Travel 2 3.Travel 85 4.Insurance 0 4.Insurance 0 ------Total: 226 Total: 178 ------

Myanmar

RECEIPTS PAYMENTS 1.Miscellaneous Services 1 1.Miscellaneous Services 0 2.Transportation 0 2.Transportation 0 3.Travel 0 3.Travel 0 4.Insurance 0 4.Insurance 0 ------Total: 1 Total: 0 ------

Nepal

RECEIPTS PAYMENTS 1.Miscellaneous Services 69 1.Miscellaneous Services 36 2.Transportation 0 2.Transportation 0 3.Travel 42 3.Travel 6 4.Insurance 0 4.Insurance 0 ------Total: 111 Total: 42 ------

107

Sri Lanka

RECEIPTS PAYMENTS 1.Miscellaneous Services 228 1.Miscellaneous Services 581 2.Transportation 589 2.Transportation 0 3.Travel 92 3.Travel 86 4.Insurance 0 4.Insurance 0 ------Total: 909 Total: 667 ------

EXPORTS AND IMPORTS FOR THE YEAR 2002

(In 000 US Dollars)

COUNTRY EXPORTS IMPORTS BANGLADESH (130) 104,076 31,243

BHUTAN (190) 237 933

INDIA (780) 48,801 162,831

IRAN (1100) 41,771 204,503

MYANMAR (1415) 7,802 15,167

NEPAL (1490) 2,251 1,108

SRI LANKA (1820) 71,383 31,981 TOTAL 276,321 447,766

108

SRI LANKA

The Sri Lankan economy recovered in 2002 from the decline experienced in 2001, even though the recovery was not as strong as expected. Positive developments were seen in all major areas-the economic growth turned around from negative to positive growth, inflation decelerated, external reserves increased, the fiscal deficit was reduced, the external current account deficit declined, financial markets strengthened, exchange rate remained stable, monetary expansion remained compatible with the inflation reduction path, structural reforms were continued, business confidence improved and the Stand-By-Arrangement (SBA) wih the IMF was completed successfully. Nevertheless, the recovery was not broadbased and was below initial expectations, mainly because world economic conditions, on which Sri Lanka depends heavily, did not improve as much as projected at the beginning of the year. The government has now enunciated its medium-term economic plans in a policy document titled 'The Future: Regaining Sri Lanka' which indicates the strong adjustment measures that are to be implemented to ensure sustainable growth and poverty alleviation. Several factors contributed to the improvement in economic performance in 2002. The first and most important was the improvement in the security situation in the country, following the cessation of hostilities and the commencement of peace negotiations. The resulting peaceful environment has raised confidence and has encouraged the expansion of economic activities. Secondly, even though the world economic recovery was slow and below expectations, international trade expanded in 2002 compared with 2001. In particular, the markets that are of major importance to Sri Lanka, namely, the USA, Europe and the Middle East, have improved their economic performance. Thirdly, the easing of the drought in Sri Lanka in the second half of 2002 helped to increase agricultural production. Fourthly, the ending of the power cuts by mid 2002 had a clear positive impact on industry and services. Fifthly, the removal of the war risk premium on insurance on vessels calling on Sri Lanka assisted both trade and tourism. Finally, the improvement in

109 macroeconomic management, continuation of structural reforms and stability under the floating exchange regime, have had a beneficial impact on economic performance.

Output

After three consecutive quarters of negative growth in 2001(Q2 -0.2 per cent; Q3 -4.2 per cent; Q4 -3.4 per cent), the economy has shown a clear upward trend recording positive growth rates in the first three quarters of 2002 (Q1 0.3 per cent; Q2 2.5 per cent; Q3 5.3 per cent). Thus, in the first three quarters of 2002, the economy has shown a growth of 2.7 per cent, in contrast to a contraction of 0.9 per cent in the first three quarters of 2001. The growth has come from the Services sector (4.5 per cent) and the Agriculture sector (2.5 per cent). The Industry sector, though showing better performance than in 2001, still contracted by 0.6 per cent due to weak export demand and power shortages. For the year as a whole, economic growth has been estimated provisionally at about 3.5 per cent, benefiting from a 5.4 Per cent growth in services, 2.3 per cent in agriculture and 0.8 per cent in industry. The improved business confidence consequent on the ongoing peace process, more favourable weather conditions, an uninterrupted power supply, and the recovery in the world economy which supported the economic recovery in 2002 are expected to provide a basis for continuation of output growth in 2003. The economic setback in 2001 contained to affect employment. A declining trend in unemployment, witnessed throughout the decade of the 1990s, reversed in 2001, with unemployment rising to 7.9 per cent, from 7.6 per cent in 2000 and further to 9.8 per cent by the second quarter of 2002. Some easing of the problem is expected following the economic recovery in 2002, and the rate of unemployment for 2002 as a whole is expected to be around 9 per cent.

110

Inflation

Inflation has declined throughout 2002, reflecting the impact of monetary policy stance and improved supply conditions. Inflation, as measured by the 12-month moving average of the Colombo District Consumer Price Index (CDCPI) decreased from 10.3 per cent at end 2001 to 6.8 per cent at end 2002, while inflation measured by the Colombo Consumers’ Price Index (CCPI), decreased from 14.2 per cent to 9.6 per cent during the same period. The GDP deflator is expected to be around 9 per cent in 2002, down from the 13 per cent in 2001. Increased domestic agricultural output resulting from better weather conditions, freer movement of goods from the North and the East following the cessation of hostilities, and a stable currency helped to bring down inflation. This decline is expected to continue in 2003, although the increases in oil prices could cause a setback.

Public Finance

The recurring fiscal deficit problem of the country showed signs of easing when the deficit was brought down to about 8.9 per cent of GDP in 2002. Realised annual revenue was less than budgeted due to the slower economic recovery and lower import expansion than expected, delays in implementing revenue measures such as the VAT and the debit tax, and new exemptions under the VAT system. The government took additional measures to curtail expenditure in order to contain the deficit. However, the reduction in expenditure was mainly through a curtailment of capital expenditure, which had a detrimental effect on investment and hence, the future growth potential of the economy. Improvements were seen in the government’s cash and debt management with the reduction of the government’s overdraft from the two state banks from around Rs. 38 billion at the end of 2001 to around Rs. 5 billion at end 2002 and the extension of the maturity structure of public debt.

111 The high level of government debt (estimated at 105 per cent of GDP at the end 2002) continued to be a cause for concern. The domestic component, with its relatively high rate of interest, is a greater concern than the foreign component, which is mainly on concessional terms. Interest payments on total government debt amounted to 45 per cent of government revenue (41 per cent for interest on domestic debt alone) and 35 per cent of total government current expenditure (32 per cent for domestic debt) in 2002. Recongnising the potential problems, the government has enacted the Fiscal Management (Responsibility) Act, designed to ensure fiscal sustainability by reducing both the budget deficit and the government debt in the medium-term, reducing the deficit to 5 per cent and debt to 85 per cent of GDP by 2006.

International Trade and Balance of Payments

International trade recovered in 2002, although more slowly than initially expected. The significant decline in imports and exports experienced in the second half of 2001 continued into the first half of 2002. However, a recovery was observed in the second half containing the contraction in annual exports to about 4 per cent, while annual imports increased by about 0.6 per cent. Also, the growth in intermediate imports is an indicator of potential expansion in future exports. The faster recovery in imports than in exports resulted in a widening of the trade deficit to about 8 per cent of GDP. However, increased inflows through the services account and transfers helped reduce the current account deficit to about 1.8 per cent of GDP. Meanwhile, inflows under the capital account were sufficient to record a surplus in the overall balance of payments for the second consecutive year. The Free Trade Agreement with India is gradually leading to an increase in trade between the countries. It has led to initiatives for similar arrangements with Pakistan and Bangladesh. With improved economic prospects in the sub- continent, these agreements would help to increase the resilience of Sri Lanka's international trade.

112 Tourism recovered significantly in 2002, after the setback in the previous year. The ongoing peace process has already yielded a dividend in the form of increased tourist arrivals by about 17 per cent. Similarly, a substantial improvement was recorded in port and telecommunication services. Meanwhile, current private transfers, which exceeded the US Dollars one billion mark in 2002, are expected to improve further in 2003, reducing the pressure on the external current account deficit. The economic improvement has been clearly reflected in the capital account. Net foreign direct investment is estimated to have grown nearly threefold to about US Dollars 228 million in 2002 from the inflow of US Dollars 82 million in 2001. The Colombo stock market has registered one of the best performances in the region and net foreign investments into the stock market amounted to about US Dollars 25 million, after three consecutive years of outflows. These favourable trends in the capital account are expected to further improve in 2003 with the progress in the peace process and economic reforms. The external debt service ratio in 2002 is estimated at a manageable 13.5 per cent of exports of goods and services, mainly because the bulk of foreign public debt is on highly concessional terms. External borrowing by the private sector, other than for trade, is not encouraged.

International Reserves and the Foreign Exchange Market

The independent floating exchange rate regime introduced since January 2001 has helped to improve the country's external position and stabilise the foreign exchange market. The foreign exchange market has gained greater stability and depth. The rupee depreciated by around 3.7 per cent against the US Dollar in 2002 and by 10 to 18 per cent against other major international currencies, due to cross currency variations. Sri Lanka maintained its external competitiveness in 2002, as indicated by the real effective exchange rate based on a basket of 24 partner and competitor countries. Activity in the forward foreign exchange market increased in terms of both volume and duration of

113 contracts, while forward premia indicate market expectations of a continued stability in the rupee. Benefiting from the surplus in the balance of payments, the country's external assets rose for the second consecutive year, raising its import coverage to about 5.2 months, at end 2002. The Central Bank was able to purchase substantial foreign exchange from the domestic forex market, further strengthening official external reserves.

Monetary Developments and Interest Rates

Monetary expansion was contained at around 13 per cent in 2002. This level of expansion provided sufficient liquidity to the market to support the recovery in the economy, without creating excessive demand pressure. Interest rates have decreased gradually in 2002 and early 2003. The Central Bank reduced its main policy rates, in several steps, i.e., the Repo rate and the Reserve Repo rate, by 225 basis points during 2002 and by another 75 basis points early in 2003. This cautious reduction has taken into account decreasing inflation, availability of market liquidity , the need to promote economic recovery and the movements in international rates. Market interest rates have generally followed these rate movements. Most short-term interest rates, such as call market rates, the prime lending rate and the yield on government paper, have decreased sympathetically, by similar amounts. Bank deposit rates and lending rates too have declined. However, general lending rates have declined relatively slowly. These reductions in interest rates are expected to lead to greater investment in the economy, giving economic activity a much-needed boost and increasing employment.

Structural Reforms

A policy of strong structural reforms was implemented by the government in 2002. Major reforms were seen on virtually all fronts – public enterprises, infrastructure, labour, fiscal, financial and legislative. The

114 divestiture of state owned enterprises continued. Pension reforms were strengthened with the introduction of a contributory pension scheme to the public sector, which had hitherto had a pay-as-you-go non-contributory scheme. Fiscal prudence was strengthened with the passage of the Fiscal Management (Responsibility) Act. Welfare Benefits Act was introduced to depoliticise and improve the targeting of welfare schemes. Legislative amendments were also introduced to improve the flexibility of the labour market. Financial sector reforms were continued to increase the efficiency of the sector. Legislation relating to the Central Bank was amended to enable it to focus on its core objectives of economic and price stability and financial system stability. Payment and settlement risks are expected to be minimized when the new Real Time Gross Settlement system is introduced in late 2003. At the same time, scripless trading in government securities will be commenced. The reforms are expected to be continued and further strengthened under the PRGF arrangement to be entered into which the IMF. The government has specified an extensive set of reforms to be implemented in the medium term in its policy document. ‘The Future – Regaining Sri Lanka’. These would be instrumental in improving the productivity and resilience of the economy, solving current economic imbalances such as the high level of public debt, and increasing growth and employment.

115 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2002

(In Million Sri Lanka Rupees) 1. BANGLADESH Total Exports 974.00

Animal feeding preparations 36.34 Articles of apparel and clothing accessories - Other 45.82 Bleached: plain weave fabrics 18.18 Boards equipped with two or more apparatus 3.34 Coral and similar Conch shells other than chanks 16.20 Finishing agents, etc, of a kind used in the textile or like industries nes 7.64 Labels, badges of textiles,woven,unwoven 21.34 Men's or boys' jackets and blazers of synthetic fibres 9.25 Narrow woven fabrics of other textiles, other fabrics etc 59.15 New pneumatic tyres, of rubber of a kind used on buses or lorries 12.35 Pigments and preparations based thereon 26.95 Printed paper or paperboard labels of all kinds 13.89 Printed woven fabrics 12.26 Rawl plugs 8.12 Self-adhesive tape, plates, strips 3.72 Sewing thread of synthetic filaments & staple fibres 28.13 Single synthetic yarn, nes 19.51 Smoked rubber 97.72 Trailers 3.94 Wall tiles 9.41 Wire of aluminium, not alloyed 84.26 Yarn 4.01 Other 432.48

Total Imports 374.00

Denim 6.61 Electric conductors 122.98 Jute bags not knitted or crocheted 9.49 lead-acid of a kind used for starting piston engines 39.84 Multiple (folded) or cabled yarn of jute 23.62 Other fabrics 9.11

116 Other medicaments of mixed or unmixed products 47.53 Printed 4.76 Seeds of coriander 5.05 Single yarn of jute 8.81 Textile fabrics impregnated with polyvinyl chloride 5.34 Twine, cordage, rope and cables, of jute or other textile bast fibres 6.81 Unbleached woven fabrics of jute or of other textile bast fibre 15.90 Woven fabrics of jute or other textile bast fibres 17.76 Other 50.38

117 2. INDIA Total Exports 16,318.00

Aluminium waste,scrap and alloys, unwrought 99.85 Animal skins with or without hair 46.12 Articles of apparel and clothing accessories 428.03 Ash and residues containing mainly copper 30.48 Bars, rods and profiles of copper alloys 404.71 Bars,rods and profiles of brass 79.00 Black tea 83.37 Brass, unwrought 120.36 Cartons,boxes,cases and bags 70.70 Cloves 2,504.60 Coconut desiccated and milk powder 18.32 Containers of gas of steel or iron 44.51 Copper powders,waste and scrap,alloys unwrought 327.82 Coral and similar conch shells 17.35 Crude palm oil 31.29 Derivatives of rosin and resin acids 19.75 Dried pepper 1,189.89 Electric filament or discharge lamps 118.60 Fabrics, warp knit, of cotton 37.16 Fibreboard 110.38 Folding cartons, boxes and cases 66.09 Food preparations 15.08 Fresh arecanuts 28.55 Fruits 122.83 Furniture and parts 136.41 Glycerol 118.96 Handbags 15.98 Knitted or crocheted fabrics 69.27 Labels and badges of textiles 31.97 Lead oxides 13.45 Mace 94.90 Magnetic or optical readers 346.62 Marble,travertine and alabaster 76.58 Naphthalene 797.88 Natural gums, resins, gum-resins 75.49 New pneumatic tyres 114.42 Nutmeg 192.84

118 Nuts of iron or steel 23.32 Paints 22.22 Pale crepe rubber 14.11 Paper or paperboard or corrugated paper 454.68 Parts and accessories of the machines 48.81 Parts of aeroplanes or helicopters 48.13 Pepper 20.80 Photocopying apparatus 60.59 Pigments and preparations based on titanium dioxide 17.74 Plants and parts of plants 17.73 Plates, sheets and strip of non-cellular vulcanized rubber 21.75 Printed paper or paperboard labels of all kinds 50.60 Refined copper unwrought 2,569.26 Refined lead, unwrought 15.22 Salts and esters of citric acid 13.62 Soap in other forms 10.75 Solar crepe rubber 23.00 Surgical gloves 19.37 Tableware and kitchenware, of porcelain or china 23.39 Tin alloys, unwrought 55.37 Tin, not alloyed, unwrought 30.96 Trunks, suit-cases 47.30 Turnings, shavings, chips of iron or steel 22.26 Unwrought lead 180.55 Wadding of man-made fibres 33.78 Wall tiles 14.93 Waste and scrap of alloy steel 349.56 Wire of copper alloy 2,864.05 Wire-bars of refined copper 434.58 Woven fabrics of cotton 21.65 Zinc, not alloyed 15.23 Other 673.06

Total Imports 79,848.00

ADP input or output units 143.76 Agarbatti and other odiferous preparations 101.01

119 Agricultural tractors 102.78 Air or vacuum pumps 106.70 Aluminium alloys, foils 247.11 Animal food 87.40 Animal skin with or without hair 72.20 Anionic surface-active agents(excl. soap) 63.19 Antibiotics 122.04 Apparatus based on the use of X-rays 58.04 Auto trishaws 2,084.67 Ball or roller bearings 67.24 Ball point pens-Plastics 105.82 Bars and rods of alloy steel 146.59 Bars, rods and profiles of refined copper 39.50 Beauty, make-up, skin-care 160.45 Beedi leaves 325.53 Black gram 76.77 Boards, panels, consoles, desks 119.81 Brakes, coaster braking hubs and hub brakes 150.68 Buses 339.03 Carbon 728.55 Carboys, bottles, flasks 131.49 Cement clinkers 436.02 Ceramic sinks & wash basins 146.77 Chassis fitted/not fitted with engines 536.49 Check valves 55.43 Clutches and parts thereof 52.73 Coconut ekels 53.79 Commercial calcium hypochlorite 42.89 Compression-ignition internal combustion piston engines 83.19 Cotton yarn 2,801.26 Crawler crane 52.76 Denims 429.21 Diesel 3,882.75 Disodium carbonate 40.56 Dried chickpeas, shelled 126.30 Dryers for agricultural products 44.06 Durum wheat 866.96 Electric conductors 70.98 Electric generating sets 372.06 Engines of diesel 85.77

120 Essencial oils 99.97 Fabrics 2,167.28 Ferro-manganese 77.62 Filament lamps 92.32 Fish-dried, salted or in brine 283.45 Flat/cold-rolled iron/steel 927.26 Folding cartons, boxes and cases 64.33 Food grinders/mixers/juice extractors 207.87 Food preparations 328.61 Fresh grapes 45.07 Fruits of genus Capsicum - Chillies 1,614.54 Fungicides 67.45 Gelatin and derivatives 56.53 Generating sets(excl. wind-powered) 3,268.99 Glass 251.31 Glucose & glucose syrup 41.92 Hazardous waste 75.62 Herbicides, anti-sprouting products 104.06 Hot-rolled iron/steel bars & rods 433.43 Hubs, not coaster braking hubs 50.90 Industrial or laboratory furnaces 45.42 Inner tubes used on motor cars, buses or lorries 102.08 Insecticides 169.73 Instruments for measuring variables of liquids or gas 38.70 Instruments for medical, surgical sciences 117.66 Jacks and vehicle hoists 70.26 Kerosene type jet fuel 251.60 Knitted or crocheted fabrics 65.15 L or T sections of iron/steel 60.72 Lorries, other trucks tippers (Dump trucks & bowsers) 51.68 Machine glazed poster paper 66.53 Machinery for sorting & filling 89.36 Machines for making cartons, boxes, etc. 58.44 Magnetic or optical readers 62.78 Maldives fish 87.04 Masoor dhar (whole or split red lentils) 335.51 Materials for surgical sutures; laminaria 99.79 Medicaments 3,704.53 Men's or boys' shirts, trousers 147.47 Milk and cream 58.99

121 Mixture of odoriferous substances and mixt. 44.06 Motor cars 272.79 Motorcycles 1,583.95 Motor-vehicles-buses 1,479.11 Multiple or cabled yarn of nylon 64.40 Needles, catheters, cannulae 98.77 New pneumatic tyres 130.03 Non-industrial diamonds, not mounted or set 91.86 Oil-cake and other solid residues, of soya-bean 1,619.63 Onions & shallots fresh or chilled - B' Onions, red onions 1,869.55 Paints 45.05 Paper & paperboard 958.44 Parts and accessories of motorcycles 86.80 Parts for combustion engines 122.73 Parts for spark-ignition internal combustion engines 56.90 Parts of motor vehicles 398.37 pedals and crank-gear 61.83 Penicillins and derivatives 58.25 Petroleum oils 1,953.88 Plants and parts of plants 43.19 Plastics and articles thereof 77.11 Plates and film 162.48 Polishes or creams for footwear, furniture, floors 103.55 Polyethylene 168.73 Polymers of propylene 820.80 Portland cement 2,308.78 Potatoes 144.21 Printing or writing paper, books, printing ink 882.44 Reception apparatus for television 176.67 Refractory bricks, blocks 45.89 Refrigerators & freezers 113.92 Sacks and bags of other plastics 39.81 Salt & pure sodium chloride 36.19 Sarees 614.14 Screws and bolts with/without nuts or washers 132.69 Seamless tubes and pipes 235.85 Seeds of coriander 46.81 Seeds of cumin 98.66 Semi-milled or wholly milled rice 936.14 Semi-products of iron or non-alloy steel 1,250.46

122 Sewing machines, needles 81.79 Shelled ground-nuts, not roasted 196.69 Silicon dioxide 53.82 Sinks and wash basins 245.79 Smoked rubber 239.42 Soap and organix surface-active products 40.81 Sodium hydroxide (caustic soda) 196.92 Soya bean flour enriched with protein for making TVP 41.63 Stainless steel bars & rods 194.14 Structures of iron or steel 267.48 Sulphates of aluminium 45.16 Sulphuric acid; oleum 44.18 Syringes, used in medical, surgical or dental 45.29 Table, floor, wall fans 97.73 Taps, cocks and other valves 207.17 Tea 205.39 Textured yarn of polyesters 158.98 Towers and lattice masts or iron or steel 189.90 Tankers & bowsers with stainless steel tanks 229.77 T-shirts, singlets and other vests, of cotton 75.32 Tulles and other net fabrics 46.58 Turmeric-In natural form 126.72 Tyre cord fabric of high tenacity yarn 45.49 U, I or H sections of iron/steel 41.49 Uncoated paper and paperboard 1,006.56 Urea 66.20 Vaccines for human medicine 96.91 Vulcanized rubber thread and cord 124.36 Wadding, gauze, etc with pharmaceutical substances 42.97 Wall tiles 413.60 Washing preparation 45.35 Welded iron/steel 731.39 Wheat grain 2,936.51 Wheel rims and spokes of cycles 123.27 White crystalline cane sugar 5,946.83 Whole or split yellow lentils 38.56 Wire of high-speed steel 40.18 Wire of refined copper 288.80 Women's or girls' ensembles of other textiles 70.13 Wood charcoal-Coconut shell charcoal 43.77

123 Woven fabrics 1,615.22 Other 11,961.50

124 3. IRAN Total Exports 3,353.00

Activated carbon - Granular 22.79 Black tea 3,157.88 Boards,desks, cabinets and other bases 16.70 Coconuts, desiccated 74.54 Magnetic or optical readers; machines for transcribing data onto data media 9.33 Men's or boys' jackets and blazers of synthetic fibres 12.94 Plates, sheets and strip of non-cellular, vulcanized rubber 5.16 Sewing machines of industrial type 6.26 Smoked rubber 15.44 Trunks, suit-cases etc 5.08 Wholly of Sri Lanka origin in bags of filter cloth 5.80 Other 21.09

Total Imports 17,579.00

Apples, fresh 2.25 Butadiene rubber, in primary forms or in plates, sheets or strip 15.79 Carbon (carbon blacks and other forms of carbon) 94.47 Chloroprene (chlorobutadiene) rubber (excl. latex) 4.30 Dried chickpeas, shelled 9.38 Hydraulic lime 7.07 Masoor dhal 12.09 Fresh fruits 3.19 Petroleum oils and oils obtained from bituminous minerals, crude 17,199.03 Styrene-butadiene rubber; carboxylated styrene-butadiene rubber, nes 38.51 Urea 150.01 Other 42.92

125 4. MYANMAR Total Exports 26.00

Nutmeg 5.27 Paints 12.04 Parts of transformers, inductors and static converters 6.56 Other 2.14

Total Imports 113.00

Bars and rods of free-cutting steel 3.21 Beans of the species - Green gram (moong) dried 8.83 Black gram 42.12 Crawler crane 7.49 Derricks, cranes, etc,self-propelled, on tyres 2.54 Dried chickpeas, shelled 4.73 Maize (excl. seed) 3.22 Radio/TV transmission apparatus without reception apparatus 4.90 Special purpose motor vehicles 4.98 Tropical veneer sheets and sheets for plywood 2.42 Turmeric - In natural form 7.88 Wood marquetry, inlaid wood; caskets 2.92 Other 17.76

126 5. NEPAL Total Exports

Articles of apparel and clothing accessories Coconuts, desiccated Crown corks of base metal Other

Total Imports

Broom or brush bodies and handles Other knitted or crocheted fabrics dyed Other

127 6. PAKISTAN Total Exports 2,759.00

Aluminium bars,rods and profiles 23.69 Articles of apparel and clothing accessories - Other 30.59 Betal leaves 187.08 Wholly of Sri Lanka origin black tea 516.95 Bristle fibre bleached (Raw of Coconut) 10.28 Brown crepe 63.65 Carboxymethylcellulose and its salts, in primary forms 13.11 Coconut ekels,oil,desiccated,in shell 227.91 Coir twine,yarn 20.12 Copra 939.35 Dried pepper (excl. crushed or ground) 6.27 Fibreboard 11.40 Magnetic or optical readers 17.73 Mattress fibre not twisted 10.03 Metalized 13.13 Natural graphite in powder or in flakes 22.16 Nutmeg 29.98 Oil-cake and other solid residues of defatted coconuts 15.42 Fruit : Tamarind 9.82 Pale crepe 112.75 Printed paper or paperboard labels of all kinds 13.24 Sewing thread of synthetic staple fibres 11.75 Smoked rubber 145.54 Wire of aluminium, not alloyed 64.52 Other 242.52

Total Imports 6,303.00

3-thread or 4-thread twill including cross twill 92.01 Animal skin without wool or hair on 149.89 Apples, fresh 14.67 Bakery machinery and machinery for making macaroni, spaghetti, etc 37.14 Carboys, bottles, flasks and similar articles of plastics 40.40 Chewing gum 27.44 Cotton yarn,combed 415.63 Denims 40.73 Dried peas, shelled 33.41

128 Dyed plain weave fabrics 13.64 Fabrics,warp knit,of cotton 495.02 Fish,dried,salted or in brine 967.10 Food preparations 41.39 Frozen mackerel,salmonidae 18.04 Fruits of genus Capsicum,Chillies 23.42 Gloves, mittens and mitts 13.81 Iron or non-alloy steel 75.10 Knitted or crocheted fabrics 35.79 Motorcycles 15.57 Mustards,Mathe seeds 35.93 Onions & shallots fresh or chilled - B' Onions 131.22 Oranges, fresh or dried 149.30 Other seamless tubes and pipes 22.01 Other medicaments of mixed or unmixed products, for retail sale 324.48 Other medicaments with >=2 constituents, not for retail sale 22.50 Other potatoes, fresh or chilled 428.71 Plain weave fabrics 47.70 Plastic plates,film or foil 29.43 Polyvinyl chloride, not mixed with other substances, in primary forms 104.74 Printed, dyed or coloured woven fabrics 39.66 Seeds of fennel; juniper berries 15.41 Semi-milled or wholly milled rice 493.38 Smoked rubber 10.17 Synthetic staple fibres, of polyesters, not carded, etc 27.63 Urea 142.39 Woven fabrics 1,236.42 Yarn 57.37 Other 434.37

129 TRADE THROUGH FTZ IN 2002 (In Million SLRS)

IMPORTS

AS A PERCENTAGE OF TOTAL IMPORTS OF COUNTRY TOTAL VALUE (CIF) THE RELEVANT COUNTRY BANGLADESH 56.99 15.24 BHUTAN - - INDIA 14,643.64 18.34 IRAN 134.47 0.76 MYANMAR 12.32 10.90 NEPAL 17.19 95.50 PAKISTAN 2,582.05 40.97

TOTAL 17,446.66

EXPORTS

AS A PERCENTAGE OF TOTAL EXPORTS OF COUNTRY TOTAL VALUE (CIF) THE RELEVANT COUNTRY BANGLADESH 320.41 32.90 BHUTAN - - INDIA 9,842.16 60.31 IRAN 132.01 3.94 MYANMAR 18.74 72.08 NEPAL 71.71 84.36 PAKISTAN 104.29 3.78 TOTAL 10,489.32

130 Clearing Operations

and

Miscellaneous Activities CLEARING OPERATIONS

Financial activities of ACU during 2002 came under the impact of several domestic and international uncertainties. Operations in ACU were, however, successful, the annual growth rate recorded minus 3 per cent compared to 5 per cent in the previous year. In the second half of the financial year 2002 the total transactions which were routed cumulatively through the system was better than the first half of the year and recovered 21 per cent in comparison with the first half of the year. Bhutan’s total trade touched a new high of 63 per cent in 2002 and followed by Sri Lanka and Bangladesh with 11 per cent and 2 per cent respectively, however, the rest of the ACU members recorded negative performances. Myanmar with 66 per cent reduction stood at the top and followed by Nepal, Pakistan, I. R of Iran and India with 27, 15, 10 and 2 per cent respectively. In the year under report the total transactions (one way plus accrued interest) booked at the ACU Secretariat was US Dollars 3,448.40 million indicated a drop of 3 per cent as compared with the preceding year. India with total trade of US Dollars 2,852.5 million stood at the top and followed by the Islamic Republic of Iran, Bangladesh, Sri Lanka, Pakistan, Nepal, Bhutan and Myanmar with US Dollars 1,480.2, 1,295.1, 805.3, 442.9, 14.3, 3.6 and 3.0 million respectively. In percentage terms the highest annual growth belonged to Bhutan. In 2002 the ACU Secretariat has issued a number of accounting vouchers, monthly statements, monthly newsletters and lots of swift, telex and fax messages. The ACU paperwork and communication during the year 2002 were as follows:

132

Description Number 1) Accounting Vouchers 7,368 2) Incoming Swifts/Telexes 2,633 3) Outgoing Swifts/Telexes 1,225 4) Monthly Statements 628 5) Out going Letters/Faxes 448 6) News Letters 12

133

Total Transactions Cleared/Settled Through The ACU 1994-2002

4000

3500

3000

2500

2000

1500

Million U.S. Dollars 1000

500

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 Cleared Settled

134 ASIAN CLEARING UNION

* TOTAL TRANSACTIONS ROUTED THROUGH ACU 2001-2002 (IN US DOLLARS)

Country 2001 Share 2002 Share Change (%) BANGLADESH 1,266,235,513.09 18 1,295,097,844.58 19 28,862,331 2

BHUTAN 2,189,916.71 0 3,559,628.14 0 1,369,711.43 63

INDIA 2,913,414,399.44 41 2,852,465,550.39 41 -60,948,849.05 -2

IRAN 1,645,609,009.58 23 1,480,152,495.91 22 -165,456,513.67 -10

MYANMAR 9,010,174.81 0 3,030,714.02 0 -5,979,460.79 -66

NEPAL 19,717,028.08 0 14,307,144.14 0 -5,409,883.94 -27

PAKISTAN 523,233,844.28 8 442,919,447.59 6 -80,314,396.69 -15

SRI LANKA 727,921,751.33 10 805,307,462.07 12 77,385,710.74 11

TOTAL 7,107,331,637.32 100 6,896,840,286.84 100 -210,491,350.48 -3

* Including Interest

135 ASIAN CLEARING UNION

* TRANSACTIONS CLEARED-SETTLED IN FOREIGN EXCHANGE 2002 (IN US DOLLARS)

Total Total Cleared in Settled in Foreign Transactions Transactions Balance the system Exchange Country Debited Credited (%) (%) BANGLADESH 892 1,198,498,720.69 96,599,123.89 -1,101,899,596.80 BHUTAN 989 287,000.00 3,272,628.14 2,985,628.14 INDIA 50 50 952,353,435.07 1,900,112,115.32 947,758,680.25 IRAN 17 83 214,916,757.40 1,265,235,738.51 1,050,318,981.11 MYANMAR 52 48 1,042,425.40 1,988,288.62 945,863.22 NEPAL 85 15 7,740,641.45 6,566,502.69 -1,174,138.76 PAKISTAN 39 61 317,946,687.41 124,972,760.18 -192,973,927.23 SRI LANKA 793 755,634,476.00 49,672,986.07 -705,961,489.93 TOTAL 3,448,420,143.42 3,448,420,143.42 ±2,002,009,152.72 42 58

* Including Interest

136 CREDIT POSITIONS

In the year 2002 India with US Dollars 1,900.1 million was the main creditor. Islamic Republic of Iran with US Dollars 1,265.2 million stood at the second position. Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan and Myanmar with US Dollars 125.0, 96.6, 49.7, 6.6, 3.3 and 2.0 million respectively stood at third to eighth places. In the year under review 92 per cent of ACU share of total credit transactions belonged to India and I.R of Iran. India with 55 per cent located at the top and Iran recorded 37 per cent of total share of credit transactions. The rest share of credit transactions (8 per cent) accrued to Pakistan, Bangladesh and Sri Lanka. The share of Nepal, Bhutan and Myanmar were less than one per cent. In percentage terms, similar to the preceding year Bhutan with 107 per cent improved its credit position and stood at the top and followed by Nepal, Bangladesh, Myanmar and India. I.R of Iran, Sri Lanka and Pakistan recorded negative annual growth rates of 11, 16 and 29 per cent respectively.

137

Credits (2002)

Million U.S. Dollars

Nepal Pakistan (6.6) (124.9) Myanmar Bangladesh (2.0) (96.6)

Iran (1265.2)

India (1900.1)

Bhutan (3.3) Sri Lanka (49.7)

138 DEBIT POSITIONS

Similar to the preceding year, Bangladesh with US Dollars 1,198.5 million stood at the top as the main debtor. India and Sri Lanka with US Dollars 952.4 and 755.6 million respectively occupied the second and third places of main debtor in the year 2002. Sri Lanka and Bangladesh with 13 and 1 per cent recovered their annual growth rate of debit operations, however, the rest of the ACU member countries registered negative annual growth. Myanmar with 86 per cent was at the top and followed by Bhutan, Nepal, India, Pakistan and I.R. of Iran. Bangladesh, India and Sri Lanka with 35, 28 and 22 per cent were the main holders of debit share. Pakistan and I.R of Iran with 9 and 6 per cent stood at the fourth and fifth places. The debit share of Nepal, Myanmar and Bhutan were less than one per cent.

139

Debits ( 2002 )

Million U.S. Dollars

Bhutan Sri Lanka (0.3) (755.6) Bangladesh (1198.5)

Myanmar (1.0)

Iran (214.9)

Pakistan (318.0)

Nepal India (7.7) (952.4)

140 NET CREDIT/DEBIT POSITIONS

The main net creditor in 2002 was I.R. of Iran with US Dollars 1,050.3 million, while Bangladesh with US Dollars 1,101.9 million remained as the main net debtor for a decade. India, Bhutan and Myanmar with US Dollars 947.8, 3.0 and 0.9 million stood at the next rows of net credit positions in the year under report. Sri Lanka, Pakistan and Nepal with US Dollars 706.0 193.0 and 1.2 million stood at the second to fourth places of main net debtors. Among net credit members, India and Bhutan improved their surplus while net credit positions of I.R. of Iran and Myanmar has been declined in comparison to the preceding year. Annual payments of Sri Lanka and Pakistan increased 16 and 13 per cent over previous year, however, Nepal and Bangladesh recovered their payments equivalent to 89 and 1 per cent respectively. Annual ACU payments in 2002 was US Dollars 2,002.0 million or 5 per cent over the preceding year.

141

Net Credit/Debit Positions ( 2002 )

2000

1800

1600

1400

1200

1000

800

600 Million U.S. Dollars 400

200

0 BANGLADESH BHUTAN INDIA IRAN MYANMAR NEPAL PAKISTAN SRILANKA

Debit Credit

142 INTEREST PAID/RECEIVED

The total interest which was paid/received during the year 2002 reached to 3.2 million and declined 58 per cent in comparison to the previous year. The main reason for reduction of payments of interest by the ACU member central banks was huge decrease of the rate of BIS interest rates in the year under review. The average rate of interest in 2002 was 1.632 or 58 per cent less than the average rate of previous year.

INTEREST RATES

The rates of interest during the year 2002 were relatively stable while in the second half of the year, gradually declined and on average stood at 1.632 per cent.

January February March April May June 1.680 1.690 1.690 1.710 1.690 1.680

July August September October November December 1.680 1.660 1.650 1.650 1.610 1.190

143

The Average Interest Rates Applied % ( 1976-2002 )

1 1976 1977 1978 1979 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

144 SWAP FACILITY

In accordance with Article (VIIA) Agreement Establishing the Asian Clearing Union, the Currency SWAP Arrangement became available to all debtor participants during a settlement period, to avail two-month facility for settling imbalances in clearing. Every eligible participant shall be entitled to the facility from every other participant up to 20 per cent of the average gross payment made by it through the ACU mechanism to other participants during the three previous calendar years. In 2002 the total entitlement of each member country to avail SWAP facility of other members were allocated as follows:

Bangladesh 221.3 Million US Dollars Bhutan - “ India 182.1 “ Iran 40.7 “ Myanmar 0.6 “ Nepal 2.3 “ Pakistan 52.1 “ Sri Lanka 137.0 “

Total 636.1 “

In 2002, none of the ACU member countries applied SWAP facility. The total amount of SWAP facility, which has been used by the member central banks since inception of this arrangements in ACU from September 1989 to end of December 2002 was US Dollars 630.8 million.

145

ASIAN CLEARING UNION

SWAP PAYMENTS AND RECEIPTS BY THE ACU MEMBER COUNTRIES 1998-2002 (IN US DOLLARS)

1998 1999 2000 2001 2002 * Payments Receipts Payments Receipts Payments Receipts Payments Receipts Payments Receipts

BANGLADESH 428,354.30 0 0 0 3,175,608.65 0 4,628,030.00 150,000,000.00 0 0

BHUTAN 0 0 0 0 0 0 0 0 0 0

INDIA 2,284,556.29 0 0 0 11,258,976.14 0 150,987,740.00 0 0 0

IRAN 3,426,834.43 0 0 0 10,970,284.44 0 16,408,470.00 0 0 0

MYANMAR 0 0 0 0 0 0 0 0 0 0

NEPAL 0 0 0 0 0 0 1,500,000.00 0 0 0

PAKISTAN 0 0 0 0 0 28,869,169.58 12,000,000.00 42,073,000.00 0 0

SRI LANKA 999,493.37 7,139,238.39 0 0 3,464,300.35 0 6,548,760.00 0 0 0

TOTAL 7,139,238.39 7,139,238.39 0 0 28,869,169.58 28,869,169.58 192,073,000.00 192,073,000.00 0 0

* None of the ACU member Central Banks applied swap facility

146

ACTIVITIES TO ENLARGE THE ROLE OF ACU IN THE REGION

Strengthening the role of ACU and expansion the membership were under consideration in the year 2002. In this regard further endeavors were taken place by participant countries as well as ACU Secretariat.

In May 2002: Fifty-Eight session of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) was held in Bangkok, Thailand on My 16-22, 2002. Participants from 63 countries, as well as representatives from United Nations bodies, specialized agencies, intergovernmental organizations and observers were attended the meeting. The session was declared open by the acting chairperson of the previous session. The Executive Secretary of ESCAP read out a message from Secretary General of the United Nations. Inaugural address was delivered by the Prim Minister of Thailand. Executive Secretary of ESCAP expressed that ESCAP remained committed to assisting the developing of the region, in building their capacities to cope with the numerous challenges ahead. The ESCAP Secretariat looked forward to the support and cooperation of the members and associate members. Representative from ACU Secretariat submitted a report under item 6(a) Regional Economic Cooperation. The ACU performances in 2001 as well as recent developments of ACU were highlighted.

In May 2002: The 31st Meeting of the Board of Directors of the Asian Clearing Union (ACU) was held at the Central Bank of Sri Lanka on May 30, 2002. H. E. K.N. Choksy, PC, Minister of Finance was the Chief Guest. Mr. A.S. Jayawardena, Governor of the Central Bank of Sri Lanka, presided over the meeting. Dr. Fakhruddin Ahmed, Governor of the Bangladesh Bank; Mr. Sonam Wangchuck, Managing Director of the Royal Monetary Authority of Bhutan; Dr. Bimal Jalan, Governor of the Reserve Bank of India; Dr. Mohsen Nourbakhsh,

147

Governor of the Central Bank of the Islamic Republic of Iran; Mr. Than Lwin, Deputy Governor of the Central Bank of Myanmar; Dr. Tilak Rawal, Governor of the Nepal Rastra Bank; and Mr. Farhat Saeed, Executive Director of the State Bank of Pakistan; attended the meeting. Mr. M. Firouzdor, Secretary General; and Mr. M. Farshchi, Deputy Secretary General of the ACU Secretariat also attended the meeting. Dr. R. Ratnayake, Chief of the Trade Policy Section of ESCAP and Ms. Aminath Zahir, Deputy Managing Public Debt Section of Maldives Monetary Authority attended the meeting as observers. In his address, H. E. K. N. Choksy, Minister of Finance noted that the ACU is one of the oldest functioning clearing unions in the world. Given its long existence, the ACU Secretariat has acted successfully as a service provider for the member central banks in determining net obligations on a multilateral basis. However, he stressed that some of the objectives set out in the Articles of Agreement such as promotion of monetary co-operation and closer relations among the banking systems in the member countries have not been achieved to a satisfactory level. Although the SWAP facility and the credit facility have been successfully operated by the ACU, they are grossly inadequate to cater to the present day needs. He emphasized the need for a 'reserve fund' which could be utilized for extending credit not only for trading purposes but also for coordinated adjustment and industrial policies. Structural problems, lack of financial support and some cumbersome operational rules and practices were identified as factors that inhibited the growth of intra-ACU trade. The Minister felt that the ACU can be promoted to become a regional payments union, in an environment where all member countries have attained convertibility. ACU can become a significant regional economic force with an enlarged membership and a firm and genuine commitment towards regional cooperation and integration. He suggested expanding the membership of the ACU to all SAARC countries and also establishing links with other regional groupings such as the ASEAN, APEC and ECO etc. In conclusion, the Minister emphasized the need to address the delays in settlements under the present ACU system. India, Pakistan and Sri Lanka have

148

taken measures to implement Real Time Gross Settlement System (RTGS) for their domestic large value and time critical fund transfers. These payment reforms may help to increase efficiency of one leg of the payment and may call for improving of efficiency of the ACU mechanism too to reduce prospective liquidity; credit and systemic risks involved in the other leg of ACU payment settlements. The Secretary General of ACU Secretariat presented the Draft Annual Report for 2001, which highlighted the world economic developments and outlook, performances of the ACU member countries and ACU clearing operations. The delegates discussed the recent economic developments, issues and reforms in the member countries' and the future role of ACU. The Board agreed that the technical committee or an outside expert be given the responsibility for deeper evaluation on the future role of ACU and explore the possibility of revitalizing and modernizing ACU operations. The Governors of Reserve Bank of India and the Central Bank of the Islamic Republic of Iran were elected as Chairman and Vice Chairman of the ACU respectively, for the year 2003-2004. The next Annual Meeting of the Board of Directors of the ACU will be hosted by the Reserve Bank of India in May 2003. During 2002 representatives of the ACU Secretariat attended at the Working Groups of the United Nations Commission on International Trade Law (UNCITRAL) which were held in New York and Vienna for being familiarized with Electronic Commerce and its laws. In the year under report some meetings have been taken place among officers of the ACU central banks and their counterparts in the targeted countries. Benefits of the ACU membership was highlighted and the ACU Secretariat as their request dispatched some information about the ACU and responded their questions on the operations of ACU.

149

TWENTY SEVEN YEARS OF ACU OPERATIONS

The Agreement Establishing the Asian Clearing Union and Procedure Rules was signed in December 1974, however, the ACU operations started in November 1975. During 1975-2002 the members benefited the advantages of the ACU mechanism. ACU as the oldest regional monetary arrangements in Asia and the Pacific region made closer networking among their member states. The volume of trade inside the ACU during past 27 years from 1975-2002 recorded US Dollars 78.3 billion, of which, 53 per cent cleared in the system and 47 per cent settled in foreign exchange. In the year under report the total transactions (exports+imports+accrued interest) reached to US Dollars 6.9 billion representing a decrease of 3 per cent in comparison to the preceding year. The important feature of the ACU during its life was a smooth and efficient payment and settlement mechanism where no default ever occurred, however, similar arrangements in the world encountered with many default and some of them were closed or suspended.

150

ASIAN CLEARING UNION Total Transactions Channelled Through the ACU From 1975 to 2002 (Million U.S. Dollars)

Year Yearly Transactions Cleared in the System Settled in Foreign Exchange

Amount* (%) Growth Amount (%) Amount (%) 1975 0.44 - 0.09 20 0.35 80 1976 25.72 58 4.12 16 21.60 84 1977 79.36 209 16.67 21 62.69 79 1978 137.60 73 39.90 29 97.70 71 1979 161.31 17 83.88 52 77.43 48 1980 182.94 13 98.79 54 84.15 46 1981 269.39 47 166.92 62 102.47 38 1982 300.41 12 196.63 65 103.78 35 1983 498.66 66 192.32 39 306.34 61 1984 662.84 33 322.24 49 340.60 51 1985 605.20 -9 373.50 62 231.70 38 1986 690.62 +14 581.12 84 109.50 16 1987 625.34 -9 396.97 64 228.37 36 1988 940.84 50 698.52 74 242.32 26 1989 1,041.78 11 832.39 80 209.39 20 1990 1,366.54 31 947.79 69 418.75 31 1991 1,851.44 35 1,424.35 77 427.09 23 1992 1,928.32 4 1,172.46 61 755.86 39 1993 1,448.88 -25 1,018.00 70 430.88 30 1994 1,965.38 36 1,110.71 57 854.67 43 1995 2,702.90 38 1,353.42 50 1,349.48 50 1996 3,161.10 17 1,448.30 46 1,712.80 54 1997 2,654.95 -16 1,251.60 47 1,403.35 53 1998 2,842.77 7 1,130.61 40 1,712.16 60 1999 2,630.74 -7 1,057.39 40 1,573.35 60 2000 3,383.54 29 1,634.66 48 1,748.88 52 2001 3,553.67 5 1,643.56 46 1,910.11 54 2002 3,448.40 -3 1,446.40 42 2,002.00 58 Total 39,161.08 - 20,643.31 53 18,517.77 47

* Amount relevant to years 1975 to 1995 converted from SDRs to US Dollars.

151

Total Transactions Channelled Through The ACU

4000

3500

3000

2500

2000

1500 Million U.S. Dollars 1000

500

0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

152 Tables ASIAN CLEARING UNION

* TOTAL DEBIT & CREDIT TRANSACTIONS BOOKED BY THE MEMBER CENTRAL BANKS UNDER THE ACU MECHANISM, 2002 ( IN US DOLLARS )

TABLE (1)

Country Debit (-) Credit (+) Net

BANGLADESH 1,198,498,720.69 96,599,123.89 -1,101,899,596.80

BHUTAN 287,000.00 3,272,628.14 2,985,628.14

INDIA 952,353,435.07 1,900,112,115.32 947,758,680.25

IRAN 214,916,757.40 1,265,235,738.51 1,050,318,981.11

MYANMAR 1,042,425.40 1,988,288.62 945,863.22

NEPAL 7,740,641.45 6,566,502.69 -1,174,138.76

PAKISTAN 317,946,687.41 124,972,760.18 -192,973,927.23

SRI LANKA 755,634,476.00 49,672,986.07 -705,961,489.93

TOTAL 3,448,420,143.42 3,448,420,143.42 ±2,002,009,152.72

* Including Interest

154 ASIAN CLEARING UNION YEAR OF 2002 TRANSACTIONS MATRIX ( IN US DOLLARS ) TABLE(2)

Creditors BANGLADESH BHUTAN INDIA IRAN MYANMAR NEPAL PAKISTAN SRI LANKA TOTAL Debtors BANGLADESH 0.00 3,267,610.00 1,104,383,761.70 4,551,227.46 3,000.00 5,680,857.55 73,821,457.19 5,006,599.04 1,196,714,512.94

BHUTAN 287,000.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 287,000.00

INDIA 20,269,450.54 0.00 0.00 899,560,389.46 668,336.19 0.00 11,318,110.22 20,537,148.66 952,353,435.07

IRAN 40,119,247.95 0.00 169,333,458.70 0.00 0.00 3,000.00 4,367,713.75 1,093,337.00 214,916,757.40

MYANMAR 0.00 0.00 535,127.25 5,891.00 0.00 0.00 500,000.00 0.00 1,041,018.25

NEPAL 4,399,683.04 0.00 0.00 76,318.07 0.00 0.00 2,320,479.02 938,158.39 7,734,638.52

PAKISTAN 29,510,742.36 0.00 109,636,299.98 154,997,940.65 1,114,000.00 315,226.00 0.00 22,097,742.98 317,671,951.97

SRI LANKA 2,013,000.00 0.00 514,594,876.07 204,515,438.04 200,000.00 565,000.00 32,645,000.00 0.00 754,533,314.11

3,445,252,628.26 TOTAL 96,599,123.89 3,267,610.00 1,898,483,523.70 1,263,707,204.68 1,985,336.19 6,564,083.55 124,972,760.18 49,672,986.07 3,445,252,628.26

155 ASIAN CLEARING UNION

* TRANSACTIONS CREDITED TO PARTICIPANT CENTRAL BANKS ( IN US DOLLARS )

TABLE (3)

1998 1999 2000 2001 2002

BANGLADESH 119,442,796.21 88,256,302.89 81,011,695.55 76,440,902.25 96,599,123.89

BHUTAN 0.00 0.00 75,000.00 1,584,520.39 3,272,628.14

INDIA 1,875,577,424.84 1,613,969,592.41 1,599,372,949.68 1,807,747,803.43 1,900,112,115.32

IRAN 485,152,941.94 621,383,052.92 1,412,221,622.47 1,426,330,497.91 1,265,235,738.51

MYANMAR 8,039,340.86 4,802,804.07 2,340,165.88 1,769,418.32 1,988,288.62

NEPAL 15,862,505.42 10,339,779.46 4,856,719.15 4,494,793.24 6,566,502.69

PAKISTAN 244,695,812.28 201,137,423.50 197,291,952.27 176,086,064.25 124,972,760.18

SRI LANKA 93,998,770.68 90,851,617.85 86,365,136.72 59,211,818.87 49,672,986.07

______TOTAL 2,842,769,592.23 2,630,740,573.10 3,383,535,241.72 3,553,665,818.66 3,448,420,143.42 ______

* Including Interest

156

ASIAN CLEARING UNION

* SHARE OF THE MEMBER CENTRAL BANKS IN TOTAL CREDIT TRANSACTIONS (PERCENTAGE )

TABLE (4)

1998 1999 2000 2001 2002

BANGLADESH 4 3 2 2 3

BHUTAN 0 0 0 0 0

INDIA 66 61 47 51 55

IRAN 17 24 42 40 37

MYANMAR 0 0 0 0 0

NEPAL 1 0 0 0 0

PAKISTAN 9 8 6 5 4

SRI LANKA 3 4 3 2 1

______TOTAL 100 100 100 100 100 ______* Including Interest

157 ASIAN CLEARING UNION

* ANNUAL GROWTH OF TRANSACTIONS CREDITED TO PARTICIPANT CENTRAL BANKS ( PERCENTAGE )

Table (5)

Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka ACU

1998 5 0 27 -39 1 1 57 10 7

1999 -26 0 -14 28 -40 -35 -18 -3 -7

2000 -8 0 -1 127 -51 -53 -2 -5 29

2001 -6 2,013 13 1 -24 -7 -11 -31 5

2002 26 107 5 -11 12 46 -29 -16 -3

* Including Interest

158

ASIAN CLEARING UNION

* TRANSACTIONS DEBITED TO PARTICIPANT CENTRAL BANKS ( IN US DOLLARS )

TABLE (6)

1998 1999 2000 2001 2002

BANGLADESH 1,301,727,898.07 1,141,742,504.35 1,003,331,228.65 1,189,794,610.84 1,198,498,720.69

BHUTAN 0.00 0.00 110,740.79 605,396.32 287,000.00

INDIA 453,787,058.87 578,967,360.54 1,046,914,569.35 1,105,666,596.01 952,353,435.07

IRAN 252,054,244.80 173,575,481.71 217,136,482.85 219,278,511.67 214,916,757.40

MYANMAR 6,109.00 6,537.00 1,008,045.66 7,240,756.49 1,042,425.40

NEPAL 18,052,518.53 12,501,340.87 7,490,457.25 15,222,234.84 7,740,641.45

PAKISTAN 195,455,766.09 115,396,983.26 321,096,421.54 347,147,780.03 317,946,687.41

SRI LANKA 621,685,996.87 608,550,365.37 786,447,295.63 668,709,932.46 755,634,476.00

______TOTAL 2,842,769,592.23 2,630,740,573.10 3,383,535,241.72 3,553,665,818.66 3,448,420,143.42 ______

* Including Interest

159 ASIAN CLEARING UNION

* SHARE OF THE MEMBER CENTRAL BANKS IN TOTAL DEBIT TRANSACTIONS (PERCENTAGE )

TABLE (7)

1998 1999 2000 2001 2002

BANGLADESH 46 43 30 34 35

BHUTAN 0 0 0 0 0

INDIA 16 22 31 31 28

IRAN 9 7 6 6 6

MYANMAR 0 0 0 0 0

NEPAL 0 1 0 0 0

PAKISTAN 7 4 10 10 9

SRI LANKA 22 23 23 19 22

______TOTAL 100 100 100 100 100 ______

* Including Interest

160 ASIAN CLEARING UNION

* ANNUAL GROWTH OF TRANSACTIONS DEBITED TO PARTICIPANT CENTRAL BANKS ( PERCENTAGE )

Table (8)

Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka ACU

1998 51 0 -24 -13 -16 133 -44 13 7

1999 -12 0 28 -31 7 -31 -41 -2 -7

2000 -12 0 81 25 15,321 -40 178 29 29

2001 19 447 6 1 618 103 8 -15 5

2002 1 -53 -14 -2 -86 -49 -8 13 -3

* Including Interest

161

ASIAN CLEARING UNION

* MONTHLY DISTRIBUTION OF TOTAL TRANSACTIONS CREDITED TO PARTICIPANT CENTRAL BANKS , 2002 TABLE (9) (IN US DOLLARS)

2002 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total

JANUARY 6,091,780.56 912,753.50 166,965,080.86 85,345,641.74 45,071.69 70,000.00 15,267,107.96 4,183,236.76 278,880,673.07

FEBRUARY 6,283,679.28 934,365.25 126,330,715.20 64,484,287.05 25,078.40 438,500.00 11,043,499.18 5,367,855.66 214,907,980.02

MARCH 6,424,278.79 232,741.37 138,552,821.61 102,933,116.38 631,770.95 237,000.00 10,097,547.48 5,203,258.37 264,312,534.95

APRIL 4,060,046.52 202,694.67 165,631,902.61 95,073,665.51 40,887.89 111,586.00 9,676,861.34 3,875,730.65 278,673,375.19

MAY 6,065,174.49 84,382.21 157,702,885.10 104,628,758.20 307,441.97 339,000.00 8,259,441.26 3,237,126.85 280,624,210.08

JUNE 4,634,809.53 61,663.15 138,674,223.07 87,484,985.02 39,442.63 667,528.96 9,891,259.67 3,001,017.28 244,454,929.31

JULY 5,818,639.17 38,481.34 165,656,366.12 101,077,835.46 10,077.65 943,631.19 9,782,570.59 5,729,074.41 289,056,675.93

AUGUST 10,517,653.28 27,058.90 152,347,469.31 98,712,205.80 348,517.44 785,793.33 8,579,626.92 3,120,351.04 274,438,676.02

SEPTEMBER 10,181,964.10 254,209.88 184,494,222.24 103,910,999.15 120,000.00 737,873.90 12,825,705.66 4,120,424.76 316,645,399.69

OCTOBER 11,898,926.22 100,447.52 162,391,556.86 167,072,135.05 15,000.00 918,780.59 9,269,659.26 4,065,057.92 355,731,563.42

NOVEMBER 14,244,335.92 41,154.78 157,476,652.87 103,516,622.95 325,000.00 469,240.00 10,889,604.18 3,720,345.40 290,682,956.10

DECEMBER 10,377,836.03 382,675.57 183,888,219.47 150,995,486.20 80,000.00 847,568.72 9,389,876.68 4,049,506.97 360,011,169.64

______TOTAL 96,599,123.89 3,272,628.14 1,900,112,115.32 1,265,235,738.51 1,988,288.62 6,566,502.69 124,972,760.18 49,672,986.07 3,448,420,143.42 ______* Including Interest

162 ASIAN CLEARING UNION * MONTHLY DISTRIBUTION OF TOTAL TRANSACTIONS DEBITED TO PARTICIPANT CENTRAL BANKS, 2002 TABLE (10) (IN US DOLLARS)

2002 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total

JANUARY 105,163,738.47 0.00 61,867,351.23 18,889,639.98 0.00 606,164.51 30,494,723.03 61,859,055.85 278,880,673.07

FEBRUARY 77,648,850.23 182,000.00 54,499,407.10 14,395,710.75 0.00 316,960.78 17,937,961.08 49,927,090.08 214,907,980.02

MARCH 96,062,432.98 0.00 75,653,503.41 12,573,358.87 0.00 1,270,260.19 28,454,907.48 50,298,072.02 264,312,534.95

APRIL 108,086,220.36 14,950.00 63,503,660.99 12,394,620.16 35,127.25 556,394.03 29,556,838.87 64,525,563.53 278,673,375.19

MAY 97,843,502.75 50.00 75,732,436.65 17,501,421.53 0.00 459,025.21 17,074,996.22 72,012,777.72 280,624,210.08

JUNE 83,258,899.28 15,000.00 78,613,642.37 19,076,883.58 0.00 334,365.71 21,139,921.79 42,016,216.58 244,454,929.31

JULY 110,751,527.20 14,980.00 82,959,184.82 16,835,335.34 5,891.00 601,493.21 24,214,969.65 53,673,294.71 289,056,675.93

AUGUST 87,161,844.58 20.00 76,222,864.55 21,224,734.38 0.00 358,868.88 33,005,204.67 56,465,138.96 274,438,676.02

SEPTEMBER 116,689,239.12 10,000.00 79,569,095.67 24,505,841.74 500,447.30 621,182.13 25,974,812.02 68,774,781.71 316,645,399.69

OCTOBER 98,637,825.33 0.00 123,772,434.91 15,891,061.38 524.10 593,188.79 23,401,611.81 93,434,917.10 355,731,563.42

NOVEMBER 96,652,745.93 25,000.00 75,859,024.71 27,897,309.04 500,310.63 1,453,578.57 25,127,116.77 63,167,870.45 290,682,956.10

DECEMBER 120,541,894.46 25,000.00 104,100,828.66 13,730,840.65 125.12 569,159.44 41,563,624.02 79,479,697.29 360,011,169.64

______TOTAL 1,198,498,720.69 287,000.00 952,353,435.07 214,916,757.40 1,042,425.40 7,740,641.45 317,946,687.41 755,634,476.00 3,448,420,143.42 ______

* Including Interest

163 ASIAN CLEARING UNION

MONTHLY DISTRIBUTION OF ACCRUED INTEREST CREDITED TO PARTICIPANT CENTRAL BANKS, 2002 (IN US DOLLARS) TABLE (11)

2002 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total

JANUARY 0.00 753.50 157,998.22 67,765.51 71.69 0.00 0.00 0.00 226,588.92

FEBRUARY 0.00 1,765.25 183,150.27 117,339.40 78.40 0.00 0.00 0.00 302,333.32

MARCH 0.00 441.37 91,904.32 83,845.94 770.95 0.00 0.00 0.00 176,962.58

APRIL 0.00 494.67 158,822.67 208,845.95 887.89 0.00 0.00 0.00 369,051.18

MAY 0.00 182.21 109,634.22 85,196.00 441.97 0.00 0.00 0.00 195,454.40

JUNE 0.00 163.15 169,647.88 164,451.26 442.63 218.96 0.00 0.00 334,923.88

JULY 0.00 31.34 103,313.98 72,016.97 77.65 504.36 0.00 0.00 175,944.30

AUGUST 0.00 58.90 174,279.69 171,409.28 181.25 841.33 0.00 0.00 346,770.45

SEPTEMBER 0.00 209.88 103,508.66 88,842.72 0.00 573.90 0.00 0.00 193,135.16

OCTOBER 0.00 447.52 170,835.18 219,559.37 0.00 280.59 0.00 0.00 391,122.66

NOVEMBER 0.00 94.78 84,398.90 97,387.76 0.00 0.00 0.00 0.00 181,881.44

DECEMBER 0.00 375.57 121,097.63 151,873.67 0.00 0.00 0.00 0.00 273,346.87

______TOTAL 0.00 5,018.14 1,628,591.62 1,528,533.83 2,952.43 2,419.14 0.00 0.00 3,167,515.16 ______

164 ASIAN CLEARING UNION

MONTHLY DISTRIBUTION OF ACCRUED INTEREST DEBITED TO PARTICIPANT CENTRAL BANKS, 2002 (IN US DOLLARS) TABLE (12)

2002 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total

JANUARY 158,666.67 0.00 0.00 0.00 0.00 646.12 5,533.90 61,742.23 226,588.92

FEBRUARY 174,298.37 0.00 0.00 0.00 0.00 487.45 25,011.48 102,536.02 302,333.32

MARCH 100,419.40 0.00 0.00 0.00 0.00 1,148.81 14,559.64 60,834.73 176,962.58

APRIL 206,120.57 0.00 0.00 0.00 0.00 1,854.28 40,970.45 120,105.88 369,051.18

MAY 113,178.33 0.00 0.00 0.00 0.00 344.06 16,412.61 65,519.40 195,454.40

JUNE 188,813.24 0.00 0.00 0.00 0.00 0.00 17,337.62 128,773.02 334,923.88

JULY 96,661.31 0.00 0.00 0.00 0.00 0.00 18,746.04 60,536.95 175,944.30

AUGUST 203,111.35 0.00 0.00 0.00 0.00 0.00 41,375.89 102,283.21 346,770.45

SEPTEMBER 98,687.56 0.00 0.00 0.00 447.30 0.00 19,623.90 74,376.40 193,135.16

OCTOBER 212,303.11 0.00 0.00 0.00 524.10 0.00 26,186.32 152,109.13 391,122.66

NOVEMBER 90,514.26 0.00 0.00 0.00 310.63 666.75 18,432.12 71,957.68 181,881.44

DECEMBER 141,433.58 0.00 0.00 0.00 125.12 855.46 30,545.47 100,387.24 273,346.87

______TOTAL 1,784,207.75 0.00 0.00 0.00 1,407.15 6,002.93 274,735.44 1,101,161.89 3,167,515.16 ______

165 ASIAN CLEARING UNION

NET CREDITOR AND NET DEBTOR POSITIONS AT THE END OF EACH SETTLEMENT PERIOD (2002) * (IN US DOLLARS) TABLE (13)

Country Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total Months

Feb 0 1,665,118.75 176,929,037.73 116,544,578.06 70,150.09000295,208,884.63

Apr 0 420,486.04 165,027,559.82 173,038,802.86 637,531.59000339,124,380.31

Jun 0 130,995.36 142,031,029.15 155,535,438.11 346,884.60 213,138.04 0 0 298,257,485.26

Aug 0 50,540.24 158,821,786.06 161,729,971.54 352,704.09 769,062.43 0 0 321,724,064.36 NET CREDITORS Oct 0 344,657.40 143,544,248.52 230,586,231.08 0 442,283.57 0 0 374,917,420.57 Dec 0 373,830.35 161,405,018.97 212,883,959.460000374,662,808.78

Total (1) 0 2,985,628.14 947,758,680.25 1,050,318,981.11 1,407,270.37 1,424,484.04 0 0 2,003,895,043.91

Feb 170,437,128.860000414,625.29 22,122,076.97 102,235,053.51 295,208,884.63

Apr 193,664,328.0300001,478,068.22 38,237,337.53 105,744,646.53 339,124,380.31

Jun 170,402,418.010000020,064,217.08 107,790,850.17 298,257,485.26

Aug 181,577,079.330000038,857,976.81 101,289,008.22 321,724,064.36

Oct 193,246,174.13000365,971.40 0 27,281,058.91 154,024,216.13 374,917,420.57

NET DEBTORS NET Dec 192,572,468.4400095,435.75 705,929.29 46,411,259.93 134,877,715.37 374,662,808.78

Total (2) 1,101,899,596.80000461,407.15 2,598,622.80 192,973,927.23 705,961,489.93 2,003,895,043.91

Total (1 Minus 2) -1,101,899,596.80 2,985,628.14 947,758,680.25 1,050,318,981.11 945,863.22 -1,174,138.76 -192,973,927.23 -705,961,489.93 ±2,002,009,152.72

* Including Interest

166 ASIAN CLEARING UNION

* TOTAL TRANSACTIONS ROUTED CUMULATIVELY THROUGH THE ACU , FROM JAN. to DEC. 2002 ( IN US DOLLARS )

TABLE (14)

COUNTRIES JAN. to DEC. 2001 JAN. to DEC. 2002 % JAN. to DEC. 2001 JAN. to DEC. 2002 % JAN. to DEC. 2001 JAN. to DEC. 2002 %

Debit Debit Credit Credit (Db+Cr) (Db+Cr) ______BANGLADESH 1,189,794,610.84 1,198,498,720.69 1 76,440,902.25 96,599,123.89 26 1,266,235,513.09 1,295,097,844.58 2

BHUTAN 605,396.32 287,000.00 -53 1,584,520.39 3,272,628.14 107 2,189,916.71 3,559,628.14 63

INDIA 1,105,666,596.01 952,353,435.07 -14 1,807,747,803.43 1,900,112,115.32 5 2,913,414,399.44 2,852,465,550.39 -2

IRAN 219,278,511.67 214,916,757.40 -2 1,426,330,497.91 1,265,235,738.51 -11 1,645,609,009.58 1,480,152,495.91 -10

MYANMAR 7,240,756.49 1,042,425.40 -86 1,769,418.32 1,988,288.62 12 9,010,174.81 3,030,714.02 -66

NEPAL 15,222,234.84 7,740,641.45 -49 4,494,793.24 6,566,502.69 46 19,717,028.08 14,307,144.14 -27

PAKISTAN 347,147,780.03 317,946,687.41 -8 176,086,064.25 124,972,760.18 -29 523,233,844.28 442,919,447.59 -15

SRI LANKA 668,709,932.46 755,634,476.00 13 59,211,818.87 49,672,986.07 -16 727,921,751.33 805,307,462.07 11

TOTAL 3,553,665,818.66 3,448,420,143.42 -3 3,553,665,818.66 3,448,420,143.42 -3 7,107,331,637.32 6,896,840,286.84 -3

* Including Interest

167