ASIAN CLEARING UNION
ANNUAL REPORT
2003
Shiraz, May 2004
ASIAN CLEARING UNION
ANNUAL REPORT 2003
Submitted to: The Thirty Third Meeting of the Board of Directors
Held at:
The Central Bank of the Islamic Republic of Iran
Shiraz, Iran
May 10 -11, 2004
I
nd BOARD OF DIRECTORS AT THE 32 ACU MEETING 16 - 17 June 2003 Bangalore, India
II
nd PARTICIPANTS AT THE 32 MEETING OF THE ACU BOARD OF DIRECTORS 16 - 17 June 2003 Bangalore, India
III
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 4 Country Performance: Bangladesh 11 Bhutan 30 India 37 Iran 53 Myanmar 67 Nepal 72 Pakistan 88 Sri Lanka 107 Auditors’ Report 129 Clearing Operations 131 Interest Paid / Received 142 SWAP Facility 144 Activities to Enlarge the Role of ACU in the Region 146 Twenty Eight Years of ACU Operations 151 Tables 155
VII
ASIAN CLEARING UNION ( BOARD OF DIRECTORS, 2003)
BANGLADESH BANK: H.E. Dr. Fakhruddin Ahmed Governor. (Director)
Mr. M. A. M. Kazemi Deputy Governor. (Alternate)
1 ROYAL MONETARY AUTHORITY H.E. Mr. Daw Tenzin OF BHUTAN: Governor. (Director)
Mr. Dechen Tshering Deputy Managing Director. (Alternate)
2 RESERVE BANK OF INDIA: H.E. Dr. Y. Venugopal Reddy Governor.(Director)
Dr. T. C. Nair Chief General Manager. (Alternate)
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)
3 Mr. Than Nyein Deputy Governor. (Alternate)
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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 04.12.2003. 2. From 06.09.2003. 3. From 07.11.2003.
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ASIAN CLEARING UNION ( OFFICERS IN CHARGE, 2003 )
1 BANGLADESH BANK: Mr. Md. Belayet Hossain General Manager Forex Reserve and Treasury Management Dept.
ROYAL MONETARY AUTHORITY Mr. Namgay Tshering OF BHUTAN: General Manager Foreign Exchange Division
2 RESERVE BANK OF INDIA : Mr. Shyam Sunder
General Manager, DEIO.
3 CENTRAL BANK OF THE Mr. Reza Nadali ISLAMIC REPUBLIC OF IRAN: Director, International Dept.
CENTRAL BANK OF MYANMAR: Ms. Naw Eh Hpaw Deputy Director, Accounts Dept.
4 NEPAL RASTRA BANK: Mr. Purushottam Bhakta Shrestha 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 06.10.2003. 2. From June 2003. 3. From 04.12.2003. 4. From 20.05.2003.
XI
World Economic Developments
and
Outlook WORLD ECONOMIC DEVELOPMENTS AND OUTLOOK
After growth of less than 2 per cent for over two years, the world economy is gaining momentum. Following the setbacks caused by the prospects of war in Iraq and the outbreak of SARS early in 2003, economic growth in an increasing number of countries shifted to a measurably higher gear in the second half of the year, raising the growth of gross world product (GWP) for 2003 as a whole to 2.5 per cent. Despite some lingering uncertainties and downside risk, the economic recovery is expected to strengthen and broaden further, raising global economic growth of 31/2 per cent in 2004. The growth of world trade is expected to reach 71/2 per cent in 2004, up from 4.7 per cent in 2003. The improved performance and outlook does not, however, compensate for the subdued growth of the previous two years when world per capita output failed to increase. The global economic recovery is being drive mainly by the United States, but increasing contributions from a number of other economies are becoming evident. Particularly notable is the rapidly rising weight of China in the world economy and its role in the present recovery. East Asia has maintained its strength, accompanied by a turnaround in Japan that has been stronger than anticipated. In 2003, some of the economic difficulties facing a number of Latin American countries diminished, while the short-term prospects for Africa also improved. After the setbacks associated with their transformation, the economies in transition have achieved sound growth for a number of consecutive years despite the slowdown elsewhere. In contrast, Western Europe has been a source of the weakness that began to dissipate only in late 2003. The recovery is being accompanied and supported by a degree of improvement in international trade and finance. World trade grew by 4.75 per cent in 2003, with much of the increase attributable to import demand from developing countries, and is forecast to grow 71/2 per cent in 2004. The international prices of non-fuel commodities have been rising as the demand for minerals and metals and, to a lesser extent, agricultural raw materials strengthens,
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but a large part of the increase in accounted for by the depreciation of the dollar. Further increase in non-fuel commodity prices are expected in 2004, but the price of oil is expected to ease. At almost US Dollars 82 billion, net private capital flows to developing countries were about 50 per cent higher in 2003 than in 2002, but mostly as a result of lower repayments and other outflows. Foreign direct investment (FDI) and official loans and grants were the only net sources of capital inflow for these countries. FDI, both globally and to developing countries, was almost unchanged from 2002, and in both cases was well below the peak it reached in 2000. Official development assistance (ODA) increased in 2002 but data are not yet available for 2003. Taking into account developing counties’ accumulation of reserves and their net outflows of dividends, interest and other payments on capital, there was a net transfer of financial resources from the developing countries of almost US Dollars 190 billion in 2002. This is estimated to have remained largely unchanged in 2003. The strength of the current recovery is still heavily dependent on the policy stimulate of low interest rates and expansionary fiscal measures. While the required mix of such policies varies across countries, continued stimulus remains crucial for nurturing the recovery because autonomous effective demand remains below potential in many economies. The challenge for policymakers in the short run, particularly in the developed countries, is to strike a balance between two possible outcomes: either choking off the recovery through a premature withdrawal of stimuli or sowing the seeds of economic overheating through a precipitate tightening of policy.
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Economic Highlights ECONOMIC HIGHLIGHTS OF THE ACU MEMBER COUNTRIES
BANGLADESH: Higher growth of agriculture, industry and services Sectors along with other major of monetary and economic adjustments in the fiscal year 2003 resulted the real GDP to grow by 5.3 per cent as compared to 4.4 per cent in 2002. GDS as well as investment as percentage of GDP increased to 18.23 and 23.22 in FY2003 compared to 18.16 and 23.15 in FY2002. Government’s revenue earnings as percentage of GDP improved marginally to 10.3 per cent as compared to 10.2 per cent in FY2002. In FY2003 broad money (M2) grew by 15.6 per cent as compared to 13.1 per cent in 2002 and 12.5 per cent programmed expansion for the year. Consumer price inflation was slowly started from the second half of FY2002 continued over FY2003. The annual average rate of inflation increased to 4.4 per cent as compared to 2.8 per cent in 2002. Increases in the import prices of petroleum, rice, edible oil and sugar in FY2003 were the main contributors to the upward pressure on prices. Exports receipts during FY2003 reached to US Dollars 6.5 billion compared to US Dollars 5.9 billion in the preceding year. The increase in export earnings was mainly reflected in higher earnings from oil, fertilizer, raw jute, frozen shrimps and fish, knitwear and hosiery products, jute goods, ready-made garments. Import payments of Bangladesh in FY2003 recorded US Dollars 8.7 billion. The import payments for spices, edible oil, coconut oil, cotton, pharmaceutical products, crude petroleum, iron, steel and other base metal increased. Workers remittances stood at US Dollars 3.0 billion or 22.4 per cent higher than of the previous year. The overall balance of payments position showed a surplus of US Dollars 815 million during FY2003 as against US Dollars 365 million in the last year.
BHUTAN: In FY2003, Bhutan economy experienced notable developments including approval of the Bhutan foreign direct investment policy, Bhutan’s
4
membership to the International Finance Corporation (IFC), and the submission of the memorandum on the foreign trade regime document to the World Trade Organization (WTO), Geneva as part of the process of Bhutan’s accession. Real GDP growth was 7.7 per cent in 2002, inflation reached to 1.8 per cent in June 2003, the lowest level of the last 20 years. Agriculture sector remains significant, contributing around 33 per cent of the total nominal GDP. At the end of 2002-2003 Bhutan’s tourism industry displayed encouraging signs of recovery. Figures of visitors and tourist revenue increased 11.0 per cent and 5.2 per cent respectively. In the year under review, Bhutan’s balance of payments improved significantly. Foreign exchange reserves accumulated to US Dollars 374 million, which is sufficient to cover 23 million of imports. The trade deficit recorded and improvement over the preceding year as a result of a substantial decline in imports from countries other than India.
INDIA: Extreme drought condition in fiscal year 2002-2003, severely affected the Indian economy, resulting in a low growth of GDP at 4.0 per cent; however, the GDP is estimated to grow at the rate of 8.1 per cent in 2003-2004. During 2003- 2004 the country is expected to receive a satisfactory rainfall consequently recovery in agriculture production. In 2002-2003, the index of industrial production recorded a higher growth of 5.8 per cent as against 2.7 per cent during 2001-2002. The manufacturing sector, in particular, witnessed a higher growth of 6.8 per cent as compared with 5.7 per cent during the corresponding period of the previous year. Services sector in 2002-2003 also recorded a higher growth of 7.1 per cent as against 6.5 per cent of the preceding year. GDP increased to 24.2 per cent in 2002-2003 from 23.5 per cent in the previous year. India’s merchandise exports in 2002-2003 increased to US Dollars 52.7 billion or 20.3 per cent over the last year. The imports reached to US Dollars 61.4 billion and recorded a growth of
5
19.4 per cent compared with 1.7 per cent in 2001-2002. Oil and non-oil imports increased by 26.0 per cent and 17.0 per cent, respectively during 2002-2003. India’s foreign exchange reserves comprising foreign currently assets, gold and SDRs stood at US Dollars 107.5 billion on February 13, 2004.
IRAN: Significant results in the area of inflation containment, financing the requirements of production growth, increasing employment and accumulation of foreign exchange reserves were among the government policy and measures which were adopted during the first three years of the 3rd Development Plan. Implementation of exchange rate unification, establishment of foreign exchange interbank market, liberalization of foreign trade transparency in government budget, particularly in the area of subsidy payments were among the major policies in the fiscal year 2002-2003. Increasing of oil prices, mild stability in domestic financial market, sustained and balanced external sector position as well as carrying out of the above-mentioned policies helped Iran in enjoying a positive and balanced growth in production and investment. In 2002-2003 GDP growth rate stood at 7.4 per cent as compared to 5.3 per cent in the previous year. The value-added in agriculture sector registered a growth of 11.4 per cent. The value added of manufacturing and mining sector kept its positive trend to reach 11.8 per cent. In 2002-2003 for the first time, the Iranian government budget was designed according to the IMF instruction on Government Finance Statistics Manual (GFSM2001). The current account in the BOP despite surplus of US Dollar 3,731 million registered a fall of 37.7 per cent while compared with 2001-2002.
MYANMAR: Implementation of a series of short-term economic plans during the 3rd Five-Year short-term plan (2001-2002 to 2005-2006) resulted remarkable growth rates of 11.3 and 12.0 per cent in 2001-2002 and 2002-2003 mainly due to
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the good performance of the construction, manufacturing and processing, livestock and fishery and agriculture sectors in fiscal year 2002-2003. The ratio of budget deficit to GDP declined to 3.7 per cent as compared to 4.7 per cent in the previous year. Money supply growth slowed down to 15.5 per cent from 47. 2 per cent in the preceding year. Inflation rate, based on consumer price index decreased to 24.1 per cent in the third quarter of 2003 from 56.6 per cent in 2002. Exports, including border trade, reached to US Dollars 2.6 billion or 4.8 per cent over the previous year. The value of imports declined to US Dollars 2.1 billion or 8.8 per cent less than the figure of the previous year, as a result of decrease in imports of capital and intermediate goods. Myanmar’s surplus in 2003 registered to 94.3 million.
NEPAL: In fiscal year 2002-2003 the real GDP increased 3.0 per cent as against a decline of 0.4 per cent during the previous year. The contribution of agriculture sector in the real GDP went up marginally by 0.2 percentage point to 2.4 per cent, while industrial goods decreased by 7.2 per cent in review year as against a growth of 2.6 per cent in the preceding year. The service sector increased by 3.1 per cent as compared to a decline of 1.3 per cent in the previous year. Broad money (M2) registered a growth of 9.8 per cent as against 4.4 per cent of the previous year, while narrow money (M1) posted a decelerating growth of 8.6 per cent compared to an increase of 9.3 per cent in 2001-2002. Inflation rate during fiscal year 2002- 2003 registered a rise of 4.8 per cent compared to an increase of 2.9 per cent in the last fiscal year. Despite of increase in total imports at a rate much higher than total exports, the overall balance of payment remained in surplus due to the inflow of miscellaneous capital. In the year under report, total export of goods increased by 4.9 per cent as against a decline of 15.6 per cent of the previous year. Expect exports to India which was decreased by 3.7 per cent compared to a rise of 7.4 per cent in the last year, the exports to other countries in 2002-2003 rose by 17.6 per cent as against a heavy decline of 35.9 per cent in the preceding year.
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PAKISTAN: Performance of Pakistan’s economy has been much better during FY2003. The actual GDP growth increased to 5.1 per cent as against 3.4 per cent during 2002, mainly due to better performance of agriculture, industrial and services sectors which recorded the growth rates of 4.1 per cent 7.7 per cent and 5.3 per cent respectively. In fiscal year 2003 the inflation rate stood at 3.1 per cent compared with 3.5 per cent in the previous year. During 2003, the fiscal deficit fell to 4.5 per cent of GDP compared to 6.7 per cent in 2002. This is the first time in more than 25 years that the fiscal deficit has moved below 5 per cent of GDP. The easy monetary policy stance adopted during FY2002 continued in FY2003 to reinforce economic recovery and growth momentum. In the year under review, for the third consecutive year the Pakistan’s balance of payments recorded sizeable current account surplus, despite subdued global economic activity, sluggish world trade and international tensions.
SRI LANKA: In the first three quarters of 2003 the Sri Lankan economy grew by 5.6 per cent, building on the growth of 4.5 per cent in 2002. Services, industry and agriculture sectors recorded growth during this period. Exports and imports have picked up in 2003, buoyed by the recovery in both the domestic and the global economies. Export earnings increased by 9.2 per cent, in contrast to the drop of 2.4 per cent in the previous year. Imports increase by 9.3 per cent as against a 2 per cent growth in 2002. The trade deficit increased to US Dollars 1,538 million, from US Dollars 1,406 million in 2002. During 2003, Sri Lanka’s rupee remained relatively stable against the US Dollar, for the year as a whole, the rupee depreciated marginally vis-a-vis US Dollar by 0.01 per cent. The corresponding depreciations in 2002 and 2001 were 3.7 per cent and 11.3 per cent, respectively. In 2003, in line with macro economic requirements, money supply has been increasing at around 13-15 per cent. A gradual decline in market interest rates has been seen in 2002 and 2003 with the relaxation of the Central Bank’s policy rates.
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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 2001 2002 2001 2002 2001 2002
BANGLADESH 129.37 112.98 1,328.20 1,254.84 -1,198.83 -1,141.86
BHUTAN ______
INDIA 2,494.00 2,643.00 1,208.00 1,349.00 1,286.00 1,294.00
IRAN 881.00 854.00 592.00 626.00 289.00 228.00
MYANMAR 214.77 231.59 63.12 73.08 151.65 158.51
NEPAL 243.80 265.74 178.53 196.07 65.27 69.67
PAKISTAN 294.00 276.00 530.00 447.00 -236.00 -171.00
SRI LANKA 137.31 245.79 911.81 1,086.21 -774.50 -840.42
TOTAL 4,394.25 4,629.10 4,811.66 5,032.20 -417.41 -403.10
Source: Direction of Trade Statistics, Year Book 2003, International Monetary Fund.
* F. O. B ** C. I. F
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Country Performance of the
Members
BANGLADESH
Bangladesh economy regained growth momentum in FY2003 (July 2002-June 2003), following stabilization with fiscal and monetary tightening in FY2002. Pursuance of a strong revenue raising efforts, pruning of the Annual Development Program, adoption of effective measures for improvement of foreign exchange reserves, strong supportive measures in the external front resulted in attaining the GDP growth rate around 5.3P per cent during FY2003. The target GDP growth of 5.5 per cent for FY2004 is likely to be exceeded. CPI inflation displayed a rising trend during 2003, owing mainly to larger than expected increase in food prices induced by high import prices. However, the trend moderated in December 2003 and declined further in February 2004. After pursuing a restrictive monetary policy in FY2002, Bangladesh Bank shifted to a accommodative pro-growth monetary policy in FY2003. Both exports and imports registered higher growth in FY2003 from the decline in FY2002. Growth in remittances from workers abroad resulted in a larger current account surplus and larger reserves accretion. The overall balance of payment position remains positive and continued to improve during the first nine months of FY2004. In order to make the Bangladesh economy more resilient to shocks and to protect the international competitiveness of Bangladeshi Taka, Bangladesh formally stepped over to market based exchange rate for the Taka from 31 May 2003. In order to gear up economic activities through increased investment, the bank rate was reduced to 5 per cent with effect from November 6, 2003. As a result, declining trend of interest rates has been observed during the period and it is expected that this trend will also continue in future.
Economic Growth
Real GDP registered a growth of 5.3 per cent during FY2003 compared to 4.4 per cent in FY2002 due mainly to higher growth in agriculture, industry and ______P =Provisional
11 services sectors. The major rebound was in agricultural sector, with 3.3 per cent growth in FY2003 against zero growth in FY2002 due mainly to congenial weather conditions. The outlook for agriculture seems to be favorable in FY2004 with reports of good aman harvest estimated at 117.4 lakh metric ton (MT) as against 111.2 lakh MT produced in FY2003. The outlook for boro crop also appears to be favorable due to increase of area planted. Growth in the industrial sector stood higher at 7.3 per cent during FY2003 as against 6.5 per cent in the preceding year. In this sector, power, gas and water supply sub-sector, small scale industries sub-sector, and mining & quarrying sub-sector attained higher growth during FY2003. During July- December 2003, the industrial production index covering jute, cotton, apparel and leather recorded a growth of 7.2 per cent. The growth in the construction sub-sector was fairly high at 8.3 per cent in FY2003 but somewhat lower than the 8.6 per cent growth of FY2002. The overall growth in services sector grew by 5.8 per cent in FY2003 compared to 5.4 per cent in FY2002. During the first half of FY2004, services sector is likely to record a higher growth benefiting from agricultural, industrial and external sector growth. Industrial production also increased during the first half of FY2004.
Savings and Investment
The slowly rising trend of domestic savings and investment continued during FY2003. Gross domestic savings as percentage of GDP increased to 18.23 in FY2003 from 18.16 in FY2002. Investment as percentage of GDP increased to 23.22 in FY2003 compared to 23.15 in FY2002. The share of domestic resources in the Annual Development Programme (ADP) expenditure declined marginally to 48.5 per cent in FY2003 from 48.7 per cent in the preceding year. The domestic savings-investment gap as percentage of GDP financed by external inflows remained unchanged at 4.99 in FY2003.
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Price Situation
The slow creep up of consumer price inflation from the second half of FY2002 continued over FY2003. The annual rate of inflation as measured by CPI (base: 1985-86=100) for national on twelve-month average basis indicated an increase of 1.6 percentage points to 4.4 per cent in FY2003 from 2.8 per cent in the preceding year. Increases in the import prices of petroleum, rice, edible oil and sugar in FY2003 were the main contributors to the upward pressure on prices, while the upward revision of some administered utility prices also added their impact on inflation. The overall 12 month point to point inflation rose from 5 per cent in July 2003 to 6.7 per cent in November 2003, but decreased to 6.5 per cent in December and further to 5.6 per cent in February 2004. Food price inflation increased from 5.2 per cent in June to 7.9 per cent in November 2003 and started to decline in December 2003 which reached to 7.1 per cent in February 2004. With good prospects for production of boro crop, the downward trend in food prices is likely to be continued during the year. Non-food inflation is also declining and was much lower at 4.5 per cent in February 2004.
Fiscal Developments
Government revenue earnings of Taka 237,646 million during FY2003 were 17.5 per cent higher compared to Taka 202,244.0 million in the preceding year. Government’s revenue earnings as percentage of GDP improved marginally to 10.3 per cent in FY2003 as compared to 10.2 per cent in FY2002. Expenditure on ADP as percentage of GDP increased marginally to 5.6P per cent during FY2003 from 5.5 per cent in the previous year. To partially meet this expenditure, government borrowing from the banking system was Taka 15,010 million (0.5 per cent of GDP).
P =Provisional
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The other Taka 38,000 million (1.3 per cent of GDP) of domestic financing of deficit was non bank borrowing mainly consisted of National Savings Scheme Certificate bought and held by the public. The foreign financing component of the FY2003 deficit was Taka 74,340 million (2.4 per cent of GDP), consisted mainly of concessional loans from bilateral and multilateral donors. As a result of pursuance of prudent macroeconomic policies, the overall budget deficit (excluding grants) as percentage of GDP declined to 4.2 per cent in FY2003 as compared to 4.7 per cent in the preceding year. The FY2004 budget targets an increase in revenue by about 0.4 per cent of GDP resulting from both changes in tax policy and improved administration. Revenue earnings of the government during July 2003-March 2004 increased by 9.2 per cent to Taka 181,529 million as compared to Taka 166,269 million during the corresponding period last year.
Monetary and Credit Situation
Broad Money (M2) grew by 15.6 per cent during FY2003 as compared to the increase of 13.1 per cent in the preceding year and 12.5 per cent programmed expansion for the year. Total domestic credit increased by 9.5 per cent in FY2003 as compared to 12.9 per cent in the preceding year. The expansion target of domestic credit was 11.3 per cent for the FY2003. The growth was lower than the target due mainly to decrease in credit to the public sector resulting from a downsizing of ADP development expenditure and an increased inflow of external financing. Net credit to the government sector decreased by 5.5 per cent while credit to the private sector increased by 14.9 per cent in FY2003 as compared to the growth of 14.1 per cent and 14.4 per cent respectively in FY2002. Taking advantage of the lower than targeted government borrowing monetary policy has remained accommodative to allow adequate opportunities for higher growth in private sector credit. In FY2004, the monetary program targets 10 per cent growth in reserve money and 14 per cent growth in broad money, revised from 12 per cent set earlier to allow for over 15 per cent growth in private sector credit. Credit to other public sector increased by 0.2
14 per cent in FY2003 as compared to a negative growth of 1.6 per cent in the preceding year. Total domestic credit grew by 6.3 per cent during the first eight months of FY2004 (i.e. up to February 2004) as compared to the growth of 8.1 per cent during the corresponding period last year. Broad Money (M2) recorded a lower growth of 6.6 per cent during the same period as compared to the growth of 9.2 per cent during the corresponding period last year. The bank rate was reduced to 6.0 per cent from 7.0 per cent with effect from 24 October 2001 and it remained unchanged in FY2003. The Cash Reserve Requirement (CRR) with the Bangladesh Bank remained unchanged in FY2003 at 4.0 per cent of their total demand and time liabilities. The Statutory Liquidity Requirement (SLR) also remained unchanged at 20 per cent in FY2003. With a view to stimulating the economy by injecting adequate flow of credit to the productive sectors of the economy and bringing down the borrowing cost, the bank rate was further reduced to 5.0 per cent with effect from November 6, 2003. The SLR for the scheduled banks, excepting banks operating under Islamic Shariah has been reduced to 16.0 per cent with effect from November 8, 2003.
Exchange Rate Policy
Bangladesh followed an exchange rate policy of occasionally adjusting the rate mainly with reference to the trend of Real Effective Exchange Rate Index based on a trade weighted basket of currencies of major trade partners. The Bangladesh Bank had a preannounced one Taka wide band within which the central bank would undertake transactions of US Dollar with the banks. Effective from 31st May 2003 Bangladesh stepped into fully market based exchange rate for the Taka, with the Bangladesh Bank’s declaration that it no longer had a preannounced rate band for transactions with banks and that it would intervene in the market only as and when needed to ensure orderly market conditions. The move to floating exchange rate system has been aimed at protecting competitiveness and enhancing resilience to shocks. Bangladesh Bank managed the transition to market-based exchange rate successfully and exchange rate remained
15 stable since then. With Taka floating, the intervention by the central bank in the foreign exchange market is aimed at achieving the foreign reserve target and smoothing excessive short-term fluctuations unrelated to economic fundamentals. In December 2003 all margin requirements on imports (considered exchange restrictions) were removed. The comfortable and rising foreign exchange reserve position, combined with prudent intervention policy of the central bank has helped maintain a stable exchange rate during the period after the floating of the Taka This relative stability of exchange rate, combined with cautious monetary and fiscal policy of the government has created the ground for gradual reduction of interest rate and steady expansion of the credit to private sector, including term loan to support investment required to achieve sustained growth of the economy.
Exports (fob)
Export receipts of Bangladesh showed a marked rebound from the decline in FY2002. Export earnings during FY2003 increased by 9.5 per cent to US Dollars 6,492.0 million as compared to decrease of 7.6 per cent to US Dollars 5,929.0 million in the preceding year. The increase in export earnings was mainly reflected in higher earnings from Naphtha & furnace oil of US Dollars 31.2 million (215.5 per cent), fertilizer of US Dollars 78.6 million (64.0 per cent), raw jute of US Dollars 82.4 million (34.8 per cent), frozen shrimps and fish of US Dollars 321.8 million (16.6 per cent), knitwear & hosiery products of US Dollars 1,653.8 million (13.3 per cent), jute goods of 256.54 million (6.2 per cent) and ready-made garments of US Dollars 3,258.3 million (4.3 per cent). However, export earnings from tea and leather registered a decrease of 11.0 per cent to US Dollars 15.5 million and of 7.8 per cent to US Dollars 191.2 million respectively. Exports earnings registered a healthy growth in U.S. dollar terms due to a pick up in demand in major markets in Europe and North America and benefiting from domestic financial stability. During July-February of FY2004, overall export earnings increased by about 14 per cent over the same period in FY2003. As
16 expected, the growth in exports is led by RMG and knitwear exports, which recorded a growth of over 14 per cent while other exports increased by about nearly 13 per cent.
Imports (fob)
After the decline in FY2002, import payments increased by 13.0 per cent to US Dollars 8,699.0 million in FY2003. The import payments for spices, edible oil, coconut oil, POL, cotton, pharmaceutical products, crude petroleum, iron, steel & other base metal increased by 146.2 per cent, 45.0 per cent, 40.0 per cent, 28.9 per cent, 26.0 per cent, 12.8 per cent, 10.3 per cent and 10.2 per cent respectively during the year under review. Increased import of foodgrains, sugar and edible oil, higher import of inputs for increased RMG exports and higher import of petroleum products contributed to the 13.0 per cent rise in aggregate imports in FY2003. Import payments in U.S dollar terms (as measured by L/C settlements) also recorded a strong growth of about 19.2 per cent during July-February of FY2004. This reflects a significant rise of domestic demand, including investment and consumption. Available data show that raw-materials and intermediate goods imports increased by nearly 22 per cent while machinery, equipment and other imports increased by about 17 per cent during the period, indicating a pick-up in manufacturing and construction activity. Bangladesh's Total Exports and Imports (In Million US Dollars) Sectors 2000-2001 2001-2002 2002-2003 Exports 6,419 (12.6%) 5,929 (-7.6%) 6,492 (9.5%) (fob including EPZ) Imports 8,430 (11.4%) 7,697 (-8.7%) 8,699 (13.0%) (fob including EPZ) Trade Balance -2,011 -1,768 -2,207 Source: Statistics Department, Bangladesh Bank. Note: Figures in the brackets indicate percentage changes over the previous year.
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Workers’ Remittances
Workers’ remittances during FY2003 which stood at US Dollars 3,062 million was 22.4 per cent higher than US Dollars 2,501 million of the preceding year. This significant growth was resulted from concerted and strong efforts by the authorities towards facilitating remittances through official channels by opening of new exchange houses in source countries, the speeding up of delivery to beneficiaries and the surveillance measures provided under the Money Laundering Prevention Act. Remittances from Non Resident Bangladeshis (NRB) registered a healthy growth of 11.4 per cent during July-March period of FY2004, estimated at US Dollars 2,503 million as against with US Dollars 2,247 million during the same period of FY2003. Notwithstanding a much faster growth of imports relative to exports leading to a widening trade deficit, the current account surplus increased during the July-January FY2004 due to strong growth in remittances.
Foreign Exchange Reserves
Bangladesh’s foreign exchange reserves which stood at US Dollars 1,583 million at the end of June 2002 increased significantly to US Dollars 2,470 million as on June 30, 2003. The level of reserves was equivalent to 3.4 months’ import payments of the country. Availability of loans from the IMF and the World Bank and remarkable growth in the remittances resulted in the growth of reserves during the year under report. Foreign exchange reserves stood at US Dollars 2,809 million on 2 May 2004.
Balance of Payments
The overall balance of payments position of the country showed significant improvement with a surplus of US Dollars 815 million during FY2003 as against US Dollars 365 million in the previous year. This was reflected mainly in marked increase in current account balance resulting from substantial rise in workers’
18 remittances and decrease in deficit under income as well as remarkable improvement in the financial account balance. The current account showed a surplus of US Dollars 328 million during FY2003 as against US Dollars 240 million in the preceding year due mainly to remarkable increase in current transfers and substantial cut in deficit under income. Current transfers increased substantially to US Dollars 3,418 million during FY2003 from US Dollars 2,826 million in FY2002. Workers’ remittances increased markedly to US Dollars 3,062 million in FY2003 from US Dollars 2,501 million during FY2002. The deficit in the services account widened to US Dollars 688 million during FY2003 from US Dollars 499 million in FY2002. The deficit under income narrowed down from US Dollars 319 million in FY2002 to US Dollars 195 million in FY2003. The deficit in trade balance widened to US Dollars 2,207 million during FY2003 from the level of US Dollars 1,768 million during FY2002. Capital account position showed some deterioration from US Dollars 410 million during FY2002 to US Dollars 392 million in FY2003. Financial account position improved substantially from US Dollars 71 million during FY2002 to US Dollars 218 million in FY2003.
Trade with ACU Member Countries
Total trade transactions of Bangladesh with Asian Clearing Union (ACU) member countries increased in FY2003 compared to the preceding year. As in the previous year, Bangladesh remained a net debtor in all the six settlements during this year. Both exports and imports of Bangladesh with ACU member countries increased during the year under report. Receipts of Bangladesh under the ACU arrangements recorded an increase of ACU $ 36.0 million or 51.4 per cent to ACU $ 106.0 million during FY2003 from ACU $ 70.0 million during FY2002 and payments also increased by ACU $ 292.0 million or 26.7 per cent to ACU $ 1,384.0 million during FY2003 from ACU $ 1,092.0 million during FY2002. As a result, the net debtor position of Bangladesh widened by ACU $ 254.0 million to ACU $ 1,277.0 million during the year under report as compared to ACU $ 1,023.0 million in the
19 preceding year. Due to comfortable reserve position, Bangladesh did not seek SWAP facilities from the ACU.
Outlook and challenges
Speedy implementation of the reforms in the NCBs as well as further improvement in corporate governance of PCBs will help create an efficient and dynamic banking system allowing the people and business entities to reap the benefits of improved financial management and reforms in near future. The accommodative monetary stance of Bangladesh Bank and a series of actions by the government have eased the cost and availability of credit. Growth of exports as well as expansion of private sector credit resulted in the growth of output during FY2004. Increased access to existing and new export markets would be needed to support the expected faster output growth. Besides export demand, increased domestic demand arising from poverty reduction would constitute another major plank supporting the high output growth rate projected for FY2004. If the target of boro and wheat crops is achieved and exports growth continue at the present rate, the target GDP growth of 5.5 per cent for FY2004 is likely to be exceeded. Average CPI inflation in FY2004 is likely to be somewhat higher than the 4.5 per cent target set earlier if the existing inflationary trend continues during the year. Bangladesh Bank is building higher than the targeted external reserve to mitigate the risks that may arise in the export sector after the expiry of the textiles quota regime under Multi Fiber Agreement (MFA) in 2005. In order to attain productivity growth and promote export diversification by encouraging new investment in export-oriented enterprises, efforts should be taken to reduce costs and up grade the economic infrastructure. For alleviating poverty and accelerating growth, effective flow of credit to agriculture and employment & income generating SME should be given priority attention.
20 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003 (In Million Taka)
EXPORTS
Country/Commodity Value
Bhutan 83
Woven garments 1 Others 82
India 5,808
Frozen food 254 Raw jute 1,600 Jute goods 140 Leather 98 Chemical products 2,362 Knitwear 2 Woven garments 320 Others 1,032
Iran 2,123
Jute goods 2,014 Raw jute 25 Tea-all sorts 22 Others 62
21
Myanmar 154
Chemical products 49 Others 105
Nepal 18
Chemical products 6 Woven Garments 4 Others 8
Pakistan 2,224
Jute goods 18 Raw jute 1,460 Agricultural products 13 Tea-all sorts 612 Chemical products 35 Others 86
Sri Lanka 411
Jute goods 48 Chemical products 49 Others 314 Total 10,821
Source: Export Promotion Bureau
22
IMPORTS
Country/Commodity Value
Bhutan 222
Vegetable products 149 Mineral products 52 Other commodities 21
India 86,629
Live animals, animal products 298 Edible vegetables and certain roots and tubers 3,772 Edible fruits and nuts peel of citrus fruits or melons 1,026 Organic and inorganic chemicals 3,823 Plastics and rubber and articles thereof 3,232 Textiles and textile articles 10,534 Coffee, tea mate and spices 393 Cereals 24,789 Prepared foodstuffs, beverages, spirits and vinegar 6,315 Base metals and article of base metals 5,215 Machinery and mechanical appliances, electrical equipment and parts thereof 8,193 Vehicles, aircraft, vessels and associated transport 5,888 Salt, sulphur, earth and stone, plastering materials 1,770 Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes 4,851 Tanning and dyeing extracts 1,581 Paper and paperboard and articles thereof 1,131
23
Other commodities 3,818
Iran 1,158
Edible fruits and nuts peel of citrus fruits or melons 177 Textiles and textile articles 457 Mineral products 292 Other commodities 232
Myanmar 1,930
Cereals 708 Wood and articles of woods and wood charcoal 1,062
Other commodities 160
Nepal 283
Edible vegetables and certain roots and tubers 209
Other commodities 74
Pakistan 5,557
Prepared foodstuffs, beverages, spirits and vinegar 147 Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes 65 Textiles and textile articles 3,649 Machinery and mechanical appliances, electrical equipment and parts thereof 207 Vehicles, aircraft vessels and associated transport equipment 213
24
Salt, sulphur, earths and stone, plastering materials, lime And cement 101 Other commodities 1,175
Sri Lanka 535
Animals and animal products 26 Plastics, rubber and articles thereof 94 Textiles and textile articles 100 Product of chemical or allied industries 60 Other commodities 255 Total 96,314
Source: Statistics Department, Bangladesh Bank.
Bangladesh's Trade in Major Services With ACU Countries In 2003 (In Million Taka) Bhutan
Services (net) (A-B) 9 A. Receipts 17 B. Payments 8 1.Transportation 3 1.Transportation 0 2.Travel 13 2.Travel 3 a)Commercial 0 a)Commercial 0 b)Education 13 b)Education 0 c)Tourist 0 c)Tourist 2 d)Other 0 d)Other 1 3.Communication Service 0 3.Communication Service 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 5
25
India
Services (net) (A-B) 124 A. Receipts 1,083 B. Payments 959 1.Transportation 396 1.Transportation 39 2.Travel 67 2.Travel 623 a)Commercial 3 a)Commercial 59 b)Education 10 b)Education 50 c)Tourist 35 c)Tourist 318 d)Other 19 d)Other 196 3.Communication Service 37 3.Communication Service 0 4.Insurance Services 1 4.Insurance Services 16 5.Bank Commission and Charges 26 5.Bank Commission and Charges 15 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 321 & Technical Services 85 7.Government Services n.i.e 235 7.Government Services n.i.e 181
Iran
Services (net) (A-B) -44 A. Receipts 2 B. Payments 47 1.Transportation 0 1.Transportation 0 2.Travel 0 2.Travel 6 a)Commercial 0 a)Commercial 0 b)Education 0 b)Education 0 c)Tourist 0 c)Tourist 5 d)Other 0 d)Other 1 3.Communication Service 0 3.Communication Service 0 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 1 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 39
26
Myanmar
Services (net) (A-B) -5 A. Receipts 41 B. Payments 46 1.Transportation 31 1.Transportation 12 2.Travel 0 2.Travel 8 a)Commercial 0 a)Commercial 1 b)Education 0 b)Education 0 c)Tourist 0 c)Tourist 2 d)Other 0 d)Other 5 3.Communication Service 0 3.Communication Service 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 1 & Technical Services 0 7.Government Services n.i.e 9 7.Government Services n.i.e 26
Nepal
Services (net) (A-B) 26 A. Receipts 62 B. Payments 36 1.Transportation 0 1.Transportation 0 2.Travel 30 2.Travel 18 a)Commercial 0 a)Commercial 2 b)Education 26 b)Education 0 c)Tourist 3 c)Tourist 10 d)Other 1 d)Other 6 3.Communication Service 0 3.Communication Service 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 3 & Technical Services 2 7.Government Services n.i.e 29 7.Government Services n.i.e 16
27
Pakistan
Services (net) (A-B) 52 A. Receipts 157 B. Payments 105 1.Transportation 24 1.Transportation 0 2.Travel 20 2.Travel 43 a)Commercial 12 a)Commercial 5 b)Education 1 b)Education 3 c)Tourist 3 c)Tourist 14 d)Other 4 d)Other 21 3.Communication Service 1 3.Communication Service 12 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 1 5.Bank Commission and Charges 2 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 19 & Technical Services 6 7.Government Services n.i.e 92 7.Government Services n.i.e 42
Sri Lanka
Services (net) (A-B) 179 A. Receipts 221 B. Payments 42 1.Transportation 53 1.Transportation 1 2.Travel 4 2.Travel 21 a)Commercial 0 a)Commercial 3 b)Education 1 b)Education 2 c)Tourist 2 c)Tourist 9 d)Other 1 d)Other 7 3.Communication Service 1 3.Communication Service 0 4.Insurance Services 0 4.Insurance Services 0 5.Bank Commission and Charges 2 5.Bank Commission and Charges 0 6.Misc. Business, Professional 6.Misc.Business, Professional & Technical Services 140 & Technical Services 7 7.Government Services n.i.e 21 7.Government Services n.i.e 13
28
TRADE THROUGH EPZ IN 2003
(In Million Dollars)
2002-2003 Export Import ACU countries 2.40 50.90 Per cent of ACU countries over 0.30 7.00 total trade routed through EPZ * We have no FTZ (Free Trade Zone).
29
BHUTAN
The fiscal year 2002-2003 continued its momentum from the previous year, with a number of major political and economic developments taking place within the country. Highlights from these include approval of the Bhutan Foreign Direct Investment Policy, Bhutan’s membership to the International Finance Corporation (IFC), and the submission of the Memorandum on the Foreign Trade Regime Document to the World Trade Organization (WTO), Geneva as part of the process of Bhutan’s accession. There has been significant restructuring of the Royal Government, with bifurcations in the Ministries of Health and Education and Communications, as well as the creation of the Ministry of Labor and Human Resources, with wide-reaching effects in other government departments.
Domestic Economy
Bhutan’s real GDP growth was 7.7 per cent in 2002, as reported last year, and inflation, as measured by the consumer price index (CPI) reached 1.8 per cent in June 2003, the lowest level in the last 20 years. The Agriculture Sector remains significant, contributing around 33 per cent of the total nominal GDP. Numerous global events beginning with the September attacks in the United States to the war in Iraq and SARS scare, placed a heavy damper on tourism in Bhutan spanning 2 years. Now after a long period, the slump in the Bhutanese tourism industry finally displayed encouraging signs of recovery at the end of 2002-2003, with actual figures of visitors and convertible currency revenue increasing by 11 per cent and 5.2 per cent, respectively.
Fiscal Sector
The Royal Government remains committed to the policy of cautious fiscal management, and has been successful in financing all current expenditures by
30 domestic revenue in 2002-2003 as in the past year. Even as grants financed 29.5 per cent of total expenditure, external debt grew by 39 per cent to US Dollars 405.5 million, reflecting Bhutan’s dependence on development partners to finance infrastructure and capital-related projects. Debt servicing, however, remains manageable at 4.9 per cent of the total export of goods and services, due to the concessional nature of the loans.
Monetary and Credit Developments
During 2002-2003, the economy experienced greater monetary expansion in comparison to the past, with money supply (M2) and narrow money (M1) growing by 29.7 per cent and 37.6 per cent, respectively. The expansion in M2 can be attributed mostly to the rise in net foreign assets by 22 per cent. Domestic credit maintained its upward growth during the period and rose sharply by 67.3 per cent over 2001-2002. So also, credit to the private sector grew at a higher rate of 35.7 per cent, up from 29.3 per cent in the previous fiscal year, contributing to the Royal Government’s efforts of stimulating private sector development. Into the first quarter of 2003-2004, the Bank of Bhutan, Bhutan National Bank, and the Royal Insurance Corporation of Bhutan have made decisions to lower their interest rates on housing loan schemes to 10 per cent. These developments were prompted by the Pension Fund’s offer of housing loan schemes at 10 per cent to members in mid 2003.
External Sector
Bhutan’s balance of payments improved significantly during 2002-2003, recording a doubled overall surplus of Nu. 2,573.2 million over the previous fiscal year. Accordingly, foreign exchange reserves accumulated to US Dollars 374 million, which is sufficient to cover 23 months of imports. The trade deficit recorded an improvement over the preceding year as a result of a substantial
31 decline in imports from countries other than India. On account of sizable invisible receipts, particularly from current transfer inflows of grant and aid, the current account recorded a surplus that is estimated at 10.7 per cent of GDP. This, combined with increased disbursements of loans and additional FDI inflows in the financial account, led to a considerable growth in the overall balance. Notably, the Bhutan-Bangladesh Bilateral Trade Agreement, which expired in 2000, was also renewed, under which Bangladesh has agreed to reduce duty and value added tax on the import of 18 products exported by Bhutan. Bangladesh is Bhutan’s second largest export destination after India.
32
Year-to-year change
2002 Item 1998 1999 2000 2001 (e)
GDP at Factor 6.4 7.6 5.3 6.6 7.7 Cost Agriculture 2.8 5.2 4.5 3.2 2.5
Industry 8.6 11.6 2.2 13.4 12.1
Services 6.6 5.9 9.5 6.6 8.0
Sectoral Composition of GDP
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1998 1999 2000 2001 2002 (e)
Agriculture Indus try services
40 30 20 10 0 % Change -10
-20 -30 1998/99 1999/00 2000/01 2001/02 2002/03 (p)
Exports Growth % Imports Growth % Trade Balance/GDP Ratio Current Account Balance/GDP Ratio
33 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003
EXPORTS
To Bangladesh:
Goods Vegetables & fruits, processed food, wood and wood products, mineral products
Services -
To India:
Goods Animal products, vegetables, fruits, nuts, coffee, tea & spices, vegetable fats & oils, prepared foodstuffs, mineral products, electricity, plastic & rubber products, raw hides & skins, wood & wood products, wood pulp products, textiles, footwear, headgear & clothing, accessories, stone, plaster, cement & asbestos, products, base metals & base metals products, machinery & mechanical appliances, transport equipment, optical, photographic & measuring, equipment, miscellaneous manufactured articles, products of chemical industries, works of art, antiques and special, transactions
Services Transportation services (Airline), travel, communications (Bhutan post), insurance services, financial services, government services
To Nepal:
Goods Mineral products, plastic products, machinery (parts), wood products, handicrafts products
Services -
34
IMPORTS
From Bangladesh:
Goods Vegetables, fruits, nuts, coffee, cereals, seeds, vegetables fats & oil, whiskies & processed food, products of chemical industries, medicines & pharmaceuticals, plastic & rubber products, textiles, machinery, mechanical appliances, base metals & electronic items, miscellaneous manufactured items Services -
From India:
Goods Animal products, cereals, vegetables, fruits, nuts, coffee, tea & spices, vegetable fats & oil, prepared foodstuffs, mineral products, products of chemical industries, plastics & rubber products, raw hides & skins, wood & wood products, wood pulp products, textiles, footwear, headgear & clothing, accessories, stone, plaster, cement & asbestos, products, precious/semi precious metal products, base metals & base metals products, machinery & mechanical appliances, optical, photographic & measuring, equipment, transport equipment, miscellaneous manufactured articles, works of art, antiques & special, transactions
Services Transportation services (Airline op), travel (education, medical, other travel), insurance services, government services
From Nepal:
Goods Animal products, whiskies & processed food, products of chemical industries, photographic film & materials, plastic & rubber products, wood products, wood pulp products, textiles, machinery, mechanical appliances, base metals &
35
electronic items, trekking equipment, footwear, carpets, miscellaneous manufactured articles, precious/semi-precious metals
Services -
36
INDIA
During the fiscal year 2002-2003, extreme drought condition severely affected the Indian economy resulting in a low growth of GDP at 4.0 per cent. The deceleration in the rate of growth of GDP, despite some improvements in the performance of industry and services sectors, is attributable to a substantial decline in the growth rate of agriculture and allied activities at (–) 5.2 per cent. During the fiscal year 2003-2004, the economy is expected to achieve a higher growth rate benefiting from strong rebound in agriculture and sustained upward growth in industry and services. In fact, the GDP is estimated to grow at the rate of 8.1 per cent in 2003-2004, which is more than double of 4.0 per cent achieved in 2002-2003. During the second quarter of 2003-2004 (the quarterly data available so far), the growth of real GDP had picked up, reflecting all round improvements in the growth of all the three sectors i.e. agriculture and allied activities, industry and services.
Agriculture
Indian agriculture after having displayed an impressive performance in 2001-2002, suffered heavily due to severe drought condition in 2002-2003. The production of foodgrains and non-foodgrains were affected almost across-the- board with the fall in kharif output being sharper than that of rabi. Consequently, the index of agricultural production (base: triennium ending 1981-82=100) recorded the steepest decline (12.6 per cent) since 1979-1980. During 2003-2004 however, Indian agriculture is set to stage a sharp recovery from the last year’s severe drought. According to the India Meteorological Department (IMD), during 2003-2004, the country received a satisfactory rainfall, which was 2 per cent above the Long Period Average (LPA) compared to 19 per cent below the LPA in the corresponding season of the previous year. It was further supplemented by an
37 adequate spatio-temporal distribution with 33 out of 36 meteorological sub- divisions receiving excess/normal rainfall compared to 15 sub-divisions last year.
Industrial Sector
The index of industrial production (IIP) recorded a higher growth of 5.8 per cent during 2002-2003 (April-March) as against 2.7 per cent during 2001-2002. The growth of IIP increased to 6.3 per cent during April-December in the financial year 2003-2004 as against 5.5 per cent recorded during April-December in the financial year 2002-2003. The manufacturing sector, in particular, witnessed a higher growth of 6.8 per cent as compared with 5.7 per cent during the corresponding period of the previous year. The mining and electricity sectors recorded a lower growth of 4.0 per cent and 3.4 per cent, respectively, during April-December in the financial year 2003-2004 as against 5.8 per cent and 3.8 per cent during April-December in the financial year 2002-2003. According to the advance estimates of GDP recently released by CSO, the growth rate of industrial sector (with construction) for 2003-2004 is placed at 6.5 per cent as compared to 6.4 per cent in 2002-2003.
Services Sector
During 2002-2003, services sector witnessed a higher growth of 7.1 per cent as against 6.5 per cent during 2001-2002. During 2002-2003, ‘financing, insurance, real estate and business services’ and ‘community, social and personal services’ recorded a higher growth of 6.1 per cent and 6.8 per cent respectively as compared with 4.5 per cent and 5.6 per cent during 2001-2002. ‘Trade, hotels, transport and communication’ continued to record a high growth of 7.8 per cent during 2002- 2003 over and above 8.7 per cent registered during 2001-2002. The buoyancy in the services sector continued during 2003-2004 as reflected in 7.4 per cent and 9.6 per cent growth in the first and second quarters as
38 compared with 6.8 per cent and 7.8 per cent in the corresponding quarter of 2002- 2003. ‘Trade, hotels, transport & communications’ and ‘financing, insurance, real estate and business services’ witnessed a higher growth in the first and second quarters of 2003-2004 as compared with the corresponding quarters of 2002-2003. The recent growth in this sub-sector mainly reflects the robust growth of communications that benefited significantly from the reforms underway in the telecom sector. Furthermore, information technology (IT) and software services have emerged as one of the most dynamic service-providing sub-sectors of the economy. The share of IT services increased to 3.2 per cent of GDP in 2002-2003 from 2.9 per cent in 2002-2003. According to a preliminary NASSCOM estimate, business process outsourcing (BPO) is likely to grow by 50 per cent during 2003- 2004. According to the advance estimates of GDP recently released by CSO, the growth rate of the services sector for 2003-2004 is placed at 8.2 per cent as compared to 7.2 per cent in 2002-2003.
Savings and Investment
The rate of gross domestic saving increased to 24.2 per cent in 2002-2003 from 23.5 per cent in 2001-2002. This increase was mainly on account of an improvement in the rate of public savings to (-) 1.9 per cent in 2002-2003 from (-) 2.7 per cent in 2001-2002. The rate of private corporate sector savings and household sector savings, however, showed marginal decline to 3.4 per cent and 22.6 per cent respectively in 2002-2003 from 3.5 per cent and 22.7 per cent respectively in 2001- 2002. Gross domestic investment rate has increased to 23.3 per cent in 2002-2003 from 23.1 per cent in 2001-2002.
Price Developments
Inflation in India has generally remained benign during 2003-2004 so far (up to end-January 2004). Wholesale price inflation (year-on-year) peaked at 6.9
39 per cent in the first week of May 2003 reflecting transport disruptions and an upward revision in electricity prices. Inflation ebbed thereafter to 3.8 per cent on August 23, 2003 due to decline in the prices of mineral oils, oil seeds, oil cakes and cement which outweighed inflationary pressures from iron and steel, vegetables and the administered coal prices. In the subsequent weeks up to January 10, 2004, inflation rose to 6.2 per cent due to rising prices of mineral oils following continued hardening of international crude prices, cotton textiles and fruits which together contributed to nearly 70 per cent of the increase in the inflation rate. Inflation rate has declined to 5.8 per cent by end-January and is expected to fall in the range 4.0-4.5 per cent by end-March in the absence of unanticipated shocks. Consumer price inflation (year-on-year) based on variation in the CPI for industrial workers increased to 3.7 per cent in December 2003 from 3.2 per cent in December 2002. On an annual average basis, however, CPI inflation fell to 3.8 per cent from 4.3 per cent over the corresponding period of the previous year.
Fiscal Developments
The gross fiscal deficit (GFD) of the Central Government during 2002-2003 (revised estimates) at Rs. 145,466 crore was higher by 7.3 per cent than the budgeted level of 135,524 crore and constituted 5.9 per cent of GDP which was higher than the budgeted level of 5.3 per cent of GDP by 0.6 percentage point. The revenue deficit in the revised estimates for 2002-2003 at Rs. 104,712 crore exceeded the budgeted level of Rs. 95,377 crore by 9.8 per cent and constituted 4.3 per cent of the GDP as against 3.8 per cent in the budget estimates. Primary deficit of Rs. 29,803 crore (1.2 per cent of GDP) was higher by 64.3 per cent than the budget estimates of Rs. 18,134 crore (0.7 per cent of GDP). The increase in deficit indicators of the Centre was on account of shortfall in the realisation of revenue receipts and disinvestments proceeds. The revenue receipts declined due to shortfall in tax collection by 5.1 per cent even though non-tax revenue registered a marginal increase of 0.9 per cent over the budget estimates.
40 Expenditure reduction in the revised estimates for 2001-2002 was to the extent of 1.5 per cent over the budgeted level. The reduction was effected in non-plan expenditure by 2.3 per cent, whereas plan expenditure showed a rise of 0.5 per cent over the budgeted level. During the first eight months of the current fiscal year (April-November 2003), the Central Government finances witnessed some slowdown in the growth of revenue receipts, while expenditure growth remained marginally lower than that during the corresponding period of the preceding year. During April- November 2003, gross fiscal deficit at Rs. 93,656 crore was higher by 12.3 per cent over April-November 2002 (Rs. 83,394 crore) and constituted 61.0 per cent of the budget estimates (Rs. 153,637 crore). Revenue deficit at Rs. 76,701 crore (68.3 per cent of budget estimates) was higher by 13.0 per cent over the level of the previous year. Primary deficit at Rs. 23,818 crore during April-November 2003 was higher by 46.9 per cent over the level during April-November 2002 (Rs. 16,210 crore). The fiscal outcome of the states in the revised estimates for 2002-2003 showed deterioration with the overall borrowing requirements (GFD) of the States rising from 4.2 per cent of GDP in 2001-2002 to 4.7 per cent of GDP in 2002-2003. The increase in revenue deficit, however, was less pronounced than that in the GFD and primary deficit. This was mainly due to the fact that revenue receipts increased at a faster rate of 15.0 per cent as compared with a growth rate of 12.8 in the revenue expenditure. The growth in revenue receipts was facilitated mainly by the States’ own tax revenues and Central grants. The finances of State Governments during 2003-2004 are budgeted to record an improvement over the previous year. The revenue deficit as a percentage of GDP is budgeted lower at 1.8 per cent as compared with 2.5 per cent in the revised estimates for 2002-2003. With the compression in revenue deficit, the gross fiscal deficit is budgeted to decline from 4.7 per cent of GDP in 2002- 2003 (R.E) to 4.0 per cent of GDP in 2003-2004. The primary deficit defined as GFD minus interest payments is also budgeted lower at 1.0 per cent of GDP in 2003-2004 than 1.7 per cent in the previous year. The budget estimates have
41 projected a growth rate of 13.3 per cent in revenue receipts of States, while total expenditure has been budgeted to show a growth of 7.6 per cent over the previous year.
Monetary and Credit Situation
The monetary policy stance of the Reserve Bank during 2003-2004 (April- March) continued to be the provision of adequate liquidity to meet credit growth and support investment demand in the economy while maintaining a vigil on movements in the price level. The Reserve Bank also proposed to continue with the prevailing stance of preference for a soft and flexible interest rate environment within the framework of macroeconomic stability. The monetary policy stance was reflected in cuts of 25 basis points in the Bank Rate to 6.0 per cent (April 29, 2003), 50 basis points in the repo rate to 4.5 per cent (August 25, 2003) and 25 basis points in the cash reserve ratio (CRR) to 4.5 per cent of the banks’ net demand and time liabilities (June 14, 2003). Reserve money growth during the fiscal year 2003-2004 (up to February 6, 2004) continued to be driven by the sustained accretion to the Reserve Bank’s foreign currency assets. The expansionary effect on reserve money was, however, contained through sterilisation operations in the form of open market sales of government securities and repo operations. Consequently, the Reserve Bank’s net credit to the Centre declined sharply. Reflecting the scale effect of CRR cuts and the substitution effect of large scale capital flows, the share of net foreign assets in reserve money has increased dramatically to 121 per cent by February 6, 2004 from less than 10 per cent as at end-March 1990.
Broad money (M3) growth during 2003-2004 (up to January 23, 2004) was marginally lower than the previous years’ growth rate, and remained within the trajectory of 14.0 per cent as indicated in the mid-term review of Monetary and Credit Policy statement for the year 2003-2004 (released on November 03, 2003). On the components side, there was a deceleration in banks’ time deposits.
42 Bank credit to the commercial sector has shown signs of pick up since August 2003. Non-food credit growth on an year-on-year basis during the current year (up to January 23, 2004) has been almost of the same order as the previous year. Credit to priority sector has revived with a substantial increase in the advances to other priority sectors including housing sector. Credit to industry, however, recorded a decline during April to November 2003 although it has started picking up since August 2003. The decline in overall credit to industry during April to November 2003 can be attributed to, inter alia, an increased recourse by corporates to internal sources of financing, enabled by higher profits as well as higher external commercial borrowings.
External Sector Developments
Merchandise Trade
According to the data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), India’s merchandise exports at US Dollars 52.7 billion grew at 20.3 per cent during 2002-2003 (April-March) as against a decline of 1.6 per cent during the corresponding period of previous year. The imports during 2002-2003 at US Dollars 61.4 billion recorded a growth of 19.4 per cent compared with 1.7 per cent during 2001-2002. Both oil and non-oil imports increased by 26.0 per cent and 17.0 per cent, respectively during 2002-2003. Due to higher import growth, the trade deficit increased to US Dollars 8.7 billion during 2002-2003 from US Dollars 7.6 billion during the previous year. During April-December 2003, exports at US Dollars 42.4 billion recorded a growth of 13.4 per cent compared with 18.1 per cent during the corresponding period of the previous year. During this period, the import at US Dollars 55.0 billion recorded a growth of 24.8 per cent, compared with 15.1 per cent during the corresponding period of previous year. Both oil and non-oil imports increased by 14.2 per cent and 29.1 per cent, respectively, during April-December 2003.
43 Reflecting the higher imports, India’s trade deficit has nearly doubled to US Dollars 12.6 billion during April-December 2003 from US Dollars 6.7 billion during the corresponding period of 2002.
Invisibles and Current Account
Invisible earnings continued to provide strong support to India’s balance of payments during the first half of 2003-2004. Net surplus from invisibles increased during April-September 2003 as compared with the corresponding period of the previous year. This was mainly on account of higher inflows under transportation, software services and private transfer receipts. Despite a higher trade deficit on payment basis, the current account registered a small surplus after being in deficit during the first quarter of 2003-2004.
Capital Account
Net capital flows increased sharply during April-September 2003. The major contributors to capital flows were portfolio investment led by foreign institutional investors (FIIs), short-term trade credit and non-resident Indian (NRI) deposits. As per the latest available data, inflows on account of foreign portfolio investment led by FIIs were significantly higher at US Dollars 7.6 billion during April-December 2003 as against US Dollars 386 million during the corresponding period of the previous year. Foreign direct investment (FDI), which includes equity capital of unincorporated entities, reinvested earnings, and inter-corporate debt transactions between the related entities under the expanded coverage, however, stood a little lower than in the previous year. In view of the subdued FDI inflows, the Government of India has revised FDI limits in several sectors, including banking, petroleum and natural gas to create an enabling environment for FDIs along with infusion of new technologies and management practices.
44 RBI’s attempt to align the interest rates on rupee denominated Non- Resident External Rupee Account [NR(E)RA] deposits with the London Inter- bank Offer Rate (LIBOR) in view of declining global interest rates has resulted in decline in the inflows under NRI deposits during the recent months except in October 2003, when a part of the redemption of Resurgent India Bonds (RIBs) was recycled to NRI deposits. As per the latest available data, total NRI inflows rose to US Dollars 3.5 billion during April-December 2003 as against US Dollars 2.4 billion during April-December 2002. Short-term credit grew significantly to US Dollars 2.2 billion during April-September 2003 as against US Dollars 343 million during the corresponding period of the previous year, keeping in line with the high import growth.
Foreign Exchange Reserves
India’s foreign exchange reserves comprising foreign currency assets, gold and Special Drawing Rights (SDRs) stood at US Dollars 107.5 billion on February 13, 2004 – an increase of US Dollars 32.1 billion during the current financial year (up to February 13, 2004), notwithstanding prepayment of high cost foreign currency loans of the Government and redemption of Resurgent India Bonds (RIBs). Net of valuation, the accretion to foreign exchange reserves was US Dollars 26.1 billion during the current financial year (up to February 13, 2004). This accretion during the current year so far has been the highest in any financial year. It was almost entirely in the form of foreign currency assets, which reached US Dollars 103.2 billion on February 13, 2004. The composition of the accretion to foreign exchange reserves during the first half of 2003-2004 has undergone significant changes as compared with that of the comparable half of the previous year. The current account surplus declined to US Dollars 0.2 billion during April-September 2003 from US Dollars 2.0 billion during April-September 2002. There has been a significant rise in the net inflows through the capital account heads at US Dollars 13.3 billion during April-
45 September 2003 as against US Dollars 4.6 billion in April-September 2002. There has been a significant increase in capital flows from investment by foreign institutional investors (FIIs), short-term credit and non-resident deposits. Valuation changes, reflecting the appreciation of the Euro, Great Britain Pound (GBP) and Japanese Yen against the US dollar, accounted for US Dollars 1.8 billion of accretion to total reserves during April-September 2003 as against a valuation addition of US Dollars 2.0 billion during April-September 2002.
External Debt
India’s external debt at US Dollars 112.5 billion as at end-September 2003 increased by US Dollars 7.5 billion over the level of end-March 2003, mainly on account of increase in NRI deposits, external commercial borrowings, short-term debt including short-term trade-related debt. The increase in Non-resident External Rupee Account [NR(E)RA] deposits included reinvestment of maturity proceeds of the Non-resident Non-repatriable Rupee Deposit [NR(NR)RD] scheme (which was discontinued with effect from April 1, 2002). The increase in borrowing by corporates in the face of low international interest rates led to a rise in external commercial borrowings. The increase in short-term debt has been mainly on account of higher short-term trade credits. Despite growth in short- term debt during April-September 2003, the proportion of such debt in the overall debt stock remains modest at 5.5 per cent. The fiscal 2003-2004 (up to February, 2004) was marked by large repayments including prepayment of foreign currency loans amounting to US Dollars 3.8 billion by the Government in addition to repayment of RIBs amounting to US Dollars 5.2 billion on October 1, 2003. Taking advantage of the low interest rate situation world wide, corporates have also prepaid some of their high cost external debt. However, with recent liberalisation of external commercial borrowings (ECB) norms by the Government of India, in respect of eligibility, end-use restriction and spreads, there are indications that corporates have started
46 contracting fresh ECB, particularly through the automatic route, for which the limit is now set at US Dollars 500 million provided the ECBs are for a minimum average maturity of five years. It is interesting to note that during end-March 1991 to end-September 2003, India’s foreign exchange reserves increased by about US Dollars 85.3 billion, while the addition to India’s external debt was only US Dollars 28.7 billion. This implies that bulk of the accumulation of reserves has taken place through non-debt creating capital flows and without any additional cost in the form of increased indebtedness and debt servicing obligations.
Foreign Exchange Market
Surplus condition prevailed in the Indian foreign exchange market during the fiscal 2003-2004 so far (up to February 13, 2004), on account of sustained foreign exchange inflows. Increased foreign exchange inflows coupled with depreciation of US dollar against other major international currencies resulted in appreciation of the Indian Rupee by 5.0 per cent against the US dollar during the year 2003-2004 (up to February 13, 2004). The exchange rate of Rupee was Rs. 45.26 per US dollar on February 13, 2004. Although the Indian Rupee continued to gain strength against the US dollar, it weakened against the other major currencies during the same period. Reflecting the same, despite appreciation of Rupee against the US dollar, the 5-country trade weighted real effective exchange rate (REER) and nominal effective exchange rate (NEER) depreciated by 1.5 per cent and 4.8 per cent, respectively, during the year 2003-2004 (up to February 13, 2004). Activity in both the merchant and inter-bank segment of the foreign exchange market increased strongly. While the merchant turnover increased from US Dollars 25 billion in April 2003 to US Dollars 41.5 billion in November 2003, the inter-bank turnover increased from US Dollars 89.4 billion to US Dollars 129.1
47 billion during the same period. The inter-bank to merchant turnover ratio hovered in the range of 3-4 during the same period. Reflecting excess liquidity conditions in the spot exchange market as banks, exporters and corporates resorted to heavy forward dollar sales, the forward premia for all three maturities declined sharply during the year 2003-2004 (up to February 11, 2004), yielding negative values during the period October-December 2003. In January 2004, the one-month, three-month and the six-month forward premia averaged at 0.73 per cent, 0.50 per cent and 0.41 per cent as against 3.81 per cent, 3.60 per cent and 3.50 per cent, respectively at end-March 2003.
48 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003
(In Million US Dollars) EXPORTS
Commodity 2002-2003 (April-March p)
Engineering goods 744.8 Chemicals & related products 548.2 Petroleum, crude & products 529.3 Cotton yarn, fabrics, made-ups etc. 236.9 Sugar & molasses 148.5 Rice 122.2 Wheat 115.7 Paper/wood products 82.0 Manmade yarn, fabrics, made-ups 72.8 Oil meals 56.7 Processed minerals 55.5 Coal 50.4 Spices 39.5 Readymade garments 36.7 Pulses 30.7 Fresh vegetables 28.0 Iron ore 19.4 Misc processed items 18.0 Other ores & minerals 17.7 Fresh fruits 13.6 Poultry & dairy products 11.0 Others 310.2
Total Exports 3,287.9 P: Provisional Source: Directorate general of commercial intelligence and statistics. (DGCI & S)
49 IMPORTS
Commodity 2002-2003 (April-March p)
Pulses 248.0 Wood & products 97.6 Chemicals, organic & inorganic 94.7 Non-ferrous metals 68.2 Fruits & nuts excl cashew nuts 50.6 Iron & steel 47.4 Textile yarn, fabrics, made-up articles 47.3 Essential oil, cosmetic preparation 45.2 Spices 43.0 Fertilizers 33.3 Jute, raw 22.5 Artficial resins, plastic material etc. 12.5 Metalliferrous ores & metal scrap 10.7 Medicinal & pharmaceutical products 9.0 Paperboard & manufactures 6.8 Sugar 0.0 Petroleum, crude & products 0.0 Others 253.4
Total Imports 1,090.2 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 2001-2002 2002-2003 p
Exports 43,826.7 52,719.4 (-1.6) (20.3) Imports 51,413.3 61,412.1 (1.7) (19.4) Trade Balance -7,586.6 -8,692.7
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 2001-2002 2002-2003 Exports Imports Exports Imports 1. Bangladesh 1,002.2 59.1 1,094.6 54.3 2. Bhutan 7.6 23.9 39.0 25.9 3. Iran 253.0 283.8 655.3 258.1 4. Myanmar 60.9 374.4 75.0 336.0 5. Nepal 214.5 355.9 297.2 280.2 6. Pakistan 144.0 64.8 205.8 44.5 7. Sri Lanka 630.9 67.4 920.9 91.2
ACU 2,313.1 1,229.3 3,287.9 1,090.2 ACU's Percentage to India (5.3) (2.4) (6.2) (1.8) India's total trade 43,826.7 51,413.3 52,719.4 61,412.1
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) 2001-2002 1,926.9 3,930.1 5,857.0 (4.4) (9.0) (13.4) 2002-2003 2,077.3 4,696.5 6,773.9 (3.9) (8.9) (12.8)
P : Provisional Note : Figures in brackets relate to share in India's total exports. Source : Ministry of Commerce, government of India.
52 IRAN
Iranian economy enjoyed a stable condition in the third year of the 3rd Development Plan (2000-2001/2004-2005). Government policy and measures adopted during the first three years of the Plan brought about significant results in the area of inflation containment, financing the requirements of production growth, increasing employment and accumulation of foreign exchange reserves. Implementation of exchange rate unification, establishment of foreign exchange interbank market, liberalization of foreign trade, and transparency in government budget, particularly in the area of subsidy payments were among the major policies adopted in the fiscal year 2002-2003. Financing the required resources for job-creating investment projects through the mechanism of the 3rd Plan Law, together with the extension of Gharz-al-hasaneh facilities to productive units and extension of foreign exchange facilities to manufacturers and investors through the OSF account, were among measures adopted in the area of employment.
In the review year, the increasing trend of international oil prices along with the implementation of the above-mentioned policies helped Iran in enjoying a positive and balanced growth in production and investment. Furthermore, the mild stability in domestic financial market and sustained and balanced external sector position, owing mostly to adopting sound economic policies and increase in oil price, played a great role in creating an economic growth climate in Iran. With the improvement in the performance of agriculture, construction and manufacturing and mining sectors, economic growth was realized at 7.4 per cent at constant 1997-1998 prices in 2002-2003. This was a significant achievement when compared with the performance of the Iranian economy in the last two decades.
In 2002-2003, the approval and implementation of the amended FDI (Foreign Direct Investment) Law, elimination of surrender requirement for non-oil export proceeds, and granting export subsidies were among the strategic measures and policies taken to improve foreign trade. Moreover,
53 approval of the new amended Tax Law, and consolidation of all duties and fees into a single tax were among measures taken which are considered as an essential policy to support domestic manufacturing units and to enhance transparency.
Iran’s Eurobonds issue in the said year with two placements, were totally sold out in international financial markets under appropriate condition.
Labor Market
The demographic change in Iran and its ensuing effects on the economy resulted in that employment generation to become a major economic policy priority for the government in Iran. In this context, the 3rd Plan policies concerning employment became a major element in fiscal and credit policies of the government.
Thus, to overcome unemployment challenge, the government and banking system were given certain obligations to fulfill, aiming at employment creation in the framework of the 3rd FYDP Law and annual budget laws. Among facilities extended for the implementation of projects and to entrepreneurs with job- creating projects are “administered funds” as approved in the Budget Law for 2001-2002 and 2002-2003, facilities under Article 56 of the 3rd FYDP Law, and directed credits of the Budget Law.
Concerning government administered funds, a total of Rls. 9,000 billion was approved in the framework of budget for employment, which was offered to applicants aimed at the execution of projects. Out of budgetary (approved) funds a total of Rls. 5,260 billion was deposited into agent banks. The total banks’ funds paid for implementation of the mentioned approved projects was estimated at Rls. 3,100 billion at the end of 1381 (2002-2003), which created 140 thousand new employment opportunities.
The mechanism envisaged in the 3rd Plan Law was among the efficient policies adopted by the government in employment creation during the first three years of the 3rd FYDP. Upto the end of 1381 (2002-2003), the total amount of banks loans paid out of this mechanism was Rls. 11,066 billion (Rls. 2,626
54 billion for former self-employment project and Rls. 8,440 billion for new employment facilities of entrepreneurs).
Another mechanism in the area of job creating opportunities was directed credits in the annual budget law. In Budget Law for 2002-2003, a total of Rls. 4,200 billion increase in the outstanding of directed credits was approved for banks, Rls. 2,230 billion of which was allocated to employment creation.
Government Budget and Finance
For the first time, the government budget of 1381 (2002-2003) was designed according to the IMF instruction on Government Finance Statistics Manual (GFSM 2001).
In 2002-2003, government general revenues rose by 16.6 per cent, compared to the previous year, to reach Rls. 61,973.5 billion, realizing 75 per cent of approved budget. The optimistic forecast of government revenues in the budget for 2002-2003 (especially in tax revenues) was the major factor behind the 25 per cent underrealization of government general revenues. Moreover, disposal of non-financial assets grew by 42.6 per cent when compared with the previous year to reach Rls. 103,183.2 billion, showing 0.6 per cent excess realization. The mentioned excess was mostly due to the rise in foreign exchange rate, compared with the budgeted figure. Disposal of financial assets also grew significantly compared with the previous year to reach Rls. 47,991.2 billion, showing 87.2 per cent realization compared with the approved figure. This underrealization was mostly due to the slow pace of privatization process in 2002-2003 (privatization revenues in 2002-2003 indicated 44.2 per cent underrealization). Moreover, expenses (current expenditures) reached Rls. 148,297.3 billion in 2002-2003, showing 41.5 per cent rise compared with the previous year and 4.7 per cent underrealization when compared with the approved figure. Payments for acquisition of non-financial assets (development expenditures) also amounted to Rls. 37,212.5 billion which showed an underrealization of 32.3 per cent. Considering the shortage of general budget sources in 2002-2003, priority in budget allocations was given to expenses
55 (current expenditures) at 94.9 per cent and 77.6 per cent to acquisition of non- financial assets. Moreover, payments for acquisition of financial assets reached Rls. 27,638.1 billion which registered an underrealization of 6.7 per cent. On this basis, government operating balance ran a deficit of Rls. 86,323.8 billion, and net disposal of non-financial assets faced a surplus of Rls. 65,970.6 billion. Thus, net lending (+)/borrowing (-) ran a deficit of Rls. 20,353.1 billion, which was totally financed from net disposal of financial assets.
According to Budget Law for 2002-2003, the government was allowed to use US Dollars 2 billion as external borrowing, US Dollars 1.979 billion of which (including issuance of one billion dollar euro bonds) was financed in the form of extra- budgetary. The rial equivalent, however, was not included in the budget.
Balance of Payments
Developments in the world crude oil market and gradual implementation of new foreign trade regulation, aimed at meeting the targets set in the 3rd Plan, affected the balance of payments in 2002-2003. In this year, the average price of each barrel of crude oil rose by 20.3 per cent, as compared to 2001-2002 which helped increase the oil sector exports by 17.9 per cent. Moreover, foreign exchange proceeds from oil export increased from US Dollars 19,339 million in 2001-2002 to US Dollars 22,807 million in 2002-2003.
Foreign trade liberalization and deregulation such as elimination of collaterals and surrender requirements, increase in exporters’ options to use foreign exchange proceeds, reduction in the LC’s prepayment, grant of facilities in rials and foreign exchange to foreign trade sector, gradual elimination of non- tariff barriers, exemption of exports from taxes and levies, grant of awards and export subsidies and stability in the foreign exchange market resulted in the growth of non-oil exports, and imports by 17.8 and 31.2 per cent, respectively to reach US Dollars 5,379 and US Dollars 23,786 million. Thus, the trade balance including oil exports faced a US Dollars 4,400 million surplus.
56 By and large, the current account in the BOP despite a surplus of US Dollars 3,731 million registered a fall of 37.7 per cent, while compared with 2001-2002. The major reason for the decrease in the surplus was a 31.2 per cent rise in imports and 276.8 per cent rise in the services account deficit.
In the review year, the net capital account faced US Dollars 2,943 million surplus. The government long-term account registered a US Dollars 3,863 million surplus in 2002-2003. Capital inflow in the form of buy-back agreements amounted to US Dollars 2,635 million, and US Dollars 106 million obligations of former buy-back agreements in oil sector were reimbursed. Thus, with the inclusion of US Dollars 2,291 million new public financing, the net changes in public sector long-term liabilities shows a surplus of US Dollars 3,865 million. The short-term capital account ran a deficit of US Dollars 1,170 million, mostly owing to US Dollars 350 million rise in net foreign assets of banks, US Dollars 75 million reduction in liabilities related to bilateral trades, and US Dollars 895 million reduction of liabilities related to LCs. The CBI’s foreign assets and the OSF account registered an increase of US Dollars 4,858 million in 2002-2003.
Money and Banking
According to the 3rd FYDP policies, along with provision of liquidity required by productive sector and investment, attempts were made to prevent monetary expansion beyond the targets set in the Plan. In this year, in the wake of launching exchange rate unification policy, liquidity control deemed more essential than before. Thus, liquidity and inflation targets were determined in the form of monetary policies approved in the 3rd FYDP at 15.7 and 15.3 per cent, respectively.
Despite the implementation of monetary policy and liquidity management through selling new participation papers by Rls. 7,600 billion and the CBI substitution of the whole matured papers, liquidity grew by 30.1 per cent to reach Rls. 417,524.0 billion at the end of 2002-2003. The liquidity growth was mostly due to increase in monetary base by 23.1 per cent. Among the constituents of monetary base, increase in the Central Bank net foreign assets,
57 owing to policy commitments to provide rial requirement of the government budget, with 29.3 percentage point share had the highest share in the growth of monetary base. In 2002-2003, the money multiplier also grew by 5.7 per cent. This was mostly due to the reduction in the weighted ratio of reserve requirement from 17.4 to 16.4 per cent due to the change in the composition of deposits.
Review of the factors affecting liquidity growth indicates the remarkable share of net domestic assets (27 percentage point) in liquidity growth. The effect of claims on non-public sector, among the factors, was 23 percentage point. Banking system’s net foreign assets, during the mentioned period, had a 3.1 percentage point share in liquidity growth. The Central Bank net foreign assets had an increasing effect of 8.9 percentage point.
Banks’ claims on government (including public sector participation papers)(1) rose by Rls. 9,764.7 billion to reach Rls. 17,318.2 billion, showing 129.3 per cent rise compared with the previous year-end. This was mostly due to the increase in the participation papers issued by public sector at Rls. 8,500 billion. According to the Law, banks are obliged to repurchase government participation papers before their maturity.
The banks’ creditory performance in 2002-2003 indicates that the facilities extended by banks and credit institutions to non-public sector, excluding profit and revenue receivables, amounted to Rls. 277,578.0 billion. This shows 36.2 per cent (Rls. 73,785.9 billion) growth when compared with the previous year- end.
Capital Market
Tehran Stock Exchange (TSE) activities enjoyed a remarkable growth in 1381 (2002-2003) as compared with the previous year. This was reflected in the growth of all stock market indices. In 2002-2003, attempts were made for the expansion of regional Stock Exchanges. Thus, Mashhad Stock Exchange was
______
(1) Includes CBI’s participation papers as well.
58 inaugurated, and Tabriz Stock Exchange is planned to be open at the beginning of 2003-2004. Moreover, the secondary floor of the TSE was opened and the second-hand trading of participation papers was commenced on this floor. In this year, measures were taken to put into operation the metal stock market in its final phases, and the preliminary steps for the establishment of agricultural stock exchange were taken. Among other stock market activities in 2002-2003 are: changes made in the criteria for acceptance of corporations, and dividing TSE halls into first and second board, and secondary hall.
The number and value of share tradings grew by 143.1 and 190.8 per cent to reach 4,145.3 million shares, valued at Rls. 22,776.1 billion in the review year.
Shares offered by the public sector increased as compared with the previous year, so that 967 million shares, valued at Rls. 4,418.3 billion were offered by government organizations and public institutions on the stock market. These figures were 136.5 million shares, valued at Rls. 468.5 billion in the previous year.
Share price index reached 5,062.8 at the end of 2002-2003, against 3,758.8 at the end of 2001-2002. The industrial index grew more than financial index in 2002-2003.
Review of the changes in the cash dividend index indicates that certain factors such as low return of alternative investments such as foreign exchange, automobile, gold coin, cellular phone as well as reduction in the rate of return on certain participation papers, led financial resources towards stock market. These factors in tandem with reduction in rates of return on deposits, effective since the beginning of the year, raised share price index.
Based on the 1381 (2002-2003) Budget Law, a total of Rls. 8,000 billion participation papers were issued which include participation papers for government development projects. Of this amount, except for Rls. 922 billion, all of the papers were sold out. Moreover, Rls. 1,500 billion participation papers were issued by Iranian Companies which were totally sold out.
59 It is worth mentioning that according to the 3rd FYDP, CBI offered Rls. 18,000 billion participation papers, for liquidity containment, of which Rls. 17,051.8 billion were sold out.
Price Trends(1)
The downward trend of Consumer Price Index (CPI) in urban areas, being started in 1999-2000, and continued with negligible fluctuations till the end of 2001-2002, has been reversed since the beginning of 2002-2003. Inflation rate, from 16 per cent in the twelve months ending September 2000, reached 11.4 per cent in March 2001, and stood at 15.8 per cent. This increasing trend is observed in wholesale and producer price indices, since the beginning of 2002- 2003.
Increase in inflation rate in 2002-2003 was mostly due to the lagged effect of high liquidity growth during 2000-2002 and its ensuing effect in 2002-2003.
Among the major constituent groups of CPI, the average price index of “foodstuffs, beverages and tobacco”, with 19.5 per cent growth compared with the previous year and with a noticeable weight had a share of 39.9 per cent in the growth of general index.
The average price index under the heading of “housing, fuel, and lighting” registered a growth of 19.6 per cent when compared with the previous year, and had a share of 38 per cent in the rise of general index. Among the constituents of this index, increase in the price index of “housing”, by 19.9 per cent was significant.
Review of major groups constituting Wholesale Price Index (WPI) in 2002- 2003 indicates that the price index of “domestically produced and consumed goods”, with 11.1 per cent growth, registered 85.4 per cent share in raising general index. The share of price index of imported goods in the growth of general index was 9.4 per cent. The comparison between growth rate of special groups constituting
______
(1) Base year for all price indices is 1376.
60 Producer Price Index (PPI) indicates that “services” groups grew by 19.5 per cent, showing the highest share of 44 per cent in raising this index during the course of 2002-2003.
61 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003
EXPORTS
To Bangladesh: Sector Agriculture Cumin
Industry Cotton, tar and its by-products, oil products, bullet, zinc sheets, synthetic and natural waxes, paper and paper products, sulphur, petrochemicals (such as vaseline, naphthalene) fish, resins, marble and architectural stones, chemical, carpet, plastics products, meat, furniture, container, detergent, machineries
To India:
Sector Agriculture Dried and fresh vegetables, date, pistachio, cumin, almond, seed, dried and fresh fruits, saffron, tea black
Industry Aluminum, chemical, sulfur, petrochemicals (such as vaseline, paraffin, naphthalene), synthetic and natural waxes, zinc sheets, tar and its by-products, copper and copper products, iron and steel products, paper and paper products, resins, marble and architectural stones, lead, oil products, carpet, ink, wasted and ash, cachou and product made of cachou, plastic, detergent, pastries luster, leather and tanned skins, derivatives of coal, juice
To Myanmar: Sector Industry Tar and its by-products, meat, Vaseline
62
To Nepal: Sector
Industry Synthetic and natural waxes
To Pakistan:
Sector
Agriculture Pistachio, date, dried and fresh fruits, legume, seeds, almond, juice, dried and fresh vegetables, saffron, eggs of bird
Industry Chemical, leather and tanned skin, plastic carpet, zinc sheets, tar and its products, petrochemical (such as vaseline, naphthalene), lead, clay, threads of wool, cement, cast iron products, sulfur, resins, solvent, luster, paper and paper products aluminum, enzymes, copper and copper products, mineral water backing products, glass and glass products, fish, pastries and chocolates, detergent, iron and steel products, sewing machine, ice cream
To Sri Lanka:
Sector Agriculture Pea
Industry Copper and copper products, cachou and product made of cachou, marble and architectural stones, lead, glass and glass products, chemical, mineral water, carpet, resins, tanning chemical, derivatives of oil
63
IMPORTS
From Bangladesh: Sector Agriculture New wool and fleece
Industry Thread of natural and synthetic, chemical, sender and receiver and radar, mineral’s material
From India:
Sector Agriculture Sugar beets, sugar cane, coconut, seeds, turmeric, dried fruits, spice
Industry Tar and its by products, iron and steel products, tube, aluminum, pharmaceuticals, brass, threads of cotton or various wool, mechanical machines, chemicals, insecticide, copper and copper products, loader, cutting machine, textiles made of natural and synthetic, paper and paper products, vehicles and related spare parts, pigment, cachou and cachou products, plastic, ink, enzymes, milk, motorcycle, weaving machines, non burnable, motors, cast iron product, contra fugal machines for filtering, eater and esters, pick, x-ray and radiology equipment, drying agents, sulfur, asbestos and related products, tools packaging equipment, shifting and separating machines, mechanical rollers, synthetic and natural waxes, eggs of birds, machineries and spare parts, glass and glass products, furnaces, sanding and mill stone, strip, machinery for stone and ceramic work, glass bubbles for insulation, marble and architectural stones, petrochemicals (such as benzenes, butane, ethylene), felt, ink, ornament, white clay, cutlery, generators, tractor, carpet, medical equipment, resins,
64
cloth, zinc alloys, glass laboratory equipment, printed goods, jam, cabinets, juice
From Myanmar:
Sector Agriculture Turmeric
From Pakistan:
Sector Agriculture Sesame seeds, juice, prunes, garlic Industry Cotton textiles, paper and paper products, synthetic and natural fibers, glass products, packaging equipment, machinery for stone and ceramic work, oil waste, plastic, physician equipment, cutlery, mineral’s material, shifting machine, vehicles, ceramic products, vending machines and spare parts, electric equipment, fishing boat, tent, gelatin, cargo ship, painting machines, razor, enamel, lamps, brass, cutting machine, wooden items, ITM input and output units
From Sri Lanka:
Sector Agriculture Coconut
Industry Peat, wooden items
65
Import From ACU member countries (year 2003)
Country Weight Value in Iranian Rial Value in US Dollars
Bangladesh 89,754,213 350,857,310,172 44,300,170 India 2,844,050,884 7,747,639,964,274 978,237,380 Myanmar 644,304 2,725,913,446 344,180 Pakistan 508,156,737 6,651,608,731,832 839,849,578 Sri Lanka 5,602,500 18,282,360,668 2,308,377
Export to ACU member countries (year 2003)
Country Weight Value in Iranian Rial Value in US Dollars
Bangladesh 31,681,547 75,443,021,088 9,525,633 India 537,269,265 721,015,075,451 91,037,284 Myanmar 12,180,494 17,159,261,427 2,166,572 Nepal 80,270 237,480,044 29,985 Pakistan 232,392,830 483,062,785,036 60,992,792 Sri Lanka 4,180,599 17,876,162,057 2,257,096
66
MYANMAR
After formulating and implementing a series of short-term economic plans, Myanmar has been able to achieve remarkable growths in recent years. Myanmar is now implementing the third short-term plan, which spans from 2001-2002 to 2005-2006. Myanmar has been able to achieve growth rates of 11.3 per cent and 12.0 per cent respectively in the first two years of present five-year short-term plan mainly due to the good performance of the construction, manufacturing and processing, livestock and fishery and agriculture sectors. Agriculture sector, the backbone of the economy, grew by 4.7 per cent while manufacturing and processing sector expanded by 29.1 per cent in FY2002-2003. For the first half of FY2003-2004, the economy has been able to grow by 11.3 per cent.
Fiscal Sector
The ratio of budget deficit to GDP in FY2002-2003 declined to 3.7 per cent, from 4.7 per cent in the previous year, mainly due to continuation of tax administration, and measures to slash unproductive expenditures.
Monetary and Banking Sector Developments
Money supply growth has slowed down to 15.5 per cent compared to that of 47.2 per cent in previous year while domestic credit has also lowered to 11. 1 per cent compared to that of 39.8 per cent for same period. The interest rate remains unchanged from that of 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. The Central Bank of Myanmar attaches substantial importance on
67
prudential regulations. A comprehensive system of reporting in place for verifying the banks’ compliance with reserve ratio, liquidity ratio, capital adequacy ratio, and loan provisioning requirements. In order to expand and strengthen the supervisory responsibilities of the CBM, emphasis has now given on recruiting skilled officials and developing the existing staff. As the Central Bank of Myanmar is closely monitoring the private banks’ debt portfolio and taking its utmost efforts to resolve the NPLs problems, the average NPLs ratios of private banks declined to 2.1 per cent to total loans by end- March 2003, compared to those of 2.9 per cent by end-March 2001. Sales of 3 year and 5 year government treasury bonds reached Kyat 974 billion at the end of March 2003. Gradual increase in sales of government treasury bonds would help to partially reduce the monetary financing for fiscal deficit and inflationary pressure on the economy.
Price Trend
Inflation rate, based on consumer price index has slowed down to 24.1 per cent in the third quarter of 2003 from 56.56 per cent in the previous year, mainly due to lower domestic consumption and increase in agriculture production during the harvest season.
Balance of Payments
On the external front, total value of exports, including border trade, reached US Dollars 2,602.9 million in 2002-2003 while the value of imports totaled US Dollars 2,101.5 million. Total exports in terms of value increased significantly by 4.8 per cent in 2002-2003 while imports declined by 8.8 per cent as a result of decrease in imports of capital and intermediate goods. As a result of the improvement in the current account and other capital inflows, Myanmar posted
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on overall surplus of US Dollars 94.3 million.
Trade with ACU Countries
Myanmar continued to register a favorable trade balance with other ACU countries in 2002-2003. Nevertheless the trade surplus decreased to US Dollars 297.7 million in 2002-2003 from that of US Dollars 345.6 million in 2001-2002. Export to ACU countries decreased by 4.2 per cent in 2002-2003 while imports from ACU countries grew by 33.7 per cent during the same period. Among ACU members, India is the leading buyer of Myanmar’s exports.
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SELECTED ECONOMIC INDICATORS
(In Million Kyats)
2002/2003 (Provisional) (At 2000/2001 constant prices) Gross domestic product 3,182,113
Agriculture 1,409,361 Livestock & fishery and forestry 275,014 Manufacturing and processing 287,692 Mining 13,731 Services 339,976 Others 856,339 Growth rate of GDP %12.0
Price
Consumer price index 1/ 322.7 (1997=100) Inflation rate (per cent) 58.1
Balance of payments
Goods: Exports 16,894.1 Imports -13,639.8 Trade balance 3,254.3 Services (net) -3,233.5 Transfers (net) 952.8 Current account (net) 973.6 Capital account (net) 432.2 Errors and ommissions -993.5 Overall balances 412.3 Monetary movements -412.3
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MYANMAR BALANCE OF PAYMENTS GOODS AND SERVICES ACCOUNT (In Million Kyats)
1/ 2001/2002 2002/2003 Trade Balance 1,212.4 3,254.3 Exports 16,699.6 16,894.1 Imports -15,487.2 -13,639.8
Services Balance -3,221.9 -3,233.5 Receipts 3,139.2 2,901.3 Payments -6,361.1 -6,134.8
Source: Central Bank of Myanmar 1/ Provisional actual data
MYANMAR TRADE WITH ACU COUNTRIES IN 2002/2003 (In Million US Dollars)
1/ 1/ Exports Imports
BANGLADESH 76.5 1.7 BHUTAN - - INDIA 324.3 106.5 IRAN 2.3 3.8 NEPAL - - PAKISTAN 13.9 8.1 SRI LANKA 0.8 2/
TOTAL 417.8 120.1
Memorandum Item: Share of trade with ACU Countries as percentage 16.0 5.7 of total trade
Source: Central Statistical Organization 1/ Provisional data 2/ Less than US Dollars 0.1 million
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NEPAL
The real gross domestic product (GDP), during FY2002-2003 increased by 3.0 per cent as against a decline of 0.4 per cent during the previous year. The nominal GDP, which had increased by 7.4 per cent in the previous year, has gone up by 8.9 per cent and the consumption/GDP ratio increased marginally by 0.6 percentage point to 88.6 per cent. Similarly total investment/GDP ratio increased by 1.3 percentage point to 26.9 per cent and gross domestic saving/GDP ratio remained at the same level of 16.4 per cent as in the previous year.
The contribution of agriculture sector in the real GDP went up marginally by 0.2 percentage point to 2.4 per cent, even though the production of principal cereal crop viz., paddy did not increase as expected earlier due to the flood and land slides in the central development region and drought in the mid and far western development region of the country.
Similarly, due to the unfavourable law and order situation in the country, production index of the principal 33 industrial goods (base year 1986/87 = 100) decreased by 7.2 per cent in review year as against a growth of 2.6 per cent in the previous year. However, after the commencement of the country’s largest hydroelectric project. The Kaligandaki ‘A’ in the review year, the electricity, gas and water sub-sector witnessed a growth of 6.4 per cent. The production of construction sub-sector went up by 1.7 per cent due to the rise in private residential construction in the capital city Kathmandu as well as the other urban areas of the country. The production of the mining the quarrying sub- sector went up by 1.9 per cent.
The service sector, which consists of trade, restaurant and hotel; transport, communication and storage, finance and real estate and community and social services sub-sectors, increased by 3.1 per cent as against a decline of 1.3 per cent in the previous year. Because of the frequent strikes, Maoists attacks on physical infrastructure, deteriorating law and order situation, SARS
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epidemic in different countries of the world, war against terrorism by the US, the services sector could not grow as expected. The indices relating to tourism showed a mixed trend in 2002. In 2002, the average period of stay of tourist remained at 12 days.
Monetary Situation
During FY2002-2003, narrow money (M1) and broad money (M2) registered lower and a higher growth respectively. M2 registered a growth of
9.8 per cent compared to 4.4 per cent of the previous year. But M1 posted a decelerating growth of 8.6 per cent compared to an increase of 9.3 per cent in the preceding year.
The net foreign assets, NFA (after adjusting foreign exchange valuation), an expansionary factor of money supply, increased by 4.9 per cent during FY 2002-2003. Whereas NFA had declined by 3.8 per cent in the preceding year. The increased inflows from exports, services, net and remittances were the factors responsible for the growth of NFA. Similarly, the domestic credit, the other expansionary factor of money supply, registered a growth of 10.2 per cent against the higher growth of 10.4 per cent in the preceding year. Although the monetary sector's claims on the private sector increased significantly, domestic credit increased by a slightly lower rate compared to the previous year because of the decline in the claims on non-financial government enterprises and lower growth rate of claims on financial institutions and the net claims on government. Similarly, the net domestic assets (NDA) (after adjusting foreign exchange valuation) exhibited a growth of 13.0 per cent compared to a growth of 10.2 per cent in the previous year. A deceleration in net non-monetary liabilities accounted for the rise in NDA during the review year. However, the time deposits grew significantly by 10.4 per cent during the review year compared to a relatively lower growth of 2.1 per cent in the previous year. The slowdown in the security market, the paucity of the alternative investment opportunities and increasing trend in remittances contributed to the notable rise in time deposits. Similarly, during FY2002-2003, the net non-monetary
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liabilities (after adjusting foreign exchange valuation) the contractionary factor of money supply increased by 5.0 per cent in comparison to a growth of 10.7 per cent in previous year. The lower growth in net non-monetary liabilities was attributed to the losses in the exchange equalization fund of the NRB arising from the appreciation of the Nepalese rupee vis-à-vis the US dollar.
The total assets/liabilities of commercial banks rose by a significantly higher rate of 16.4 per cent compared to a growth of merely 2.2 per cent in the previous year. The higher growth of both deposits on the sources side and loans and advances on the uses side were the responsible factors for the significant rise in total assets/liabilities of the commercial banks. The total deposits of commercial banks registered a higher growth of 10.3 per cent during the FY 2002-2003 as compared to a growth of just 1.4 per cent a year earlier. Similarly, loans and advances of the commercial banks was increased by 16.4 per cent in FY2002-2003 as compared to the growth of 7.7 per cent a year earlier.
Banks and Other Financial Institutions
There are 17 commercial banks in the Nepalese banking system. The other financial institutions such as development banks (18), rural development bank (5), finance companies (58), financial cooperatives (34) and financial NGOs (44) have also expanded their operations. Similarly, non-bank financial institutions such as Employees’ Provident Fund (EPF) (1), Insurance Companies (18), Citizen Investment Trust (1) and Stock Exchange (1) are also working in their respective areas.
The performance of other banking institutions namely Agriculture Development Bank (ADB/N) and EPF in terms of loan disbursement and repayment improved while that of Nepal Industrial Development Corporation (NIDC) has decreased in FY2002-2003 compared to the last year. In FY2002- 2003, the total loan disbursement of ADB/N and EPF increased by 13.8 per cent and 48.4 per cent and the total repayment of loan of ADB/N and EPF increased by 16.5 per cent and 59.4 per cent respectively. The total loan disbursement and
74
repayment of NIDC decreased by 52.5 per cent and 45.5 per cent respectively in FY2002-2003. Similarly, the total sources of fund of finance companies increased by 19.3 per cent in FY2002-2003 compared to an increase of 16.8 per cent last year. Similarly, the sources of fund of financial cooperatives went up by 15.5 per cent in FY2002-2003 compared to an increase of 12.8 per cent of the previous year.
Stock Market
Despite a significant fall in Nepal Stock Exchange (NEPSE) index, the stock market activities in terms of number of transactions, total amount of listed shares and total market capitalization increased in FY2002-2003 compared to last year. Although the number of companies listed in Nepal Stock Exchange Ltd. increased to 108 in FY2002-2003 from that of 96 in the previous year, the investors lost their confidence in share markets due mainly to increased security problem created by Maoists insurgency. The total number of shares transacted in the review year decreased substantially by 59.6 per cent in FY2002-2003. Likewise the total turnover value also decreased by 62.6 per cent.
Government Finance
On the cash basis, the government budgetary operation for FY2002-2003, reflected a decline of deficit by 31.4 per cent in contrast to a rise of 15.2 per cent in FY2001-2002. It was mainly due to increase in total government expenditure by 2.0 per cent during FY2002-2003 compared to 4.0 per cent increment in the last fiscal year and the increase in the resource mobilization by 13.6 per cent in FY2002-2003 compared to the marginal growth of 0.6 per cent in the previous year.
Of the total actual expenditure of Rs. 73.1 billion of FY2002-2003 regular, development and freeze expenditure stood at 74.9 per cent, 23.2 per cent and 1.9 per cent respectively. In FY2002-2003, regular expenditure increased by 13.4 per cent, on the other hand, the development expenditure declined by 22.1 per cent and the freeze expenditure declined by 12.5 per cent. Similarly, the total resource mobilization during FY2002-2003 increased by 13.6 per cent.
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Such growth in resource mobilization was mainly due to the satisfactory rise in revenue mobilization, and surge in foreign grants. The contribution of the revenue stood at 93.0 per cent out of the total resources and that of foreign cash grant stood at 4.1 per cent. The contribution of the other components including non-budgetary receipts (net) stood at 2.9 per cent.
The revenue collection during FY2002-2003 accelerated from 3.2 per cent of last fiscal year to 11.5 per cent due to rise of both tax and non-tax revenue. Indirect taxes, the major source of tax revenue increased by 12.8 per cent in FY 2002-2003 against the marginal growth of 0.7 per cent last year. The rise in the revenue from customs, excise and value added tax (VAT) contributed to such an increase in direct tax revenue. The revenue collection from non-tax source during the FY2002-2003 increased by 22.8 per cent as compared to the increment of 10.8 per cent of the last fiscal year. In FY2002-2003, as per cent of GDP, total expenditure and total revenue stood at 18.6 per cent and 12.2 per cent respectively resulting the fiscal deficit of 5.5 per cent compared with the respective ratios at 19.0 per cent, 11.9 per cent and 5.4 per cent during the last fiscal year.
Inflation
On annual basis, the rate of inflation during FY2002-2003 as measured by National Urban Consumer Price Index (base year 1995/96 = 100) registered a rise of 4.8 per cent compared to an increase of 2.9 per cent in the last fiscal year. On point to point basis, the rate of inflation increased by 6.1 per cent compared to 3.5 per cent increase during the last fiscal year. The index of food and beverages groups increased by 5.2 per cent in FY2002-2003 compared to an increase of 4.5 per cent last year. On the other hand, the index of non-food and services group increased by 6.9 per cent compared to 2.4 per cent rise of the last fiscal year. Regionwise, the annual average inflation for Hills, Terai and Kathmandu valley went up by 6.8 per cent, 5.4 per cent and 5.2 per cent respectively compared to the rate of inflation 4.0 per cent, 2.8 per cent and 3.0 per cent respectively.
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External Sector
In FY2002-2003, total imports increased at a rate much higher than total exports. As a result, trade deficit expanded significantly. Although an increase in services receipts and continued increased in current transfer, market expansion in trade deficit led to a contraction in current account surplus. However, the overall balance of payment (BOP) position remained in surplus due to the inflow of miscellaneous capital.
In FY2002-2003, total export of goods increased by 4.9 per cent as against a decline of 15.6 per cent of the previous year. Out of the total exports, the exports to India decreased by 3.7 per cent compared to a rise of 7.4 per cent in the previous year. But the exports to other countries during FY2002-2003 rose by 17.6 per cent as against a heavy decline of 35.9 per cent a year ago. The decline in the export of vegetable ghee, copper wire rod, pashmina, soap, pulses, toothpaste, polyester yarn contributed towards the negative growth of exports to India. Where as, the increase in the exports of readymade garments, handicraft goods, Nepalese paper and paper products, silver wares and jewelleries contributed to the growth of export to other countries.
Similarly, in FY2002-2003, the total imports of goods increased by 17.2 per cent as against a decrease of 7.2 per cent last year. Out of the total imports, the imports from India increased by 30.2 per cent as compared to an increase of 3.5 per cent last year. But the imports from other countries increased by 2.7 per cent as against a decline of 16.8 per cent of the last fiscal year. In FY2002-2003, the import of rice, thread, baby food and milk products, raw cotton, textiles, salt, electrical equipments, petroleum products, M.S. wire rod, tyre-tube, M.S. billet, medicine, other machinery and parts, cold and hot rolled sheet in coil, agricultural equipment and parts from India increased whereas the increase in imports of raw wool, zinc ingot, crude soybean oil, polythene granules, telecommunication, equipments and parts largely contributed to an increase in imports from other countries.
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To make balance of payment (BOP) statistics more realistic, NRB has published BOP statistics in new format incorporating recent changes in BOP data compilation practice. On the basis of the new BOP format, total export declined by 13.6 per cent while total imports rose by 9.8 per cent. As a consequence, total trade deficit expanded by 35.2 per cent.
The services receipts recorded an increase of 8.3 per cent in FY2002-2003 as against a decline of 18.1 per cent last year. On the payments side, the total services payments rose marginally by 0.5 per cent. Similarly, income receipts increased by 4.4 per cent and payments rose by 5.3 per cent in FY2002-2003. However, the income receipts was declined by 21.5 per cent and such payments was increased by 30.0 per cent last year. On the transfer front, the current transfer receipts rose by 10.8 per cent as compared to an increase of 4.7 per cent previous year. Such an increase in transfer receipts attributed to a remarkable increase of workers' remittances, Indian excise refund and grants. However, pension receipts declined in FY2002-2003. Private outward transfer increased by 13.2 per cent compared to a rise of 37.6 per cent in the last fiscal year.
During the FY2002-2003, the current account balance remained surplus by Rs. 8.38 billion and capital account declined by 5.3 per cent to Rs. 5.39 billion and the net miscellaneous capital recorded an inflow of Rs. 8.25 billion. As a consequence of the developments in current, capital and financial accounts of the external sector of the economy, the overall BOP remained at surplus by Rs. 5.20 billion as against a deficit of Rs. 3.34 billion in the previous year.
In FY2002-2003, the gross foreign assets of the banking system increased by 4.2 per cent and out of the total foreign assets, holdings of NRB increased by 7.6 per cent, while that of commercial banks declined by 7.0 per cent.
During the review year, the exchange rate of the Nepalese rupee with the Indian rupee remained constant, while the nominal exchange rate of it vis-a-vis other major trading currencies showed a mixed trend in the last of FY2002- 2003. The Nepalese rupee appreciated by 4.3 per cent against US Dollars, 5.7
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per cent against Japanese Yen and 0.9 per cent against Pound Sterling. However, the Nepalese rupee depreciated by 2.8 per cent against Swiss Frank, 7.9 per cent against Euro and 0.6 per cent against SDR.
79 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003 (In Nepalese Rupees)
BANGLADESH
EXPORTS Value (Rs) Fresh Cheese including whey cheese, and curd 5,024 Dried Vegetables 260,059 Lentils (Pulses) 207,482,900 Dried leguminous vegetables 2,289 Spices 156,289 Vegetable Seeds 722,786 Radish Seeds 970,587 Uncooked pasta, not stuffed or otherwise prepared 313,360 Juice of single citrus fruit 661 Food preparations 23,344 Oil cake and other solid residues, whether or not ground or in the form of pellets resulting from extraction of vegetable fats or oils 59,784,605 Animal food 3,177,867 Dentifrices 5,059,201 Soaps 34,112 Cases, boxes, crates of wood 27,978 Wood Marquetry and inlaid wood, casket and casses for jewellery or Cutlery of wood 9,315 Registers, Account Book, Note Book, Order Book, Letter Pad, Diaries 50,305 Newspapers, journals and periodicals 21,504 Multiple (folded) or cabled yarn containing 85% or more by weight of acrylic or modacrylic staple fibres 132,459,987 Woolen jersey, pullover, cardigans, sweater waistcoat, knitted 106,768 Woolen shawls, scarves, mufflers, mantilas, veils and the like 496,958 Cotton sacks and bags 36,432 Hats and headgears, knitted or crocheted 80,065 Buttons 10,598 Original sculptures and statuary in any material 41,648 Total 411,334,642
IMPORTS Value (Rs) Fresh or chilled fish fillet 1,604 Milk and cream in powdered and granules of a fat content by weight exceeding 1.5% containing sugar or added sweetening matter 13,551,482 Coffee 6,093
80 Uncooked pasta, not stuffed or otherwise prepared 3,127 Biscuits, waffles and wafers 514,510 Bakers wares 283,690 Frozen Orange Juice 357,980 Sauces 21,242 Water, non alcoholic beverages 527,281 Homeopathic medicaments not put up in measured doses or in forms or packings for retail sale 944,287 Medicaments containing pencilin or derivatives there of 1,705,657 Medicaments containing antibiotic for therapeutic or prophylatic uses 6,103,246 Homeopathic medicaments, put up in measured doses or in forms of packing for retail sale 2,922,903 Writing and drawing ink 1,692,289 Toilet soap 222,574 Photographic films in roll, sesitised, unexposed without perforation, of a width not exceeding 105mm 14,000 Rodenticidies 1,054,645 Plate, sheet, film foil and strip of plastic 982,241 Sacks and bags of plastic 2,103 Articles of plastic 2,231,323 Printed paper and paperboard labels 557,696 Unused postage, stamps, banknote, cheque forms 25,901 Printed matter 8,000 Woven fabric of cotton, unbleached, containing 85% or more by weight of cotton, weighing not more than 200g/m2 2,636,497 Woven fabric of cotton, unbleached, containing 85% or more by weight of cotton, weighing more than 200g/m2 2,951,288 Woven fabric of cotton, printed, weighing not more than 200g/m2 5,006,776 Raw jute 57,496,775 Jute and other textile bast fibers raw or retted 159,826,634 Monofilament of 67 decitex or more and of which no cross sectional dimension exceeds 1mm 107,829 Sewing thread of synthetic staple fibre 376,577 Woven label, badge of textile materials 621,582 M & B cotton shirt, not knitted. 1,393,745 Babies cotton garment, not knitted 53,789 W & G sari and lungi of manmade fibre, not knitted 569,547 Felt hats, (Cotton velvet) 299,651 Hats and headgears, knitted or crocheted 5,234,169 Headgear, whether or not lined or trimmed 701,972 Ceramic tableware, kitchenware, other household articles and toilet articles other than of porcelain or china. 301,353 Glass beads, bangles 90,530 Parts and accessories of automatic data processing machines. 156,500 Primary cells/batteries 295,455 81 Electric accumulators of lead acid, used for starting piston engines 37,154,186 Lead acid accumulators 5,500,596 Nickel iron accumulators 6,007,843 Photosensetive semi conductor devices 9,945,510 Articles of graphite or carbon 2,214,081 Syringes 149,337 Button moulds and button parts 773,557 Slide fasteners fitted with chain scoops of base metal 1,628,402 Total 335,228,055
BHUTAN
EXPORTS Value (Rs) Uncooked pasta, not stuffed or otherwise prepared 27,095,846 Prepared foods obtained by swelling or roasting of cereal or cereal products 117,711 Prepared foods obtained from inroasted cereal flakes 432,405 Food preparations 333,060 Beer, made from malt 456,428 Soaps 11,031,133 Bags and similar articles 9,344 Leather apparels 33,778 Belts and bandoliers of leather or of composition leather 3,134 Letter Cards, plain postcard 53,055 Printed books 17,665 Hemp fabric 4,919 Carpet knotted of wool or fine animal hair 2,821 Cotton t-shirts vest knitted 156,054 Woolen jersey, pullover, cardigans, sweater waistcoat, knitted 33,905 Woolen socks, knitted 78,701 M & B cotton jacket, not knitted 174,959 M & B cotton trousers, not knitted 24,599 W & G cotton jacket, not knitted 241,775 W & G Cotton dresses, not knitted 157,764 W & G cotton trousers, bibs and brace overalls, breeches and short 21,955 M & B cotton shirt not knitted 155,831 M & B cotton underpants and briefs, not knitted 13,146 W & G cotton nightshirt, pyjama not knitted 19,810 Babies cotton garment, not knitted 104,889 M & B garment of textile fabric and rubberised textile fabric 38,540 W & G garment of textile fabric and rubberised textile fabric 19,144 Blankets of synthetic fibres 2,116 Bed linen of cotton 12,250 Curtains of textile materials, knitted 21,262
82 Bedspreads, not knitted or crocheted 9,401 Cotton sacks and bags 450,657 Sacks and bags 63,921 Cotton tent 194,804 Made up articles, including dredd patterns 87,092 Footwears 391,995 Grill netting and fencing welded at the inter section ,of wire with a maximum cross sectional dimension of 3 mm or more and having a mesh size of 100cm 2 or more 9,985,158 Cooking appliances for liquid fuel 41,488 Blades 16,347 Record players cassette type (radio cassette) 41,598 Collages and similar decorative plaques 12,770 Original sculptures and statuary in any material 148,312 Total 52,311,542
IMPORTS Value (Rs) Coal 24,937,490 Coke and semi-coke of coal 7,074,492 Articles of plastic 4,275,210 Magnetic tape recorders, cassette type 20,000 Total 36,307,192
IRAN
EXPORTS Value (Rs) M & B cotton trousers, not knitted 6000 Footwear with uppers of cotton textile materials 1,650,440 Total 1,656,440
IMPORTS Value (Rs) Cumin Seeds 15,304,118 Paraffin Wax 8,742,466 Mineral Wax 539,437 Shampoos 1,425 Unwrought zinc, not allowed containing weight 99.99% or more of zinc 40,111,168 Total 64,698,614
83 MYANMAR
EXPORTS
- -
IMPORTS Value (Rs) Dried leguminous vegetables 4,439,672 Natural rubber latex, whether or not prevulcanised 1,957,684 Articles of Wood 378,394 Total 6,775,750
PAKISTAN
EXPORTS Value (Rs)
Green tea not fermented in immediate packing of a content not exceeding 3kg 1,328,171 Black tea fermented 9,254,745 Cardamon (large) 50,092,726 Plants and parts of plants ( including seeds and fruits ) of a kind used primarily in perfumery, in pharmacy or for insecticidal or similar purposes 2,222,327 Cream and like preparations 265,595 Goat of kid skin leather, without hair on tanned or retanned but not further prepared 793,759 Handmade paper and paperboard, use for writing printing or graphic purposes in rolls or sheets. 81,265 Capet knotted of wool or fine animal hair 114,318 M & B cotton trousers, not knitted 7,000 Woolen shawls, scarves, mufflers, mantillas, veils and the like 9,739,488 Glass beads, bangles 2,351 Articles of silver jewellery, whether or not plated or clad with other precious metal 38,195 Imitation jewellery 39,295 Original sculptures and statuary in any material 2,000 Total 73,981,235
IMPORTS Value (Rs) Dried peas 2,765,561 Chickpeas 1,226,668 Dates 22,847,160 Figs 100,589 84 Mangoes 3,300 Raisin 1,061,031 Raspberries, blackberries, mulberries, loganberries, black, white or red currants and gooseberries 541,826 Dried apricots 738,130 Dry Fruits 123,406 Seeds of Caraway 4,018,670 Spices 500,593 Canary Seeds 461,385 Rape Seeds 2,800,656 Ginseng roots 51,870 Plants and parts of plants ( including seeds and fruits) of a kind used primarily in perfumery, in pharmacy or for insecticidal or similar purposes 697,750 Natural gum, resin 178,291 Chewing gum 1,331,543 Toxins cultures of micro-organisms 113,104 Medicaments containing antibiotic for therapeutic or prophylactic uses 238,569 Mixtures of odoriferous substance and mixtures 89,218 Incense Sticks 144,410 Photographic film in rolls for x ray sensitised, Unexposed of material other than paper 2,475,197 Spools cops, bobbin and similar supports 996,693 Hangbags 1,000 Tracing paper 460,155 Box file, letter, trays, storage boxes and similar articles 20,043 Articles of stationery 1,700 Printed books 42,467 Trade advertising material, commercial catalogues 19,980 Cotton yarn waste 223,660 Woven fabric of cotton, unbleached, containing 85 % or more by weight of cotton, weighing not more than 200g/m2 981,278 Woven fabrics of cotton, bleached, 3 thread or four thread twill, including cross twill, containing 85% or more by weight of cotton, weighing more than 200g/m2 17,527,829 Woven fabric of cotton, bleached 3 thread or 4 thread twill, including cross twill, containing 85% or more by weight of cotton, weighing more than 200g/m2 2,790,185 Woven denim fabric of cotton, containing 85% or more by weight of cotton, weighing more than 200g/m2 4,016,678 Woven fabric of cotton containing less than 85% by weight of cotton, plain weave, of yarn of different colours 818,359 Woven fabric of cotton, dyed, weighing not more than 200g/m2 23,394 Woven fabric of cotton, printed, weighing not more than 200g/m2 20,461,678 Woven fabrics, dyed, of synthetic filament yarn 621,251
85 Synthetic staple fiber of polyester not carded combed or otherwise processed for spinning 3,130,875 Synthetic staple fiber of acrylic or modacrylic not carded combed or otherwise processed for spinning. 6,104,142 Woven label, badge of textile materials 196,667 Terry fabric of textile material 471,738 Wrap knit of wool or fine animal hair 1,353,348 Cotton fabric warp knit 2,073,792 Knitted or crocheted fabrics of man-made fibers 4,861,309 W & G Synthetic fibbers suits 86,635 W & G cotton Dhoti and Lungi, not knitted 7,500 W & G sari and Lungi of man-made fibber, not knitted 17,000 Sandal 1,177 Footwears 11,650,837 Hats and headgears, knitted or crocheted 3,000 Millstones, grindstones, grinding wheels of agglomerated abrasives or of ceramics 291,563 Hand sharpening and polishing stone 166,777 Glass beads, bangles 185,463 refrigerators 2,232,157 Parts of furniture designed to receive refrigerating or freezing equipment 18,601 Overhead tavelling cranes on fixed support 749,584 Machinery parts for industrial preparation 276,975 Auxiliary machinery for textile fiber, weaving machine, knitting machine 130,640 Parts and accessories of automatic data processing machines. 1,230,670 Electric accumulators of lead acid, used for starting piston engines 3,474,126 Sparking plugs 371,583 Parts of electrical apparatus for telephony, line, telegraphy, telecommunication 7,685 C.D Cassette 219,350 Magnetic tape of width not exceeding 4mm 2,783,000 Prepared unrecorded media for sound recording or similar recording of other phenomena 9,126,000 Computer Floppy disk 4,988,000 Transmission apparatus incorporating reception apparatus 448,144 Electro cardiographs 348,246 Electro diagnostic apparatus 658,618 Ultra violet or infra red apparatus 300,214 Catheters, cannulae 197,642 Instrument appliances used in dental science 56,183 Electro medical instruments and appliances 2,644,175 Mechano-therapy appliances, massage apparatus, psychological aptitude lesting apparatus 239,645 Dental fittings 219,263 Instruments, apparatus and models, designed for demonstrational purposes 94,915 Metal furniture 30,212 86 Pillows 416,700 Entertainment articles 18,000 Badminton rackets 6,818 Articles and equipment for swimming pools, padding pools 6,685 Total 153,410,931
SRI LANKA
EXPORTS Value (Rs) Envelops 8,969 Printed books 16,125 M & B cotton shirt, not knitted 3,930 M & B cotton nightshirt and pyjama, not knitted 11,000 Woolen shawls, scarves, mufflers, mantillas, veils and the like 4,000 Artists brushes 268,381 Orginal sculptures and statuary in any material 12,860 Total 325,265
IMPORTS Value (Rs) Black tea fermented 437,519 Crude palm Oil 55,674,715 Articles of plastic 2,670,206 New pneumatic rubber tyre for motorcar 3,884,402 New pneumatic rubber tyre for buses or lorries 691,308 New pneumatic rubber tyre 31,729 Hangbags 592,812 Tarred, bituminised or asphalted paper and paperboard 251,051 Ptrinted paper and paperboard labels 3,485,099 Woven fabric of cotton, unbleached, containing 85% or more by weight of cotton., weighing not more than 200g/m2 1,146,310 Woven fabrics obtained from high tenacity yarn of nylon or other polyamides or of polyster 423,504 Woven lable, badge of textile materials 5,418,888 M & B cotton shirts knitted. 2,250 Crown corks of base metal 9,065,521 Parts of bulldozers 8,127 Analogue or hybrid automatic data Processing Machine 18,134,691 Parts and accessories of automatic data processing machines 2,619,000 Press fasteners. 66,803 Total 104,603,935
87 PAKISTAN
During FY2003, all major macro-economic indicators showed marked improvement. This is the outcome of effective implementation and continuation of sound macro-economic and structural policies. Strong fiscal adjustment program has led to significant reduction in the fiscal deficit. Interest rates and inflation, though rising, are still low and stable. There has been a paradigm shift in the distribution of credit to the private sector and resultantly bank consumer financing has increased manifold. Exchange rates have greatly stabilized. Current account is in surplus for the last three years in a row. External debt has come down in absolute terms. Foreign exchange reserves have crossed the US Dollars 12 billion mark. Therefore, Pakistan’s credit rating has also improved quite considerably.
Economic Growth, Savings and Investment
Performance of Pakistan’s economy has been much better during FY2003, as reflected by the actual GDP growth of 5.1 per cent during the year as against 3.4 per cent in FY2002. The improved performance was attributable to better performance of agriculture, industrial and services sectors which recorded the growth rates of 4.1 per cent, 7.7 per cent and 5.3 per cent respectively. In the preceding year, agriculture had recorded a negative growth of 0.1 per cent while manufacturing and services sectors had witnessed growth rates of 5.0 per cent and 4.1 per cent, respectively. The recovery in agriculture in 2002-2003 was attributable to enhanced productivity of major crops, due to improved water availability and increased use of other inputs. The growth of these crops more than compensated for a relatively subdued performance of the livestock sub-
88 sector. The performance of agriculture sector was complemented by the continued strong growth in industry, brought about largely by spectacular performance of large-scale manufacturing sector. The LSM sector witnessed a much higher growth of 8.7 per cent in 2002-2003 compared with 4.9 per cent a year earlier. The services sector grew by 5.3 per cent in 2002-2003 as against 4.1 per cent in the preceding year.
The ratio of National savings to GNP edged up to 18.5 per cent in 2002-2003 from 16.8 per cent in the previous year. This was mainly due to substantial rise in net factor income from abroad on account of phenomenal growth of workers’ remittances. Total investment grew by 16.2 per cent during 2002-2003, in sharp contrast to the anemic 0.4 per cent growth last year. It is encouraging to note that much of the rise in the investment during the year came from private sector.
During FY2004 the country is expected to achieve the GDP growth target of 5.3 per cent. The manufacturing sector is expected to take the lead and grow at 7.8 per cent with the agriculture sector growing at 4.2 per cent and the services sector growing at 5.0 per cent. The prevalence of borrower-friendly, low interest rate environment has eventually started to pay off as the credit to the private sector has reached new highs. It is for the first time in the history of the country that the credit off-take by the private sector has crossed the Rs. 200 billion mark against the yearly average of Rs. 75 billion in the last five years. Similarly, bank consumer financing is picking up fast and is likely to add substantially to the pace of economic development.
Price Trends
CPI inflation rate for FY2003 stood at 3.10 per cent, compared with 3.54 per cent in the preceding year. The slowdown in Inflation rate was attributable to
89 augmentation of supply side, facilitated by bumper wheat crop and higher production of sugar. The appreciation of rupee-dollar parity (3.94 per cent) also helped in containing the inflation rate below the target of 4 per cent.
The supply position of wheat and wheat-related items is expected to be normal in coming months in view of increase in support price of wheat. World oil prices on average are showing rising trend but their impact should be limited in view of stronger rupee. Therefore, inflation rate during the remaining part of the year is not expected to pose a major threat. It may edge up within the narrow band but not deviate much from the annual target of 4.0 per cent. The rate of marginal inflation will largely depend on the combined impact of a host of factors that may include:
• Eventual demand impact of on-going acceleration of economic activities supported by phenomenal private sector credit growth;
• Impact of rising demand for consumer credit;
• Intensity of lagged impact (if any) of extraordinary monetary expansion in the preceding year;
• Future pattern of world oil prices and outlook of food supplies.
Fiscal Developments
Fiscal accounts showed a marked improvement during FY2003 as fiscal deficit fell to 4.5 per cent of GDP compared to 6.7 per cent during FY2002. This is the first time in more than 25 years that the fiscal deficit has moved below 5 per cent of GDP. The decline in fiscal deficit was mainly attributable to robust increase in revenues–consolidated tax revenues in particular showed a 15.5 per cent increase during FY2003, considerably higher than the 7.8 per cent growth recorded in FY2002. Total tax to GDP ratio rose to 13.8 per cent in FY2003,
90 highest in the last seven years. The rise in tax to GDP ratio primarily reflected the success of the government’s efforts to widen the tax base and improve tax administration. The non-tax receipts also recorded a growth of 9.9 per cent over FY2002. Consequently, the total revenue to GDP ratio also increased to 17.9 per cent in FY2003 compared with 17.3 per cent in FY2002. Total expenditure witnessed relatively modest growth of 3.3 per cent i.e., lower than the growth in the nominal GDP and as such reduced the total expenditure to GDP ratio to 22.4 per cent in FY2003 compared with 24.0 per cent in FY2002. The rise in expenditure on defence, subsidies and unallocable was partially offset by the decline in debt servicing, social services and economic services.
The budget for FY2004 marked the continuation of fiscal consolidation observed in recent years, as the government planned to reduce the budget deficit to 4.0 per cent of GDP, down from the 4.5 per cent recorded in FY2003. The reduction in fiscal deficit is projected on the basis of stricter control over current expenditures and higher revenues. Specifically, declining debt servicing charges and a reduction in unallocable expenditures are expected to play an important role in curtailing current expenditures. Total expenditure estimated at Rs. 934.9 billion for FY2004 is higher by 4.0 per cent over FY2003. Current expenditure at Rs. 763.8 billion is expected to decline by 2.7 per cent over preceding year. Development expenditure, which witnessed a below-target growth in FY2003, is budgeted at Rs. 160.0 billion denoting an increase of 21.5 per cent. On the other hand, total revenues are budgeted at Rs. 755.9 billion showing an increase of 5.3 per cent; entirely due to tax revenue as non-tax receipts are estimated to decline in FY2004. Within tax revenue, both direct and indirect taxes are estimated to grow strongly in FY2004.
Actual developments on fiscal front during July-December, 2003 were quite encouraging. Total revenue receipts during the first half of current fiscal year amounted to Rs. 379.1 billion while total expenditure stood at Rs. 412.8 billion leaving a budget deficit of Rs. 33.7 billion or 0.8 per cent of GDP compared to 1.6
91 per cent of GDP in the same period last year. This performance could be attributed to an impressive growth of 13.9 per cent in total revenue as against a modest increase of 3.6 per cent in total expenditure.
Monetary and Credit Developments During FY 2003
The easy monetary policy stance adopted during FY2002 continued in FY2003 to reinforce economic recovery and growth momentum. In consequence, yields on T-bills and PIBs of different maturities came down considerably and this paved the way for historic, low interest rate environment in the country. State Bank of Pakistan from January 2003 also started to issue Monetary Policy Statement (MPS) on bi-annual basis in order to inform the financial markets and other stakeholders about the direction of the monetary policy and to reinforce the transformation mechanism of monetary policy.
Credit Plan for the year 2002-2003 originally envisaged monetary expansion of 10.8 per cent based on GDP growth target of 4.5 per cent and inflation target of 4.0 per cent. However, due to unusual developments on the external front during the first half of year some of the Credit Plan targets were revised. Monetary expansion was revised upward by Rs. 91.5 billion to Rs. 281.5 billion (16.0 per cent) mainly due to continued build-up in the net foreign assets (NFA) of the banking system. NFA was projected to increase by Rs. 179.5 billion to Rs. 271.0 billion during the year in view of continued foreign inflows through remittances and official transfers. The net domestic assets (NDA) of the banking system were revised downward by Rs. 88.0 billion to Rs. 10.5 billion due to anticipated higher retirement of government borrowings in respect of both commodity operations and budgetary support. Allocations for non-government sector were also adjusted downward by Rs. 44.5 billion to Rs. 70.2 billion because of self-financing by
92 private sector mainly through foreign inflows and funds raised through the flotation of TFCs.
Money Supply (M2) during FY2003 increased by Rs. 317.4 billion (18.0 per cent) compared with an expansion of Rs. 235.3 billion (15.4 per cent) during FY2002. This was the outcome of continued huge foreign exchange inflows in the country. The massive monetary expansion was predominantly due to increase in the NFA of the banking system (Rs. 308.9 billion) compared with Rs. 206.2 billion during FY2002. The increase in the NDA of the banking system amounted to Rs. 8.5 billion or 0.6 per cent during FY2003 compared with a rise of Rs. 29.2 billion (1.9 per cent) a year earlier.
Credit to private sector increased by Rs. 167.7 billion during FY2003 compared with Rs. 53.0 billion in FY2002. The phenomenal expansion in the private sector credit was attributable to low interest rate environment and increased bank liquidity due to net retirement by the government in respect of both budgetary support and commodity operations, and by the Public Sector Enterprises (PSEs). Overall government retirement during FY2003 stood at Rs. 78.4 billion against the overall government borrowings of Rs. 22.2 billion during FY2002. Commercial banks’ credit to PSEs continued to decline and showed a retirement of Rs. 11.6 billion during FY2003 compared with a retirement of Rs. 19.4 billion a year earlier.
Monetary and Credit Developments (July–December 2003)
Monetary expansion during the 1st half of the year continued unabated as broad money supply during this period expanded by Rs. 187.5 billion (9.0 per cent) compared with an expansion of Rs. 152.0 billion (8.6 per cent) in the corresponding period of last year. The recent monetary expansion resulted from
93 the build-up in NDA rather in NFA, which was the case last year. Bank credit to private sector reached a record peak of Rs. 182 billion during July-December 2003 against the credit of Rs. 81.0 billion during the comparable period of last year. This was the natural outcome of ample liquidity with banks mainly due to significant inflow of workers’ remittances, government retirement under both budgetary borrowings and commodity operations and credit retirement by the PSEs. The prevalence of record-low interest rate environment for almost two years now also played its part. Manufacturing sector continued to spearhead the private sector credit growth accounting for 38 per cent rise in the net private sector credit during July-November 2003. Bank support for consumer financing also contributed to higher credit off-take by the private sector. There are indications that the GDP growth target of 5.3 per cent for this year will be achieved quite comfortably.
Capital Market Developments
Pakistan’s stock market remained buoyant during FY2003. The Karachi Stock Exchange Shares Index (KSE-100 Index) touched the record level of 3,402.48 by the close of FY2003 from 1,770.12 in the last year denoting an increase of 92 per cent.
The impressive performance of Stock market was primarily the outcome of the Government’s effective macro-economic policies, dedicated pursuit of reform agenda by the Securities & Exchange Commission of Pakistan (SECP) and revival of confidence of both local and foreign investors. During the year under review, the aggregate market capitalization of the KSE surged by 84 per cent to reach Rs. 756 billion, reflecting increased investor confidence in the market. In terms of US dollars, the market capitalization increased by 79.3 per cent, rising from US Dollars 7.11 billion to US Dollars 13.05 billion during the year.
94 A number of reform measures were taken in the fields of risk management, governance, transparency and investor protection. As a result, the stock exchanges in Pakistan are now largely compliant with the thirty principles of Securities Regulations of the IOSCO that constitute the international standards adopted by the Financial Stability Forum. Various risk management measures were introduced to enhance market integrity. The Carry-Over Trade (COT) system was further improved.
SECP started to supervise non-bank financial institutions (except DFIs) from December 2002. SECP also approved the Regulations Governing the Over- The-Counter (OTC) Market. The National Clearing and Settlement System (NCSS) was launched. During the year, the number of securities inducted into NCSS increased considerably, from thirty-two as of 1st July 2002 to 305 on 30th June 2003. The Central Depository Company of Pakistan Limited (CDC) is now an integral part of the capital market in Pakistan.
Balance of Payments (2002-2003)
Pakistan’s balance of payments (BOP) recorded sizeable current account surplus during 2002-2003 for the third consecutive year, despite subdued global economic activity, sluggish world trade and international tensions. The surplus in the current account balance (excluding official transfers) increased to an all-time high of US Dollars 3.0 billion in FY2003. Major contributory factors included sustained growth in home remittances, increased export earnings and significant rise in receipts under services account. The trade deficit shrank by 12.0 per cent due entirely to a sharp growth of 22.2 per cent in export earnings. Services account deficit also contracted by 17.0 per cent exclusively on account of higher receipts to the extent of 44.9 per cent. The inflows of worker’s remittances amounted to US Dollars 4.2 billion in FY2003 against the yearly average of US
95 Dollars 1.4 billion during 1997-2002. The capital account depicted a net inflow of US Dollars 111 million in FY2003 as against a net outflow of US Dollars 1,108 million in FY2002. Moreover, the performance of FDI was encouraging in that the inflows increased by 64.5 per cent to US Dollars 798 million in FY2003. Therefore, the overall BOP surplus increased by 72.9 per cent to US Dollars 4.6 billion in FY2003 owing to substantial improvement in both the current account and the capital account. These developments led to an upsurge in the stock of foreign exchange reserves, which increased by US Dollars 5.2 billion in the span of just one year to US Dollars 9.99 billion by end-June 2003.
The rupee-dollar parity appreciated by 3.9 per cent in 2002-2003 compared with the appreciation of 6.8 per cent in the preceding year. The sustainable BOP position and build-up of foreign exchange reserves resulted in an improvement in the country’s long-term credit rating.
Balance of Payments (July-December 2003)
External sector continued to show overall Balance of Payments surplus. It recorded a surplus of US Dollars 1.0 billion during July-December, 2003 compared to US Dollars 2.6 billion during the corresponding period of last year. The current account surplus was down due to widening of services account imbalance and decline in worker remittances which averaged US Dollars 311 million per month during July-December, 2003 against the monthly average of US Dollars 358 million recorded in the corresponding period of last year. The trade imbalance (custom based) during July-December, 2003 also widened by 23.4 per cent to US Dollars 728 million with export showing a growth of 13.1 per cent to US Dollars 5.9 billion and imports growing at 14.2 per cent to US Dollars 6.6 billion.
96 The upward trend in exports was largely on account of enlarged access to EU and US markets for textile goods, stability in exchange rate, lower financing cost due to low export finance rates and higher per unit export values. The break- up of exports indicated that higher earnings under the group of textile manufactures, rice and ‘other miscellaneous items’ contributed largely in boosting the level of exports which slightly surpassed the target set for the first half of FY 2004. This gain was however offset by surge of 14.2 per cent in imports which resulted primarily on account of higher non-oil component of imports especially under chemical, machinery and transport equipment group, indicating the impact of pick-up in country’s economic activities.
Pak rupee also continued to gain strength against the US dollar as the rupee-dollar parity appreciated marginally by 0.61 per cent in the first half of the current fiscal year, compared with the appreciation of 2.9 per cent in the same period of the preceding year. Pakistan’s total liquid foreign exchange reserves also continued to build-up and increased by 66.7 per cent from US Dollars 6.43 billion at end-June 2002 to US Dollars 10.72 billion at end June 2003 and further to US Dollars 12.17 billion at end December 2003. These reserves are sufficient to finance 11-month import bill. Comfortable reserves position has supported the exchange rate stability, enhanced investors’ confidence, reduced external vulnerability and improved Pakistan’s credit rating by international credit rating agencies.
97 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003
(In US Dollars)
1. BANGLADESH Total 24,467,572
Veg.Etc Prsvd Or Prepd Nes 12,650 Fruits / Nuts Fresh Or Dried 2,700 Tea & Mate 4,183,936 Feeding Stuff For Animals 5,165 Food Preparations Nes 1,805 Tobacco Unmanufactured 136,338 Hides & Skins-Undressed 6,750 Wood Products Nes 82,044 Cotton 194,191 Jute & Other Tex.Fibres 15,968,633 Vegetable Fibres 200,544 Old Textile Clothing 59,692 Crude Veg.Materials 997,732 Pigments Paints & Varnishes 8,508 Medicinal & Pharm.Products 265,473 Polyvinyl Products 1,750 Plastic Materials Nes 4,982 Leather 611,521 Veneer Plywood & Other Wood Nes 37,312 Paper & Paper Board 25,142 Cotton Fabrics Woven 2,844 Silk & Woollen Fabrics 841,943 Articles Of Tex. Materials Nes 8,342 Iron & Steel Univ.Plate & Sheets 123,529 Nickle & Nickle Alloys 2,400 Manufactures Of Metals Nes 23,492 Steam Power Units & Parts Nes 2,010
98 Nuclear Reactors 12,783 Agri.Machinery & Implements 17,607 Textile Machinery 10,344 Machinery For Special Industries 166,109 Electrical Machinery Nes 73,082 Sanitary & Ornamental Articles 3,650 Office Stationery Supplies Etc 10,080 Manufactured Articles Nes 52,520 Special Transactions Nes 309,969
2. INDIA Total 113,198,153
Milk & Cream 10,000 Maize(Corn)-Unmilled 12,600 Cereals - Unmilled 3,780 Meal,Flour Wheat & Meslin 166,972 Cereal & Flour Preps Nes 17,389 Veg. Etc Fresh & Simply Prsvd 335,248 Veg.Etc Prsvd Or Prepd Nes 20,825 Fruits / Nuts Fresh Or Dried 307,839 Fruit Prsvd Or Preparations 3,507 Tea & Mate 942,783 Spices 1,931,682 Feeding Stuff For Animals 8,625 Food Preparations Nes 27,160 Tobacco Manufactures 62,617 Hides & Skins-Undressed 6,513 Oil Seeds & Nuts 373,946 Oil Seeds Nes 34,548 Natural Rubber 26,000 Cotton 353,439 Jute & Other Tex.Fibres 16,274 Synthetic Fibres 41,850
99 Regenerated Synthetic Fibres 16,199 Stones & Sand 23,100 Other Crude Minerals 150,604 Iron Ore & Concentrates 8,674,198 Non-Ferrous Base Metal Ore & Cono 148,575 Non-Ferrous Base Metal Scrap 15,913 Crude Veg.Materials 6,099,439 Gases & Hydrocarbons 112,750 Vegetable Oils-Soft 148,735 Fixed Vegetable Oils 36,257 Animal & Veg. Oils & Fats Procsd 410,936 Hydrocarbons 12,667,663 Halogenated Alcohols 121,645 Carbolic Acid 11,331,769 Amonia Compounds 2,370,481 Sulphur Compounds 3,343,675 Organic Chemicals Nes 656,124 Inorganic Elements Oxides Etc 1,623,612 Inorganic Chemicals Products 334,083 Other Chemical Elements Nes 46,575 Synthetic Dyestuffs 4,122,286 Tanning Dyes Products 1,196,843 Pigments Paints & Varnishes 875,261 Medicinal & Pharm.Products 18,165,175 Essential Oils 55,347 Soaps & Preparations 103,770 Explosives & Pyrotechnic Prod. 4,150 Artificial Resins 58,458 Polyvinyl Products 3,853,955 Cellulose Procuts 29,100 Plastic Materials Nes 284,053 Starches & Glues 4,720 Chemicals 12,065,947 Materials Of Rubber 52,230
100 Tyres ,Pneumatic New Or Used 11,262,378 Articles Of Rubber, Nes 83,683 Veneer Plywood & Other Wood Nes 1,500 Paper & Paper Board 36,712 Articles Of Paper Pulp & Board 24,274 Textiles Yarn & Thread 1,122,884 Cotton Fabrics Woven 12,400 Synthetic Fabrics Woven 22,505 Silk & Woollen Fabrics 43,000 Special Tex.Fabrics & Products 12,331 Articles Of Tex. Materials Nes 2,700 Clay & Refractory Const.Matrl. 51,800 Mineral Manufactures Nes 15,424 Glass 51,591 Glassware 946,980 Pottery 66,087 Pig Iron & Ferro-Alloys 192,467 Iron & Steel Shapes 65,220 Iron & Steel Univ.Plate & Sheets 71,758 Iron & Steel Tube & Pipe Fitting 1,700 Copper & Copper Alloys 21,777 Aluminium & Aluminium Alloys 1,142,935 Misc Non-Ferrous Base Metals 13,838 Finished Structure Parts Nes 39,238 Metal Reserviors For Stor.Trspt 52,395 Wire Products Non-Electric 18,350 Hand & Machine Tools 5,478 Manufactures Of Metals Nes 58,989 Int.Combustion Piston Engines 44,625 Motors & Generators Electric 271,000 Agri.Machinery & Implements 260,000 Road Rollers & Consn.Machinery 5,625 Textile Machinery 578,580 Plastic & Paper Machinery 540,112
101 Printing & Allied Machinery 17,590 Food Processing Macninery 90,650 Machinery For Special Industries 49,900 Metal Working Machinery 23,250 Machines For Refrigrtn Aircondn. 246,708 Compressors & Air Pumps 425,340 Loading Unloding Machinery 6,980 Other Machines Non-Electric 42,560 Ball Bearings & Allied Machinery 110,643 Office, Data Machines Parts Nes 46,601 Electrical Transformers 4,125 Electrical Apparatus & Parts 20,900 Electrical Insulated Equipment 10,500 Electro-Medical & Xray Apparatus 41,370 Household Appliances 37,225 Electronic Parts Nes 34,462 Chassis,Bodies & Parts Nes 96,500 Motorcycles, Bicycles, Parts Nes 54,635 Clothing-Made Of Rubber & Fur 58,399 Medical Instruments 74,153 Scientific Instruments 47,475 Photo & Cinematographic Aprts. 23,160 Photographic Film & Plates 12,205 Cinematographic Film 19,145 Printed Matter 355,468 Sanitary & Ornamental Articles 148,425 Manufactured Articles Nes 13,523 Special Transactions Nes 38,700
3. IRAN Total 85,715,348
Milk & Cream 13,050 Cereals - Unmilled 27,142
102 Veg. Etc Fresh & Simply Prsvd 580,212 Hides & Skins-Undressed 564,213 Synthetic Rubber 12,082 Synthetic Fibres 413,895 Sulphur & Iron Pyrites 100,135 Other Crude Minerals 79,221 Iron Ore & Concentrates 667,271 Non-Ferrous Base Metal Scrap 78,137 Petroleum Crude 59,453,266 Petroleum Products 10,250,226 Petroleum Products Nes 505,544 Gases & Hydrocarbons 566,804 Animal Oils & Fats 13,440 Vegetable Oils-Soft 18,144 Fixed Vegetable Oils 94,000 Animal & Veg. Oils & Fats Procsd 20,160 Halogenated Alcohols 165,792 Carbolic Acid 23,500 Sulphur Compounds 22,600 Organic Chemicals Nes 2,239,416 Inorganic Elements Oxides Etc 2,429,725 Inorganic Chemicals Products 13,200 Synthetic Dyestuffs 22,943 Tanning Dyes Products 5,595 Pigments Paints & Varnishes 13,030 Medicinal & Pharm.Products 295,007 Soaps & Preparations 19,715 Artificial Resins 254,804 Polyvinyl Products 4,489,726 Plastic Materials Nes 5,978 Chemicals 408,781 Leather 449,102 Materials Of Rubber 5,376 Tyres ,Pneumatic New Or Used 165,982
103 Articles Of Rubber, Nes 10,833 Textiles Yarn & Thread 8,503 Floor Coverings & Tapestries 51,978 Prec,Semi Prec.Pearls & Stones 5,207 Pig Iron & Ferro-Alloys 985,882 Iron & Steel Bars, Billets,Coils 8,784 Iron & Steel Univ.Plate & Sheets 30,030 Electronic Parts Nes 38,942 Chassis,Bodies & Parts Nes 17,250 Manufactured Articles Nes 2,915 Special Transactions Nes 67,810
4. MYANMAR Total 772,036
Veg. Etc Fresh & Simply Prsvd 299,439 Fruits / Nuts Fresh Or Dried 14,024 Sugar Prepns Non-Chocolate 5,176 Oil Seeds Nes 5,400 Crude Veg.Materials 210,855 Organic Chemicals Nes 10,800 Inorganic Elements Oxides Etc 10,800 Tanning Dyes Products 31,800 Medicinal & Pharm.Products 16,500 Plastic Materials Nes 4,800 Chemicals 15,000 Manufactured Articles Nes 147,442
5. NEPAL Total 394,458
Tea & Mate 135,015 Spices 250,232 Crude Veg.Materials 9,211
104 6. SRI LANKA Total 29,110,476
Rice 20,072 Veg. Etc Fresh & Simply Prsvd 8,400 Fruits / Nuts Fresh Or Dried 1,855,381 Fruit Prsvd Or Preparations 4,742 Tea & Mate 5,518,801 Spices 308,242 Feeding Stuff For Animals 91,426 Food Preparations Nes 474,755 Oil Seeds Nes 8,771,595 Natural Rubber 4,678,558 Synthetic Rubber 371,799 Cotton 19,522 Jute & Other Tex.Fibres 10,110 Vegetable Fibres 82,265 Synthetic Fibres 74,716 Regenerated Synthetic Fibres 19,559 Old Textile Clothing 13,641 Fertilizers Crude 4,650 Natural Abrasives 18,600 Other Crude Minerals 51,060 Crude Veg.Materials 2,475,264 Fixed Vegetable Oils 355,261 Sulphur Compounds 11,983 Organic Chemicals Nes 12,078 Inorganic Elements Oxides Etc 33,927 Inorganic Chemicals Products 161,947 Pigments Paints & Varnishes 5,442 Medicinal & Pharm.Products 18,760 Artificial Resins 18,600 Cellulose Procuts 54,319
105 Plastic Materials Nes 432,676 Chemicals 430,936 Materials Of Rubber 182,573 Tyres ,Pneumatic New Or Used 50,852 Articles Of Rubber, Nes 350,723 Paper & Paper Board 356,387 Articles Of Paper Pulp & Board 134,407 Textiles Yarn & Thread 359,093 Cotton Fabrics Woven 21,041 Synthetic Fabrics Woven 28,687 Silk & Woollen Fabrics 33,661 Tulle Lace Embriodery 65,648 Special Tex.Fabrics & Products 16,502 Floor Coverings & Tapestries 18,488 Pottery 22,020 Iron & Steel Univ.Plate & Sheets 28,270 Aluminium & Aluminium Alloys 325,277 Tin & Tin Alloys 5,500 Hand & Machine Tools 14,738 Cutlery 7,670 Machinery For Special Industries 12,795 Chassis,Bodies & Parts Nes 4,650 Clothing-Nes 12,150 Clothing-Made Of Rubber & Fur 90,814 Manufactured Articles Nes 550,143 Special Transactions Nes 9,300
Grand Total 452,571,544
106 SRI LANKA
The Sri Lankan economy has shown a strong, broad based growth in 2003 and several noteworthy features were recorded in the main macro economic indicators. Unemployment declined and inflation decreased from almost 10 per cent in 2002 to 6 per cent. The fiscal deficit is estimated to have declined to 7.8 per cent from 8.9 per cent in the previous year. Government sector debt declined from 105 per cent of GDP to 101 per cent of GDP. The rupee depreciated marginally against the US dollar, but the real effective exchange rate depreciated, improving the external competitiveness of the country with the faster deceleration in inflation. A significant improvement was seen in the terms of trade. International trade showed steady growth, with high growth in tourism and port services. The balance of payments recorded a substantial surplus, the third consecutive year of surplus. Interest rates declined, encouraging private sector activity. The stock market performed well. One area of concern however was the emergence of some political uncertainty towards the end of the year.
Overall Growth
The economy grew by 5.6 per cent in the first three quarters of 2003, building on the growth of 4.5 per cent in 2002. This growth was spurred mainly by growth in the Services sector, although the Industry and Agriculture sectors also recorded growth during this period. Indications are that the annual growth target of 5.5 per cent for 2003 will be realised.
The economy has been projected to grow by 6 per cent in 2004. However, the achievement of this target would be dependent on several factors, such as the moving ahead of the peace process and the settlement of the current political impasse. Another downside risk is the possibility of a widespread drought, which could adversely affect agricultural production and power
107 supply. An important positive factor in the external sector however, is the strong economic growth in the United States.
Consumer Prices
Consumer price inflation as measured by all consumer price indices ended the year within the target indicated at the beginning of the year, continuing the declining trend in inflation experienced in 2002. Prudent monetary management, fiscal consolidation, and improved domestic production and supply of key consumer goods enabled a faster decline in prices of domestically produced goods and services, while lower international prices of consumer items and a relatively stable exchange rate have kept the increase in import prices at a low level as in the previous year.
Consumer price inflation in 2004 is expected to be around the levels in 2003. There is some risk of higher inflation particularly from higher petroleum prices, a widespread drought and excessive wage increases. The first two factors would contribute to an increase in energy prices, thereby adversely affecting all economic sectors.
External Developments
Exports and imports have picked up in 2003, buoyed by the recovery in both the domestic and the global economies. Export earnings during the year of 2003 increased by 9.2 per cent, in contrast to the drop of 2.4 per cent in the comparable year in 2002. Expenditure on imports in 2003 increased by 9.3 per cent as against a 2 per cent growth in 2002. The trade deficit in 2003 increased to US Dollars 1,538 million, from US Dollars 1,406 million in 2002. Nevertheless, increased foreign exchange inflows due to increased earnings from tourism, port services, private transfers and capital account inflows gave
108 rise to foreign exchange liquidity, thereby enabling the Central Bank to purchase US Dollars 375 million from the market during 2003. Consequently, at end December 2003, gross official reserves had increased by US Dollars 629 million to US Dollars 2,329 million, i.e., around 4.2 months of imports. Total reserves at end December were US Dollars 3,218 million, i.e., around 5.8 months of imports.
Trends in Capital Flows
Private capital flows, in terms of net foreign direct investment have been estimated at US Dollars 203 million for 2003, in comparison to US Dollars 82 million in 2001 and US Dollars 230 million in 2002. Portfolio investment to end December has recorded US Dollars 2 million net positive inflows. The total disbursements of loans and grant including programme loan inflows of US Dollars 244 million to the government during the year 2003, exceeded US Dollars one billion in 2003. The surplus in the capital account was more than sufficient to cover the deficit in the current account and hence led to a surplus in the overall BOP for the third consecutive year.
Sri Lanka’s external sector is expected to improve further in 2004 recording an overall BOP surplus for the fourth consecutive year, thereby increasing the country’s external reserves and reducing pressures on the exchange rate. However, recovery in industrial countries, strengthening of foreign investor confidence and effective utilisation of foreign assistance are critical to realising these favourable outcomes.
Exchange Rate
The rupee remained relatively stable against the US dollar during 2003, although there were brief periods of some volatility. For the year as a whole, the rupee depreciated marginally vis-à-vis the US Dollars by 0.01 per cent. The
109 corresponding depreciations in 2002 and 2001 were 3.7 per cent and 11.3 per cent, respectively. However, the rupee has depreciated more against other major international currencies: 16.7 per cent against the euro, 9.8 per cent against the Japanese yen and 10 per cent against the sterling pound.
Despite only a marginal depreciation of the rupee against the US dollar, the continuing decline in domestic inflation and the weakening of the rupee against other major currencies has resulted in a depreciation of the 24-currency real effective exchange rate (REER) by 5.7 per cent in 2003, resulting in an improvement in the external competitiveness of Sri Lanka.
Fiscal Sector
Budget 2003 aimed to reduce the fiscal deficit to 7.5 per cent of GDP in 2003. However, a shortfall in revenue collection has resulted in an upward revision of the fiscal deficit for 2003 to 7.8 per cent. Lower interest payments, containment of the wage bill and the continuation of the ceasefire in the North and the East of the country have enabled recurrent expenditure to be maintained below the budgeted level. However, the shortfall in revenue has compelled the government to restrict the release of funds for low priority recurrent expenditure and capital expenditure.
The government’s commitment to fiscal prudence was demonstrated by the passing of the Fiscal Management (Responsibility) Act (FMRA) in 2003 to ensure greater responsibility and transparency on public finance. Under the FMRA, the fiscal deficit is to be reduced to 5 per cent of GDP or less by 2006 and maintained below 5 per cent thereafter. The debt to GDP ratio is to be reduced to 85 per cent of GDP by 2006 and further to 60 per cent by end 2013.
The overall deficit in 2004 is expected to be reduced to 6.8 per cent of GDP, in line with the requirements in the FMRA. The reduction is mainly expected from further savings in recurrent expenditure. In financing the
110 resource gap in 2004, the government is expecting to rely more on external sources, thereby reducing pressure on the domestic market and making available more resources to the private sector.
Monetary Developments
Money supply has been increasing at around 13–15 per cent in 2003, in line with macro economic requirements. This growth has been mainly from two sources: higher growth in foreign assets, reflecting a surplus in the BOP, and on the domestic front, higher credit to the private sector. The government and public corporations reduced their liabilities to the banking sector in 2003.
Based on the projections of economic growth and inflation indicated earlier, the desirable growth in money supply in 2004 has been projected at 13.5 per cent. This monetary target is compatible with the overall macroeconomic framework required to facilitate containing inflation and support the expected economic growth.
Interest Rates
A gradual decline in market interest rates has been seen in 2002 and 2003 with the relaxation of the Central Bank’s policy rates. Macroeconomic developments enabled the Central Bank to reduce its policy rates, i.e., the Repo rate and the Reverse Repo rate, in 2003, by 275 basis points and 325 basis points, respectively, to 7.00 per cent and 8.50 per cent. This followed the reduction of 225 basis points in these policy rates in 2002. The reduction in the Central Bank’s policy rates was reflected in other short-term interest rates, such as call market rates and Treasury bill rates. Other market interest rates have also followed the same trend, steadily declining during the year, even though some lending rates have declined more slowly than other market rates.
111 There appears to be still some room for market lending rates to decrease further in line with the reduction in policy rates and reduction in yields on government securities.
Reforms
A strong commitment to implement reforms exists. Major reforms have been initiated: labour, banking and exchange control legislation has been modernised, state owned enterprises divested and virtually all areas in the economy have been opened to the private sector. Far-reaching legislative amendments were introduced in 2003 to increase labour market flexibility to assist the economy to face emerging challenges. Similarly, exchange control restrictions were further relaxed in 2003 to improve efficiency and remove bottlenecks that hinder investment. Efforts are being taken to strengthen the financial sector and bring it to a level compatible with international norms. Modern technology is being actively used to enhance the efficiency of the financial system, while improving financial sector stability. To this end, a real time gross settlements (RTGS) system was introduced in 2003 and a scripless securities settlement (SSS) system in early 2004. Supervision of the financial system is being strengthened. The risk weighted capital adequacy ratio (CAR) for commercial banks was raised to 10 per cent from the beginning of 2003. The Central Bank itself is undergoing a modernisation programme to enable it to carry out its duties more effectively on the current environment. Action is also being taken to develop the private debt market in the country. The government has extended the tenor of its Treasury bonds up to 20 years, in 2003, providing the market with a long-term gilt-edged yield curve to base its activities. The Colombo Stock Exchange has commenced operating a debt exchange as well. Government has continued to reduce its direct involvement in the economy. With the sale, in 2003, of the largest insurance company, in the market, the insurance market is now almost entirely in the hands of the private sector.
112 The Future
The economic policies and reform programme of the government has been spelt out in detail in a policy document ‘Regaining Sri Lanka: Vision and the Strategy for Accelerated Development’, adopted in 2003. The approval of the Poverty Reduction and Growth Facility (PRGF) and the Poverty Reduction Support Credit (PRSC) facility in 2003 by the IMF and the World Bank, respectively, indicate the international endorsement of the country’s economic policy framework and reform efforts. The international community has endorsed these strategies and, in June 2003, pledged US Dollars 4.5 million for the period 2003-2006 to support rehabilitation and reforms.
However, there is a need to sustain the consensus on economic policy among the leading political parties evident so far, to achieve the challenging goals, which includes doubling of economic growth during the medium term and emergence as a vibrant economic and service centre in the region. For a high trade dependent island nation, the downside risks of this scenario lie in the anticipated recovery in the world economy and in strength and conviction in implementing strong economic reforms to create the required incentives. The continuation of economic reforms will strengthen the country’s resilience to face external shocks effectively in the future.
113 MAIN ITEMS OF GOODS AND SERVICES TRADED WITH ACU COUNTRIES IN 2003 (In Million Sri Lanka Rupees)
1. BANGLADESH Total Exports 1,078.00
Articles of apparel and clothing accessories 108.10 Coral and similar 60.43 Insecticides - mosquito coils 17.95 Labels, badges of textiles 12.20 Narrow woven pile fabrics and chenille fabrics 16.34 New pneumatic tyres, of rubber 9.57 Machinery 109.13 Paper or paperboard labels of all kinds 40.22 Pineapples dried 34.63 Plates, sheets and strip, of refined copper 13.65 Preparations for lubricating materials, with petroleum oil 13.27 Shampoos 21.70 Smoked rubber 26.39 Sodium sulphates (excl. disodium sulphate) 23.78 Washers 15.66 Yarn 14.49 Re exports 73.45 Other 467.05
Total Imports 544.00
Flat sheets in rolls of a thickness not exceeding 0.17 mm 182.48 Jute bags not knitted or crocheted 11.91 Lead-acid of a kind used for strarting piston engines 104.10 Medicaments of other antibiotics, for retail sale 9.35 Multiple (folded) or cabled yarn of jute 25.32 Other medicaments of mixed or unmixed products, for retail sale, nes 41.61 Power looms for weaving fabrics, 30cm wide, shuttle type 9.14 Rolled iron/steel 16.16 Single yarn of jute 11.39 Unbleached woven fabrics of jute or of other textile bast fibre 24.91 Woven fabrics of jute or other textile bast fibres (excl. unbleached) 13.94 Yarn 9.56 Other 84.13
114 2. INDIA Total Exports 23,679.00
Aluminium alloys, unwrought 156.82 Animal or vegetable fats and oils chemically modified 132.67 Apparatus for carrier current line systems or for digital line systems 19.69 Aromatic polycarboxylic acids, etc 70.79 Articles of apparel and clothing accessories 407.84 Ash and residues containing mainly copper 69.53 Ball bearings 27.19 Bars, rods and profiles of copper alloys 45.37 Bars, rods and profiles of refined copper 1,891.18 Bars, rods and profiles of brass 150.30 Billets of refined copper 131.39 Brans, sharps and other residues of rice 120.51 Brass, unwrought 105.27 Cinnamon - cinnamon quills cut in retail packs of 1kg or less 42.20 Cloves 470.13 Coconut milk powder 23.57 Coconuts, desiccated 36.59 Copper waste and scrap 34.27 Coral and similar - chanks 42.48 Crude palm kernel or babassu oil 25.17 Crude palm oil 169.44 Dried pepper (excl. crushed or ground) 929.75 Electric conductors, electrical discharge or filoament lamp 732.74 Ethylene-vinyl acetate copolymers, in primary forms 19.81 Fibreboard 247.37 Folding Cartons, boxes and cases 46.35 Forged or stamped articles of iron or steel 65.15 Glass cubes and other glass smallwares, for decorative purposes 50.66 Gloves of vulcanized rubber (excl. surgical gloves) 45.72 Glycerol 134.71 Handbags 33.33 Labels, badges of textiles, woven, in piece not embroidered 23.59 Lead oxides 321.11 Looped pile fabrics of man-made fibres, knitted or crocheted 21.06 Mace 98.64 Magnetic or optical readers 754.66 Marble, travertine and alabaster 379.75 Margarine (excl. liquid) 85.74
115 Narrow woven fabrics 92.79 Natural gums, resins, gum-resins, natural and oleoresesins 95.99 New pneumatic tyres 273.93 Non-industrial diamonds, not mounted or set 35.44 Nonwovens, of man-made filaments 19.86 Nutmeg 181.69 Nuts of iron or steel 33.55 Part and accessories equally suitable for use with machines 126.46 Plates, sheets and strip of non-cellular, vulcanized rubber 23.57 Plates, sheets and strip, of refined copper 718.51 Plates, sheets, strip and foil of nickel, not alloyed 200.07 Printed paper or paperboard labels of all kinds 79.10 Re exports 376.54 Reception apparatus for television - colour 597.69 Refined copper, unwrought 4,927.12 Rolled iron/steel 18.82 Rubies, sapphires and emeralds 30.15 Soap in other forms 102.99 Stranded wire, cables of copper, not electrically insulated 21.16 Surgical gloves 20.54 Tableware and kitchenware, of porcelain or china 23.56 Trunks, suit-cases etc, with outer surface of plastic or textiles 62.61 Turnings, shavings, chips, milling waste of iron or steel 40.85 Unbleached kraft paper or paperboard or corrugated paper 441.91 Uninterrupted power supply unit 147.52 Unwrought lead (excl. refined and containing antimony) 68.79 Wadding and articles of wadding 31.56 Wall tiles 35.54 Waste and scrap of alloy steel 553.00 Waste and scrap of stainless steel 27.17 Wire of refined copper 3,407.50 Wood in the rough 128.17 Other 2,572.33
Total Imports 103,588.00
3-thread or 4-thread twill including cross twill 233.40 Active yeasts 136.76 Adhesives 80.11 ADP input or output units whether or not containing storage units 164.88
116 Agarbatti and other odiferous preparations which operate by burning 120.37 Agricultural tractors 302.12 Aluminium alloys 200.03 Aluminium oxide, other than artificial corundum) 40.18 Anionic surface-active agents, (excl. soap) 122.88 Antibiotics 219.95 Anti-oxidising preparations and stabilisers for rubber or plastics 42.63 Appliances such as taps, cocks and other valves 137.60 Articles for the packing of goods, of plastics 39.16 Articles of apparel and clothing accessories 34.66 Ball or roller bearings (incl. combined ball/roller bearings) 58.62 Ball point pens - plastics 142.19 Bars and rods of alloy steel 183.75 Bead wire rings and steel bands for tyres 44.10 Beauty, make-up, skin-care (incl. suntan), nes 168.65 Beedi leaves 261.88 Bicycles 35.74 Black gram 102.92 Black tea - foreign tea 309.30 Boards, boxes, cases 37.17 Brakes and servo-brakes and their parts (excl. mounted brake linings) 164.83 Carbon (carbon blacks and other forms of carbon) 986.39 Carboys, bottles, flasks and similar articles of plastics 35.79 Carnallite, sylvite and other crude natural potassium salts 54.21 Cement clinkers 219.34 Ceramic electrical insulators 143.94 Chlorine 31.82 Chocolate, etc, containing cocoa, not in blocks, slabs or bars 29.53 Clutches and parts thereof 50.67 Collapsible tubular containers of aluminium 36.49 Colouring matter; preparations 54.97 Commercial calcium hypochlorite and other calcium hypochlorites 39.70 Compression-ignition internal combustion piston engines 41.20 Computed tomography apparatus, based on the use of X-rays 75.53 Cooking appliances, plate warmers, for liquid fuel of iron or steel 33.58 Copper waste and scrap 206.64 Crude oil 20,586.57 Diagnostic or lab.reagents on a backing; prepared diagnostic 46.55 Dictionaries and encyclopaedias, and serial instalments thereof 33.63 Digital processing m/cs comprising 2 units storage/input/output 54.47
117 Disel or semi-diesel passenger van of Nissan Patrol Mitsubishi Pajero 216.20 Disodium carbonate 81.30 Dried peas, shelled 114.33 Durum wheat 141.19 Electrical items 705.05 Extruders for working rubber or plastics and making products thereof 52.15 Fabrics and textiles 1,611.07 Finishing agents, etc, of a kind used in the textile or like industries 44.70 Flat rolled/sheets iron or steel 529.03 Folding cartons, boxes and cases, of non-corrugated paper 90.25 Frames and forks & parts - front forks 40.30 Fresh grapes 83.80 Frozen fish 32.59 Fruits of genus capsicum - chillies 1,902.93 Fully automatic machine - other 16.34 Gaskets of metal combined with other materials or 1 metal layer 29.37 Gears and gearing; ball or roller screws; gear boxes 33.92 Gelatin and derivatives; isinglass; glues of animal origin 42.51 Generating sets with compression-ignition engines 16.78 Glucose & glucose syrup, not containing fructose 59.49 Granite 51.65 Hazardous waste 119.66 Herbicides, Insectisides and plant growth regulators 438.84 Hubs, not coaster braking hubs and free-wheel sproket-wheels 48.63 Ingots of iron and non-alloy steel 30.35 Injection or compression type moulds for rubber or plastics 29.66 Injection-moulding machines for working rubber or plastics, etc 32.97 Inner tubes, of rubber 45.20 Inner tubes, of rubber of a kind used on motor cars, buses or lorries 82.80 Instruments and apparatus for medical surgical sciences 94.32 Kind used in the food or drink industries - mixture of odoriferous substances and mixt. 71.62 Kraft paper and paperboard, coated 95.59 L or T sections of iron/steel, hot-rolled 48.23 Latex of synthetic rubber 72.76 Lifts and skip hoists 35.79 Lighting or visual signalling equipment for motor vehicles 28.60 Lorries , tankers, bowsers 1,350.38 Lubricating preparations 31.96 Machinery 640.36
118 Machinery for filling 105.42 Machines for making cartons, boxes, etc, of paper or paperboard 41.48 Maize (excl. seed) 211.30 Maldive fish and substitutes therefore 64.88 Masoor dhal (whole or split red lentils) 76.56 Materials for surgical sutures; laminaria; absorbable haemostatics 125.12 Mats 29.65 Medicaments 213.51 Medicaments of mixed or unmixed products, for retail sale 94.06 Metallised 66.54 Mixtures of, or with a basis of, odoriferous subst's incl alc. sol's for use in ind 29.85 Natural rubber - centrifuged rubber 184.37 Needles (excl. tubular metal or for sutures), catheters, cannulae, etc 52.33 New pneumatic tyres, of rubber of a kind used on buses or lorries 227.90 Non-industrial diamonds unworked or simply sawn, cleaved or bruted 39.73 Non-pile floor coverings of man-made textiles, woven, made up 83.64 Non-wired glass, having an absorbent, reflecting or non reflecting layer 70.27 Oil-cake and other solid residues, of soya-bean 1,412.49 Oils and oil products 50.84 Onions & shallots fresh or chilled - B' onions 2,005.44 Paints and varnishes, in a non-aqueous medium 28.98 Paper and paperboard 199.35 Part and accessories equally suitable for use with machines of two or more 411.80 Parts - metallic components required for the manufacture of electric accessories 28.79 Parts of machinery 266.65 Parts of metal-rolling mills (excl. rolls) 31.87 Pedals and crank-gear and parts thereof of cycles 53.52 Photographic plates for x-ray, in the flat, unexposed 66.49 Polycarbonates, in primary forms 61.12 Polyethylene 156.22 Polymers 114.93 Polypropylene, in primary forms 871.35 Polystyrene (excl. expansible), in primary forms 92.41 Portland cement imported in packing of over 50 kg or in bulk 3,002.18 Potatoes, fresh or chilled 138.78 Powders of non-lamellar structure of aluminium 30.15 Preparation put up for retail sale 95.49
119 Preparations for use on the hair 61.00 Printed paper or paperboard labels of all kinds 63.01 Printing ink, whether or not concentrated or solid (excl. black) 93.05 Propylene copolymers, in primary forms 33.03 Raw cane sugar, in solid form 34.04 Reception apparatus for television 228.59 Reclaimed rubber in primary forms or in plates, sheets or strip 31.95 Rope or cable-making machines 72.27 Sacks and bags (incl. cones) of other plastics (excl. ethylene) 68.63 Screws and bolts, whether or not with their nuts or washers 107.38 Seamless tubes and pipes 33.24 Seeds of coriander 34.94 Semi-milled or wholly milled rice 310.75 Semi-products of iron/steel 1,818.70 Sewing machines of industrial type (excl. automatic units) 32.37 Sewing thread of synthetic staple fibres 30.71 Shampoos 49.81 Shelled ground-nuts, not roasted or otherwise cooked 74.62 Slide fasteners not fitted with chain scoops of base metal 31.20 Sodium hydroxide 82.13 Spark-ignition reciprocating/rotary internal combustion engines 36.62 Stainless steel 60.33 Stainless steel bars & rods, hot-rolled, in irregularly wound coils 182.55 Sugar confectionery (incl. white chocolate), not containing cocoa 79.25 Sulphates of aluminium 37.87 Sulphuric acid; oleum 38.65 Surgical gloves 35.11 Suspensions shock absorbers 42.12 Sweet biscuits 36.69 Swithes - for use in radio apparatus, electrical instrument electrical machinery 48.79 Syringes, used in medical, surgical, dental or veterinary sciences 37.14 Table, floor, wall... fans, with self-contained electric motor 134.61 Towers and lattice masts of iron or steel 397.38 Transistors 129.08 Tumeric - in natural form 88.66 U, I or H sections of iron/steel 59.04 Vaccines for human medicine 165.42 Vulcanized rubber, smoked rubber 652.22 Wall tiles 254.38
120 Washing preparation 48.45 Wheat grain 5,406.03 White crystalline cane sugar 6,068.28 Wire of brass, and copper 810.17 Wire of iron or non-alloy steel, nes 92.58 Wood charchol - coconut shell charcoal 100.32 Worked vegetables capsules used in the manufacture of pharmaceutical products 44.17 Yarn 3,066.97 Other 35,970.67
121 3. IRAN Total Exports 3,405.00
Activated carbon - granular 3.68 Black tea 2,896.54 Coconuts - in shell, fresh, coir fibre pith 26.05 Coconuts, desiccated 292.43 Fibreboards 103.10 Natural rubber 31.32 Oil-cake and other solid residues of defatted coconuts 8.39 Rubber products 10.56 Other 32.93
Total Imports 26,241.00
Butadiene rubber, in primary forms or in plates, sheets or strip 101.14 Carbon (carbon blacks and other forms of carbon, nes) 51.53 Cathodes, of refined copper, copper wasts and scraps 24.18 Crude oil 25,010.29 Marble and travertine trimed and crude 22.08 Masoor dhal (whole or split red lentils) and chick peas 40.13 Parts of electrical telephonic or telegraphic apparatus 11.59 Sweet corn, frozen-uncooked 8.77 Re exports 6.32 Other 964.97
122 4. MYANMAR Total Exports 23.00
Boards 7.02 Fittings, for tubes, pipes and hoses, of plastic 0.37 Handbags, boxes, cases, labels, badges 0.76 Mace 1.00 Nutmeg 6.29 Other 7.56
Total Imports 221.00
Beans of the species - green gram (moong) dried 4.10 Black gram 51.88 Dried chickpeas, shelled 8.28 Dyed plain weave fabrics 3.89 Fresh parts of plants, without flowers or buds, for ornamental purposes 4.46 Non-coniferous wood 2.94 Parts of garments or clothing accessories 4.96 Printed, dyed or coloured woven fabrics 3.18 Slide fasteners fitted/ not fitted with chain scoops of base metal 5.90 Textile fabrics impregnated with plastics and other 16.78 Tumeric - in natural form 23.44 Wadding of man-made fibres and articles thereof 4.58 Wood marquetry, inlaid wood; caskets of wood 13.75 Other 72.85
123 5. NEPAL Total Exports 160.00
Articles of apparel and clothing accessories 30.26 Coconuts, desiccated 0.86 Crown corks of base metal 14.96 Printed paper or paperboard labels of all kinds 1.24 New pnumatic tyres, and rubber products 2.90 Re exports 107.11 Other 2.67
Total Imports 0.83
Blotting pads, book covers and other articles of stationery 0.01 Printed paper or paperboard labels of all kinds 0.09 T-shirts, singlets of other textiles, knitted or crocheted 0.02 Other 0.71
124 6. PAKISTAN Total Exports 3,545.00
Articles for the packing of goods, of plastics 9.31 Articles of apparel and clothing accessories - other 33.87 Betal leaves 273.98 Bristle fibre, metress fibre not twisted (raw of coconut) 16.82 Carboxymethylcellulose and its salts, in primary forms 34.89 Coconuts - in shell, fresh 103.54 Coconuts, desiccated 53.75 Coir yarn, coir twine 19.35 Copra 1,106.09 Fibreboard of a density 66.17 Magnetic or optical readers 10.07 Natural graphite in powder or in flakes 26.32 Natural rubber, crepe rubber 238.58 Nutmeg 52.85 Printed paper or paperboard labels of all kinds 15.23 Sewing thread of synthetic staple fibres 15.70 Smoked rubber 571.16 Wholly of Sri Lanka origin black tea 590.98 Other 306.33
Total Imports 6,851.00
3-thread or 4-thread twill including cross twill 491.79 Carboys, bottles, flasks and similar articles of plastics 60.98 Chewing gum 32.54 Commercial and other calcium hypochlorite 14.24 Cotton sewing thread, with 85% cotton 34.55 Cotton, not carded or combed 15.84 Denims 64.36 Dried chickpeas, shelled 33.17 Fruits of genus capsicum-chillies 72.56 Generating sets with compression-ignition engines 16.13 Gloves, mittens and mitts 22.38 Mathe seed 48.93 Medicaments 369.77 Mustards seeds 25.16 Onions & shallots fresh or chilled - B' onions 112.33 Oranges, fresh or dried 153.29
125 Other potatoes, fresh or chilled 367.24 Plain weave, weighing more than 100 g/sqm 16.02 Polyethylene terephthalate, in primary forms 15.46 Polymers of propylene 16.68 Polyvinyl chloride with other substances in primary forms 77.95 Seeds of cumin 31.27 Seeds of fennel; juniper berries 30.74 Semi-milled or wholly milled rice 346.58 Textured yarn 428.38 Woven fabrics, textiles 2,299.21 Other 1,653.47
126 TRADE THROUGH FTZ IN 2003 (In Million SLRS)
IMPORTS
AS A PERCENTAGE OF TOTAL IMPORTS OF COUNTRY TOTAL VALUE (CIF) THE RELEVANT COUNTRY BANGLADESH 164.93 30.32 BHUTAN - - INDIA 14,470.15 13.97 IRAN 182.11 0.69 MYANMAR 109.69 49.63 NEPAL 0.80 96.39 PAKISTAN 3,877.39 56.60 TOTAL 18,805.07
EXPORTS
AS A PERCENTAGE OF TOTAL EXPORTS OF COUNTRY TOTAL VALUE (CIF) THE RELEVANT COUNTRY BANGLADESH 431.99 40.07 BHUTAN - - INDIA 17,437.58 73.64 IRAN 172.84 5.08 MYANMAR 15.05 65.43 NEPAL 139.50 87.19 PAKISTAN 179.78 5.07 TOTAL 18,376.74
127 Auditors’ Report
Clearing Operations
and
Miscellaneous Activities CLEARING OPERATIONS
2003 witnessed the storms in the performance of the Asian Clearing Union. The volume of transactions (one way plus accrued interest) booked at the Asian Clearing Union Secretariat recorded the unprecedented amount of US Dollars 4,546.3 million, representing an increase of 32 per cent over corresponding figure of the previous year. These achievements were attributable to the good policies of the member central banks, adopted throughout the year to strengthen and improve macroeconomic. Most members of the Asian Clearing Union materialized the general goals of stable development and their economy was in good shape characterized by “rapid growth and subdued inflation”. The total transactions including payments, receipts and accrued interest among the ACU member countries through the ACU mechanism recorded to US Dollars 9,092.6 million. The volume of business through the Union was the highest, since the inception of the ACU. The average monthly of total transactions credited/debited to participant central banks was US Dollars 378.9 million compared to US Dollars 287.4 million in the preceding year. The level of total annual trade (exports + imports + interest) of member countries in the year under report shows that India was at the top with US Dollars 3,779.9 million or US Dollars 927.4 million over previous year and followed by the Islamic Republic of Iran, Bangladesh, Sri Lanka, Pakistan, Myanmar and Bhutan with US Dollars 2,023.2, 1,620.8, 1,046.9, 598.4, 4.9 and 4.7 million representing annual increase of US Dollars 543.0, 325.7, 241.6, 155.5, 1.9 and 1.1 million respectively. The total annual trade of Nepal decreased to US Dollars 13.7 million or 4 per cent less than the figure of the last year. In percentage terms, Myanmar with 64 per cent increase registered the highest annual growth rate and followed by Islamic Republic of Iran, Pakistan, India, Bhutan, Sri Lanka and Bangladesh.
131
During 2003 the ACU secretariat has issued a number of accounting vouchers, monthly statements, monthly Newsletters and lots of swifts, telexes, faxes, letters and e-mail messages. The paper works and communication of the ACU Secretariat in the year under review were as follows:
Description Number 1) Accounting Vouchers 7,508 2) Incoming Swifts/Telexes 2,920 3) Outgoing Swifts/Telexes 1,506 4) Monthly Statements 640 5) Out going Letters/Faxes 473 6) E-mail Messages 250 7) Newsletters 12
132
Total Transactions Cleared/Settled Through The ACU 1995-2003
5000
4500
4000
3500
3000
2500
2000
1500 Million U.S. Dollars 1000
500
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 Cleared Settled
133 ASIAN CLEARING UNION
* TOTAL TRANSACTIONS ROUTED THROUGH ACU 2002-2003 (IN US DOLLARS)
Country 2002 Share (%) 2003 Share (%) Change Growth (%) BANGLADESH 1,295,097,844.58 19 1,620,750,871.39 18 325,653,026.81 25
BHUTAN 3,559,628.14 0 4,691,647.06 0 1,132,018.92 32
INDIA 2,852,465,550.39 41 3,779,911,222.52 42 927,445,672.13 33
IRAN 1,480,152,495.91 22 2,023,198,598.84 22 543,046,102.93 37
MYANMAR 3,030,714.02 0 4,969,884.13 0 1,939,170.11 64
NEPAL 14,307,144.14 0 13,738,940.01 0 -568,204.13 -4
PAKISTAN 442,919,447.59 6 598,428,043.94 7 155,508,596.35 35
SRI LANKA 805,307,462.07 12 1,046,911,092.11 11 241,603,630.04 30
TOTAL 6,896,840,286.84 100 9,092,600,300.00 100 2,195,760,013.16 32
* Including Interest
134 ASIAN CLEARING UNION
* TRANSACTIONS CLEARED-SETTLED IN FOREIGN EXCHANGE 2003 (IN US DOLLARS)
Total Total Cleared in Settled in Foreign Transactions Transactions Balance the system Exchange Country Debited Credited (%) (%) BANGLADESH 1,521,295,965.80 99,454,905.59 -1,421,841,060.21 7 93 BHUTAN 500,990.00 4,190,657.06 3,689,667.06 12 88 INDIA 1,292,242,678.34 2,487,668,544.18 1,195,425,865.84 52 48 IRAN 277,376,614.59 1,745,821,984.25 1,468,445,369.66 16 84 MYANMAR 2,607,419.12 2,362,465.01 -244,954.11 91 9 NEPAL 6,473,337.38 7,265,602.63 792,265.25 89 11 PAKISTAN 453,879,713.76 144,548,330.18 -309,331,383.58 32 68 SRI LANKA 991,923,431.01 54,987,661.10 -936,935,769.91 6 94 TOTAL 4,546,300,150.00 4,546,300,150.00 ±2,668,353,167.81 41 59
* Including Interest
135 CREDIT POSITIONS
The main creditors of the ACU group countries in 2003, similar to more than 10 years ago were India, Iran and Pakistan respectively. India with US Dollars 2,487.7 million stood at the top and followed by Iran and Pakistan with US Dollars 1,745.8 and 144.5 million. In 2003, for the first time, the receipts of all member central banks improved. In percentage terms credit annul growth rate of Iran stood at 38 per cent and followed by India, Bhutan, Pakistan, Sri Lanka, Nepal and Bangladesh. The share of total credit transactions of India registered at 55 per cent same as the previous year, however, Iran improved its share 2 per cent over previous year and reached to 39 per cent and followed by Pakistan and Bangladesh.
136 Credits (2003)
Million U.S. Dollars
Pakistan Nepal Myanmar Bangladesh (144.5) (7.3) (2.4) (99.5)
Iran (1,745.8)
India (2,487.7)
Sri Lanka Bhutan (55.0) (4.2)
137 DEBIT POSITIONS
Bangladesh for the third consecutive year was the main debtor followed by India, Sri Lanka, Pakistan, Iran, Nepal, Myanmar and Bhutan with US Dollars 1,521.3, 1,292.2 , 991.9, 453.9, 277.4, 6.5, 2.6 and 0.5 million respectively. During 1994 to 2003 with exception in 2000, Bangladesh was the top debtor in the system. In the year under report, Bangladesh, India and Sri Lanka recorded the main share of debit transactions of 34, 28 and 22 per cent respectively. Pakistan, Iran, Nepal, Myanmar and Bhutan totally paid the remind share (16 per cent). Nepal registered negative annual growth rate of 16 per cent, however, the rest of the member countries improved their payments. The highest annual growth rate belonged to Myanmar with 150 per cent and followed by Bhutan, Pakistan, India, Sri Lanka, Iran and Bangladesh.
138 Debits ( 2003 )
Million U.S. Dollars
Bhutan (0.5) Sri Lanka (991.9) Bangladesh (1,521.3)
Myanmar (2.6)
Iran (277.4)
Pakistan (453.9)
Nepal India (6.5) (1,292.2)
139 NET CREDIT/DEBIT POSITIONS
During the financial year 2003 the balance of the Islamic Republic of Iran with the ACU member countries remained surplus. The trade surplus of Iran increased to US Dollars 1,468.4 million in 2003 from that of US Dollars 1,050.3 million in 2002, mainly reflecting a sharp growth in exports to India, Sri Lanka and Pakistan. The second main net creditor was India with US Dollars 1,195.4 million and followed by Bhutan and Nepal. Bangladesh with US Dollars 1,421.8 million was the main net debtor and followed by Sri Lanka, Pakistan and Myanmar. 94 per cent of Sri Lanka’s debt has been paid in foreign exchange and only 6 per cent cleared through the ACU system while Myanmar’s payment was 9 per cent and the rest cleared inside the mechanism. In 2003, Bhutan, Iran, India and Nepal with 88, 84, 48 and 11 per cent stood as the main recipients. The outstanding country among the ACU member countries was India, however, Myanmar and Nepal by clearing 91 and 89 per cent of their trade were more successful than the other, India and Pakistan with 52 and 32 per cent located at the next places. In 2003, US Dollars 2,668.4 million or 59 per cent of total trade paid in foreign exchange and the rest cleared inside the mechanism. Real payments in the year under review improved US Dollars 0.67 billion or 33 per cent over 2002.
140 Net Credit/Debit Positions ( 2003 )
2600
2400
2200
2000
1800
1600
1400
1200
1000
800 Million U.S. Dollars 600
400
200
0 BANGLADESH BHUTAN INDIA IRAN MYANMAR NEPAL PAKISTAN SRILANKA
Debit Credit
141 INTEREST PAID/RECEIVED
The total accrued interest credited/debited to the central bank’s accounts during the year 2003 amounted to US Dollars 2.65 million, accounting around 0.099 per cent of the central bank’s net positions and nearly 0.058 per cent of the transactions booked through the ACU mechanism. In the year under report the total interest paid/received was US Dollars 0.517 million less than the preceding year owing mainly to large reduction of applicable rate of interest in ACU. The average rate of interest in 2003 was 1.020 and declined nearly 38 per cent in comparison to the previous year.
INTEREST RATES
There was a slight fluctuation in the monthly rates of interest during the year 2003. The interest rates for twelve months of the year 2003 were as follows:
January February March April May June 1.150 1.140 1.160 1.160 1.110 1.070
July August September October November December 0.890 0.890 0.930 0.910 0.920 0.910
142 The Average Interest Rates Applied % ( 1976-2003 )
19
17
15
13
11
9
7
5
3
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 2003
143 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 2003 the total entitlement of each member country to avail SWAP facility of other members were allocated as follows:
Bangladesh 225.33 Million US Dollars Bhutan 0.67 “ India 207.00 “ Iran 43.42 “ Myanmar 0.62 “ Nepal 2.02 “ Pakistan 65.62 “ Sri Lanka 146.87 “
Total 691.55 “
In 2003 similar to the previous year, 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 2003 was US Dollars 630.8 million.
144 ASIAN CLEARING UNION
SWAP PAYMENTS AND RECEIPTS BY THE ACU MEMBER COUNTRIES 1998-2003 (IN US DOLLARS)
1998 1999 2000 2001 2002 & 2003 * 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
145 ACTIVITIES TO ENLARGE THE ROLE OF ACU IN THE REGION
In 2003 the following endeavours have been carried out by the member central banks and the ACU Secretariat for improving the role of ACU and expansion the membership:
In April 2003: In accordance with the decision of the Board of Directors of the Asian Clearing Union (ACU) at the Colombo meeting in May 2002, the UNESCAP/ACU joint Technical Committee Meeting was held at UNESCAP, Bangkok, Thailand. Representatives from ACU member countries, UNESCAP as well as Secretary General and Deputy Secretary General of the ACU Secretariat were present at the meeting. The ACU Secretariat worked out a terms of reference in consultation with the member countries. The Technical Committee Meeting held at the United Nations building, Bangkok on April 9, 2003 under chairmanship of Dr. T. C. Nair, Chief General Manger, Reserve Bank of India. Representatives from all member countries except Myanmar and Pakistan attended the meeting. Dr. Ravi Ratnayake, Chief, Trade and Investment Division, ESCAP was available for consultation and acted as the resource person.
Terms of Reference
1) To follow up the earlier mandates of ACU with special reference to the role of ACU, expansion of its membership, ACU’s need to resort to use of technology and expansion of the functions of ACU secretariat apart from the need for obtaining the consent of all member central banks for creation of a Fund with contributions from them; 2) To remove existing bottlenecks in the working of ACU and find solutions to eliminate any delay in payments by ACU members; 3) To examine the possibility of improving the ACU payments and settlement
146
mechanism in line with non-ACU payments and settlement mechanism; 4) To encourage all central banks to introduce Real Time Gross Settlement System (RTGS). The issues given in the terms of reference were discussed in depth by the members of the Committee.
Summary of Recommendations
i) The focus of ACU mechanism should continue to be on payments and settlement of cross border transactions as given in its mandate and there was no prompt need for any change in the mandate given to ACU for the present. ACU mechanism will thus continue to provide the facility to settle, on a multilateral basis, payments for current international transactions among member countries and thus economise on the use of foreign exchange reserves. ii) The neighbouring countries could be invited to join ACU through persuasion and by discouraging bilateral agreements on related areas at the same time. iii) All the member countries which have not initiated introduction of SWIFT system for sending messages on transactions could do so at the earliest to facilitate faster settlement of payments. iv) In the medium to long term, ACU member countries should aim at setting up a Central Clearing House (CCH) to facilitate faster, risk free clearing and settlement of ACU transactions, by sharing operational costs. v) The ACU Secretariat’s proposal for further expansion of its activities into three major areas comprising accounting, information and data bank centre and undertaking research studies could be considered with the consent of the Board of Directors at an appropriate time, in the future vi) The proposal for creation of a Fund to help ACU secretariat meet expenses related to engaging consultants, sending experts to target countries for follow up the previous endeavours to persuade them to become members etc. could be renewed at the forthcoming meeting of ACU Directors.
147
vii) The delays in payments to exporters which continue to persist under ACU mechanism could be eliminated by following the laid down procedures scrupulously by banks in member countries. Central banks may have to monitor the position in this regard, vigorously. viii) Use of currencies other than US dollar may be encouraged for settlement under ACU mechanism as per provisions available under Section 5, Chapter II of the ACU Agreement Establishing the Asian Clearing Union. ix) There is need to work out a strategy for bringing about improvement in the working of ACU mechanism specifying a time frame starting with elimination of existing bottlenecks and moving to setting up of a CCH coupled with an integrated RTGS set up for the region to make ACU mechanism a preferred arrangement for settlement of payments in the region. The above-mentioned recommendations discussed at the 32nd ACU Board of Directors Meeting held in Bangalore, India on June 16-17, 2003.
In June 2003: The Reserve Bank of India hosted the 32nd Annual Meeting of the Board of Directors of the Asian Clearing Union in Bangalore on June 16 and 17, 2003. Dr Bimal Jalan, Governor of the Reserve Bank of India, inaugurated the meeting. Dr. Fakhruddin Ahmed, Governor of the Bangladesh Bank; Mr. Sonam Wangchuck, Managing Director of the Royal Monetary Authority of Bhutan; Dr. Mohammad Jafar Mojarrad, Vice Governor of the Central Bank of the Islamic Republic of Iran; Mr. Kyaw Kyaw Maung, Governor of the Central Bank of Myanmar; Dr. Tilak Rawal, Governor of the Nepal Rastra Bank; Dr. Ishrat Husain, Governor of the State Bank of Pakistan and Dr. A. S. Jayawardena, Governor of the Central Bank of Sri Lanka attended the meeting. Dr. R. Ratnayake, Chief of the Trade Policy Section of UNESCAP and two senior officials from Bank of Thailand also participated as observers. Dr. Bimal Jalan welcomed the participants attending at the 32nd ACU Board of Directors Meeting in the city of Bangalore, known as the “ City of Gardens”, with a great tradition in music, literature, architecture, science and 148
technology. Before proceeding further, he requested distinguished delegates to stand in silence for two minutes to pay humble respect to the memory of Dr. Mohsen Nourbakhsh the Governor of the Central Bank of the Islamic Republic of Iran who was no more with us. He was one of the finest and leading personalities of the ACU fraternity. The provisional Agenda as well as the minutes of the 31st ACU Annual Meeting were approved by the Board of Directors. The Secretary General of ACU presented the Draft Annual Report 2002, which highlighted the world economic developments and outlook, performances of the ACU member countries and the Asian Clearing Union Operations. The Board unanimously approved the ACU Annual Report for the year 2002. Under item 5 of the Agenda, the head of delegation submitted economic situation and recent developments of their countries. The Meeting also reviewed the future role of ACU. The review of the role of ACU was undertaken by a committee of ACU members with assistance of UNESCAP. The committee had recommended that (a) The focus of ACU mechanism should continue to be payments and settlement of cross border transactions; (b) the neighbouring countries could be persuaded to join
ACU; (c) all member countries may be persuaded to use the SWIFT system for sending messages on financial transactions; (d) the ACU member countries should aim at setting up a Central Clearing House (CCH) to facilitate faster risk free clearing and settlement of ACU transactions; (e) a fund may be set up to help
ACU Secretariat meet the expenses relating to the ACU work; (f) the delays in payments to exporters which continue to persist under the ACU mechanism could be eliminated by following the laid down procedures scrupulously by banks in member countries. Central banks may have to vigorously monitor the position in this regard; (g) use of currencies other than US Dollars may be included for payments and settlement under ACU mechanism; (h) to make ACU mechanism a 149
preferred arrangement for settlement and payments in the region a time bound programme to set up an integrated Real Time Gross Settlement (RTGS) for the region may be worked out beginning with setting up of Central Clearing House. The meeting requested the ACU Secretariat to introduce an auditing company by consultation of member central banks for monitoring the accounts of ACU and consequently the Annual Report for the year 2003 and onward. The meeting unanimously approved Mrs. Bahereh Mirzaei-Tehrani the nominee of the Central Bank of the Islamic Republic of Iran (Agent Bank) as the new Secretary General of ACU. The meeting also elected Dr. Ebrahim Sheibany, the Governor of the I.R. of Iran as the Chairman and Dr. Ishrat Husain, Governor of the State Bank of Pakistan as the Vice Chairman of 33rd Annual Meeting of the Asian Clearing Union which is scheduled to be held in Iran around May 2004.
150
TWENTY EIGHT YEARS OF ACU OPERATIONS
2003 was the twenty eight year of ACUs’ operations. During this long period, ACU has displayed a sense of true commitment, consolidated and nurtured throughout its operations. ACU was established in December 1974 when the countries in the region were facing settlement difficulties mainly due to resource constraints. Now the economic situation of the most ACUs’ member countries have been changed, however, still needs to review the existing procedures of the ACU with a view to strengthen, smoothen and streamline them to facilitate trade and settlements. In order to enlarge the ACU’s membership and development the role of ACU, the Board of Directors in 31st session approved to hold a Technical Committee Meeting. The meeting was held in Bangkok, Thailand on April 9, 2003. In 2003 the total transactions booked in the ACU Secretariat reached to US Dollars 4,546.30 million representing an increase of US Dollars 1,097.9 million or 32 per cent over the previous year. In the year under review the total transactions (exports + imports + accrued interest) registered to unprecedented amount of US Dollars 9,092.6 million. The total ACU transactions (one way plus accrued interest) which have been routed through the ACU mechanism since 1975 to 2003 amounted to US Dollars 43,707.38 million of which, 53 per cent cleared in the system and 47 per cent settled in foreign exchange.
151
ASIAN CLEARING UNION Total Transactions Channelled Through the ACU From 1975 to 2003 ( 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 21.6 84 1977 79.36 209 16.67 21 62.69 79 1978 137.6 73 39.9 29 97.7 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 49 340.6 51 1985 605.2 -9 373.5 62 231.7 38 1986 690.62 14 581.12 84 109.5 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 2003 4,546.30 32 1,877.95 41 2,668.35 59 Total 43,707.38 - 22,521.26 52 21,186.12 48 * Amount relevant to years 1975 to 1995 converted from SDRs to US Dollars.
152 Total Transactions Channelled Through The ACU
5000
4500
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 2003
153 Tables ASIAN CLEARING UNION
* TOTAL DEBIT & CREDIT TRANSACTIONS BOOKED BY THE MEMBER CENTRAL BANKS UNDER THE ACU MECHANISM, 2003 ( IN US DOLLARS )
TABLE (1)
Country Debit (-) Credit (+) Net
BANGLADESH 1,521,295,965.80 99,454,905.59 -1,421,841,060.21
BHUTAN 500,990.00 4,190,657.06 3,689,667.06
INDIA 1,292,242,678.34 2,487,668,544.18 1,195,425,865.84
IRAN 277,376,614.59 1,745,821,984.25 1,468,445,369.66
MYANMAR 2,607,419.12 2,362,465.01 -244,954.11
NEPAL 6,473,337.38 7,265,602.63 792,265.25
PAKISTAN 453,879,713.76 144,548,330.18 -309,331,383.58
SRI LANKA 991,923,431.01 54,987,661.10 -936,935,769.91
TOTAL 4,546,300,150.00 4,546,300,150.00 ± 2,668,353,167.81
* Including Interest
155 ASIAN CLEARING UNION YEAR OF 2003
TRANSACTIONS MATRIX ( IN US DOLLARS ) TABLE (2)
Creditors BANGLADESH BHUTAN INDIA IRAN MYANMAR NEPAL PAKISTAN SRI LANKA TOTAL Debtors BANGLADESH 0.00 4,187,210.00 1,403,276,425.05 3,790,866.59 753,000.00 5,483,438.00 97,542,805.46 4,855,050.40 1,519,888,795.50
BHUTAN 500,990.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 500,990.00
INDIA 29,919,103.68 0.00 0.00 1,234,654,227.25 645,000.00 0.00 7,514,185.72 19,510,161.69 1,292,242,678.34
IRAN 27,683,683.37 0.00 240,032,185.98 0.00 10,070.00 0.00 8,045,635.24 1,605,040.00 277,376,614.59
MYANMAR 0.00 0.00 2,100,106.06 5,714.00 0.00 0.00 500,000.00 0.00 2,605,820.06
NEPAL 3,311,075.38 0.00 0.00 198,628.03 0.00 0.00 2,277,707.02 683,838.14 6,471,248.57
PAKISTAN 35,257,907.66 0.00 149,426,647.58 238,745,279.92 488,260.00 1,340,724.17 0.00 28,333,570.87 453,592,390.20
SRI LANKA 2,782,145.50 0.00 691,657,920.00 266,958,189.45 465,000.00 440,000.00 28,667,996.74 0.00 990,971,251.69
4,543,649,788.95 TOTAL 99,454,905.59 4,187,210.00 2,486,493,284.67 1,744,352,905.24 2,361,330.00 7,264,162.17 144,548,330.18 54,987,661.10 4,543,649,788.95
156 ASIAN CLEARING UNION
* TRANSACTIONS CREDITED TO PARTICIPANT CENTRAL BANKS ( IN US DOLLARS )
TABLE (3)
1999 2000 2001 2002 2003
BANGLADESH 88,256,302.89 81,011,695.55 76,440,902.25 96,599,123.89 99,454,905.59
BHUTAN 0.00 75,000.00 1,584,520.39 3,272,628.14 4,190,657.06
INDIA 1,613,969,592.41 1,599,372,949.68 1,807,747,803.43 1,900,112,115.32 2,487,668,544.18
IRAN 621,383,052.92 1,412,221,622.47 1,426,330,497.91 1,265,235,738.51 1,745,821,984.25
MYANMAR 4,802,804.07 2,340,165.88 1,769,418.32 1,988,288.62 2,362,465.01
NEPAL 10,339,779.46 4,856,719.15 4,494,793.24 6,566,502.69 7,265,602.63
PAKISTAN 201,137,423.50 197,291,952.27 176,086,064.25 124,972,760.18 144,548,330.18
SRI LANKA 90,851,617.85 86,365,136.72 59,211,818.87 49,672,986.07 54,987,661.10
______TOTAL 2,630,740,573.10 3,383,535,241.72 3,553,665,818.66 3,448,420,143.42 4,546,300,150.00 ______
* Including Interest
157 ASIAN CLEARING UNION
* SHARE OF THE MEMBER CENTRAL BANKS IN TOTAL CREDIT TRANSACTIONS (PERCENTAGE )
TABLE (4)
1999 2000 2001 2002 2003
BANGLADESH 3 2 2 3 2
BHUTAN 0 0 0 0 0
INDIA 61 47 51 55 55
IRAN 24 42 40 37 39
MYANMAR 0 0 0 0 0
NEPAL 0 0 0 0 0
PAKISTAN 8 6 5 4 3
SRI LANKA 4 3 2 1 1
______TOTAL 100 100 100 100 100 ______
* Including Interest
158 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
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
2003 3 28 31 38 19 11 16 11 32
* Including Interest
159
ASIAN CLEARING UNION
* TRANSACTIONS DEBITED TO PARTICIPANT CENTRAL BANKS ( IN US DOLLARS )
TABLE (6)
1999 2000 2001 2002 2003
BANGLADESH 1,141,742,504.35 1,003,331,228.65 1,189,794,610.84 1,198,498,720.69 1,521,295,965.80
BHUTAN 0.00 110,740.79 605,396.32 287,000.00 500,990.00
INDIA 578,967,360.54 1,046,914,569.35 1,105,666,596.01 952,353,435.07 1,292,242,678.34
IRAN 173,575,481.71 217,136,482.85 219,278,511.67 214,916,757.40 277,376,614.59
MYANMAR 6,537.00 1,008,045.66 7,240,756.49 1,042,425.40 2,607,419.12
NEPAL 12,501,340.87 7,490,457.25 15,222,234.84 7,740,641.45 6,473,337.38
PAKISTAN 115,396,983.26 321,096,421.54 347,147,780.03 317,946,687.41 453,879,713.76
SRI LANKA 608,550,365.37 786,447,295.63 668,709,932.46 755,634,476.00 991,923,431.01
______TOTAL 2,630,740,573.10 3,383,535,241.72 3,553,665,818.66 3,448,420,143.42 4,546,300,150.00 ______
* Including Interest
160 ASIAN CLEARING UNION
* SHARE OF THE MEMBER CENTRAL BANKS IN TOTAL DEBIT TRANSACTIONS (PERCENTAGE )
TABLE (7)
1999 2000 2001 2002 2003
BANGLADESH 43 30 34 35 34
BHUTAN 0 0 0 0 0
INDIA 22 31 31 28 28
IRAN 7 6 6 6 6
MYANMAR 0 0 0 0 0
NEPAL 1 0 0 0 0
PAKISTAN 4 10 10 9 10
SRI LANKA 23 23 19 22 22
______TOTAL 100 100 100 100 100 ______
* Including Interest
161 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
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
2003 27 75 36 29 150 -16 43 31 32
* Including Interest
162
ASIAN CLEARING UNION
* MONTHLY DISTRIBUTION OF TOTAL TRANSACTIONS CREDITED TO PARTICIPANT CENTRAL BANKS , 2003 TABLE (9) (IN US DOLLARS)
2003 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total
JANUARY 10,804,392.49 532,092.18 186,051,522.49 108,932,823.20 215,070.00 280,490.00 12,528,354.50 5,720,950.56 325,065,695.42
FEBRUARY 4,338,169.92 864,172.06 147,526,589.11 129,746,467.74 340,000.00 560,000.00 12,818,545.47 3,715,077.82 299,909,022.12
MARCH 9,411,996.55 345,609.64 220,963,757.75 165,876,489.27 300,000.00 169,000.00 12,652,791.38 3,636,180.51 413,355,825.10
APRIL 3,708,446.48 231,715.20 194,624,318.99 130,237,857.32 240,000.00 768,048.17 10,513,544.58 2,694,539.78 343,018,470.52
MAY 7,765,636.92 84,558.30 204,052,296.71 122,256,682.54 180,027.07 498,600.00 8,516,607.88 4,818,039.58 348,172,449.00
JUNE 7,326,042.16 255,172.64 193,710,688.54 130,911,355.21 20,139.69 757,293.79 10,480,225.19 7,937,814.96 351,398,732.18
JULY 10,592,003.80 14,594.56 208,659,255.97 94,714,685.90 433,093.92 334,272.00 8,413,830.86 3,411,771.27 326,573,508.28
AUGUST 11,922,328.84 42,161.61 210,548,349.63 152,626,786.46 112,142.20 875,280.00 11,122,862.01 3,753,640.77 391,003,551.52
SEPTEMBER 10,424,736.94 417,943.82 251,608,807.74 206,958,975.15 175,091.75 491,055.00 11,309,698.58 3,436,385.94 484,822,694.92
OCTOBER 7,014,806.54 447,676.10 219,297,434.69 162,994,875.86 2,897.83 288,427.00 12,864,871.36 5,712,301.70 408,623,291.08
NOVEMBER 7,010,541.08 444,682.23 208,611,146.82 187,484,429.05 333,739.70 950,260.16 12,549,197.62 4,908,719.19 422,292,715.85
DECEMBER 9,135,803.87 510,278.72 242,014,375.74 153,080,556.55 10,262.85 1,292,876.51 20,777,800.75 5,242,239.02 432,064,194.01
______TOTAL 99,454,905.59 4,190,657.06 2,487,668,544.18 1,745,821,984.25 2,362,465.01 7,265,602.63 144,548,330.18 54,987,661.10 4,546,300,150.00 ______* Including Interest
163 ASIAN CLEARING UNION * MONTHLY DISTRIBUTION OF TOTAL TRANSACTIONS DEBITED TO PARTICIPANT CENTRAL BANKS, 2003 TABLE (10) (IN US DOLLARS)
2003 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total
JANUARY 117,954,333.89 90,000.00 78,366,477.55 11,464,115.00 500,162.97 624,122.31 31,807,951.65 84,258,532.05 325,065,695.42
FEBRUARY 103,183,200.45 50,000.00 81,468,915.85 12,109,778.59 600,378.35 638,856.76 39,278,683.55 62,579,208.57 299,909,022.12
MARCH 132,395,579.20 15,000.00 110,721,834.81 24,324,957.25 1,000,596.10 681,513.05 46,066,366.29 98,149,978.40 413,355,825.10
APRIL 132,202,787.08 60,000.00 78,803,941.81 23,470,950.88 567.70 627,601.38 38,183,236.24 69,669,385.43 343,018,470.52
MAY 135,995,009.01 0.00 90,338,999.29 14,411,075.54 0.00 663,031.74 31,198,117.61 75,566,215.81 348,172,449.00
JUNE 134,048,324.25 85,000.00 96,418,744.66 14,014,618.63 200,000.00 234,810.53 37,182,408.62 69,214,825.49 351,398,732.18
JULY 118,577,777.53 0.00 78,104,685.25 31,882,877.57 300,000.00 549,589.78 37,198,802.11 59,959,776.04 326,573,508.28
AUGUST 123,874,470.68 0.00 123,574,760.59 19,657,788.00 5,714.00 645,176.85 34,655,020.38 88,590,621.02 391,003,551.52
SEPTEMBER 141,370,258.17 0.00 156,823,974.76 32,816,908.63 0.00 434,167.05 41,557,376.28 111,820,010.03 484,822,694.92
OCTOBER 130,136,058.86 50,990.00 134,597,514.13 24,166,982.95 0.00 497,307.57 39,349,173.51 79,825,264.06 408,623,291.08
NOVEMBER 104,810,370.28 150,000.00 157,203,536.02 38,869,257.04 0.00 231,061.07 32,498,152.54 88,530,338.90 422,292,715.85
DECEMBER 146,747,796.40 0.00 105,819,293.62 30,187,304.51 0.00 646,099.29 44,904,424.98 103,759,275.21 432,064,194.01
______TOTAL 1,521,295,965.80 500,990.00 1,292,242,678.34 277,376,614.59 2,607,419.12 6,473,337.38 453,879,713.76 991,923,431.01 4,546,300,150.00 ______* Including Interest
164 ASIAN CLEARING UNION
MONTHLY DISTRIBUTION OF ACCRUED INTEREST CREDITED TO PARTICIPANT CENTRAL BANKS, 2003 (IN US DOLLARS) TABLE (11)
2003 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total
JANUARY 0.00 192.18 72,376.00 90,828.01 0.00 0.00 0.00 0.00 163,396.19
FEBRUARY 0.00 922.06 119,374.87 143,352.92 0.00 0.00 0.00 0.00 263,649.85
MARCH 0.00 409.64 76,167.82 100,292.59 0.00 0.00 0.00 0.00 176,870.05
APRIL 0.00 390.20 164,402.52 179,638.75 0.00 0.00 0.00 0.00 344,431.47
MAY 0.00 108.30 85,834.66 94,729.28 27.07 0.00 0.00 0.00 180,699.31
JUNE 0.00 172.64 146,723.61 152,185.13 139.69 113.79 0.00 0.00 299,334.86
JULY 0.00 44.56 74,965.13 56,160.14 93.92 0.00 0.00 0.00 131,263.75
AUGUST 0.00 31.61 135,089.18 101,550.51 142.20 0.00 0.00 0.00 236,813.50
SEPTEMBER 0.00 183.82 42,192.60 116,294.35 91.75 0.00 0.00 0.00 158,762.52
OCTOBER 0.00 520.10 117,149.44 174,404.63 137.83 0.00 0.00 0.00 292,212.00
NOVEMBER 0.00 94.23 51,428.29 91,622.78 239.70 379.66 0.00 0.00 143,764.66
DECEMBER 0.00 377.72 89,555.39 168,019.92 262.85 947.01 0.00 0.00 259,162.89 ______TOTAL 0.00 3,447.06 1,175,259.51 1,469,079.01 1,135.01 1,440.46 0.00 0.00 2,650,361.05 ______
165
ASIAN CLEARING UNION
MONTHLY DISTRIBUTION OF ACCRUED INTEREST DEBITED TO PARTICIPANT CENTRAL BANKS, 2003 (IN US DOLLARS) TABLE (12)
2003 Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total
JANUARY 82,385.22 0.00 0.00 0.00 162.97 294.27 16,359.89 64,193.84 163,396.19
FEBRUARY 137,990.01 0.00 0.00 0.00 378.35 417.51 26,089.26 98,774.72 263,649.85
MARCH 93,399.27 0.00 0.00 0.00 490.04 434.66 22,284.05 60,262.03 176,870.05
APRIL 176,321.08 0.00 0.00 0.00 567.70 593.31 43,103.72 123,845.66 344,431.47
MAY 94,700.75 0.00 0.00 0.00 0.00 199.02 21,853.15 63,946.39 180,699.31
JUNE 174,127.51 0.00 0.00 0.00 0.00 0.00 28,108.99 97,098.36 299,334.86
JULY 77,270.53 0.00 0.00 0.00 0.00 16.50 16,834.00 37,142.72 131,263.75
AUGUST 126,040.02 0.00 0.00 0.00 0.00 35.63 28,631.23 82,106.62 236,813.50
SEPTEMBER 95,328.15 0.00 0.00 0.00 0.00 38.46 12,946.59 50,449.32 158,762.52
OCTOBER 146,709.98 0.00 0.00 0.00 0.00 59.45 34,586.29 110,856.28 292,212.00
NOVEMBER 68,434.67 0.00 0.00 0.00 0.00 0.00 12,515.67 62,814.32 143,764.66
DECEMBER 134,463.11 0.00 0.00 0.00 0.00 0.00 24,010.72 100,689.06 259,162.89 ______TOTAL 1,407,170.30 0.00 0.00 0.00 1,599.06 2,088.81 287,323.56 952,179.32 2,650,361.05 ______
166 ASIAN CLEARING UNION
NET CREDITOR AND NET DEBTOR POSITIONS AT THE END OF EACH SETTLEMENT PERIOD (2003) * (IN US DOLLARS) TABLE (13)
Country Bangladesh Bhutan India Iran Myanmar Nepal Pakistan Sri Lanka Total Months
Feb 0 1,256,264.24 173,742,718.20 215,105,397.350000390,104,379.79
Apr 0 502,324.84 226,062,300.12 248,318,438.460000474,883,063.42
Jun 0 254,730.94 211,005,241.30 224,742,343.58 166.76 358,051.52 0.00 0 436,360,534.10
Aug 0 56,756.17 217,528,159.76 195,800,806.79 239,522.12 14,785.37 0 0 413,640,030.21 NET CREDITORS NET Oct 0 814,629.92 179,484,753.54 312,969,959.43 177,989.58 0.00 0 0 493,447,332.47 Dec 0 804,960.95 187,602,692.92 271,508,424.05 344,002.55 1,365,976.31 0 0 461,626,056.78
Total (1) 0 3,689,667.06 1,195,425,865.84 1,468,445,369.66 761,681.01 1,738,813.20 0 0 2,670,061,396.77
Feb 205,994,971.93000545,471.32 422,489.07 45,739,735.23 137,401,712.24 390,104,379.79
Apr 251,477,923.25000461,163.80 372,066.26 61,083,266.57 161,488,643.54 474,883,063.42
Jun 254,951,654.180000049,383,693.16 132,025,186.76 436,360,534.10
Aug 219,937,915.570000052,317,129.62 141,384,985.02 413,640,030.21
Oct 254,066,773.550000151,992.62 56,731,979.85 182,496,586.45 493,447,332.47
NET DEBTORS NET Dec 235,411,821.730000044,075,579.15 182,138,655.90 461,626,056.78
Total (2) 1,421,841,060.210001,006,635.12 946,547.95 309,331,383.58 936,935,769.91 2,670,061,396.77
Total (1 Minus 2) -1,421,841,060.21 3,689,667.06 1,195,425,865.84 1,468,445,369.66 -244,954.11 792,265.25 -309,331,383.58 -936,935,769.91 ±2,668,353,167.81
* Including Interest
167
ASIAN CLEARING UNION
* TOTAL TRANSACTIONS ROUTED CUMULATIVELY THROUGH THE ACU , FROM JAN. to DEC. 2003 ( IN US DOLLARS)
TABLE (14)
COUNTRIES JAN. to DEC. 2002 JAN. to DEC. 2003 % JAN. to DEC. 2002 JAN. to DEC. 2003 % JAN. to DEC. 2002 JAN. to DEC. 2003 %
Debit Debit Credit Credit (Db+Cr) (Db+Cr) ______BANGLADESH 1,198,498,720.69 1,521,295,965.80 27 96,599,123.89 99,454,905.59 3 1,295,097,844.58 1,620,750,871.39 25
BHUTAN 287,000.00 500,990.00 75 3,272,628.14 4,190,657.06 28 3,559,628.14 4,691,647.06 32
INDIA 952,353,435.07 1,292,242,678.34 36 1,900,112,115.32 2,487,668,544.18 31 2,852,465,550.39 3,779,911,222.52 33
IRAN 214,916,757.40 277,376,614.59 29 1,265,235,738.51 1,745,821,984.25 38 1,480,152,495.91 2,023,198,598.84 37
MYANMAR 1,042,425.40 2,607,419.12 150 1,988,288.62 2,362,465.01 19 3,030,714.02 4,969,884.13 64
NEPAL 7,740,641.45 6,473,337.38 -16 6,566,502.69 7,265,602.63 11 14,307,144.14 13,738,940.01 -4
PAKISTAN 317,946,687.41 453,879,713.76 43 124,972,760.18 144,548,330.18 16 442,919,447.59 598,428,043.94 35
SRI LANKA 755,634,476.00 991,923,431.01 31 49,672,986.07 54,987,661.10 11 805,307,462.07 1,046,911,092.11 30
TOTAL 3,448,420,143.42 4,546,300,150.00 32 3,448,420,143.42 4,546,300,150.00 32 6,896,840,286.84 9,092,600,300.00 32
* Including Interest
168