Asian Clearing Union ANNUAL REPORT 2007 · PDF fileV ANNUAL REPORT 2007 Alternate Directors Ziaul Hasan Siddiqui* Deputy Governor, Bangladesh Bank * From 31.05.2007 Dechen Tshering

Asian Clearing Union

ANNUAL REPORT 2007

Submitted to:The 37th Meeting of the ACU Board of Directors

held at Central Bank of MyanmarNay Pyi Taw, Myanmar

June 17-18, 2008

ACU

1974

II

ANNUAL REPORT 2007

Board of Directors at the 36th ACU Meeting

May 15-16, 2007Dhaka, Bangladesh

Board of Directors at the 36th ACU Meeting

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ANNUAL REPORT 2007

Participants at the 36th Meeting of the ACU Board of Directors

May 15-16, 2007Dhaka, Bangladesh

Participants at the 36th Meeting

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ANNUAL REPORT 2007

Board of Directors

Salehuddin AhmedGovernor,

Bangladesh Bank

Daw TenzinGovernor,

Royal Monetary

Authority of Bhutan

Y. Venugopal ReddyGovernor,

Reserve Bank of India

Tahmasb Mazaheri*Governor,

Central Bank of I.R. of Iran

* From 05.09.2007

Than Nyein*Governor,

Central Bank of Myanmar

* From 12.04.2007

Krishna Bahadur* ManandharActing Governor,

Nepal Rastra Bank

* From 05.07.2007

Shamshad AkhtarGovernor,

State Bank of Pakistan

Ajith Nivard CabraalGovernor,

Central Bank of Sri Lanka

Board of Directors

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ANNUAL REPORT 2007

Alternate Directors

Ziaul Hasan Siddiqui*Deputy Governor,

Bangladesh Bank

* From 31.05.2007

Dechen TsheringDeputy Managing

Director,

Royal Monetary

Authority of Bhutan

Meena Hemchandra*Chief General

Manager,


* From 16.03.2007

Reza Raei*Vice Governor,


* From 01.12.2007

Maung Maung Win*Deputy Governor,


* From 24.04.2007

Ram Jee RegmiExecutive Director,

Foreign Exchange

Management Dept.,

Nepal Rastra Bank

Yaseen Anwar*Deputy Governor,

Corporate Services,


* From 08.05.2007

K.R. M. SiriwardhaneDirector,

Payments &

Settlements Dept.,


Alternate Directors

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ANNUAL REPORT 2007

Officers-in-Charge

Md. Belayet HossainGeneral Manager,

Forex Reserve and

Treasury Management

Dept.,

Bangladesh Bank

S. K. Maheshwari*Deputy General

Manager, DEIO


* From 16.03.2007

Rinzin Lhamu*Head Banking Division,

Royal Monetary

Authority of Bhutan

* From 01.10.2007

Reza NadaliDirector,

International Dept.,


Maung Maung*Director,

Accounts Dept.,


* From 24.09.2007

Shashi Dhar Aryal*Assistant Director,

Foreign Exchange

Management Dept.,

Nepal Rastra Bank

* From 05.07.2007

Muhammad Habib Khan*Director,

Finance Dept.,


* From 30.03.2007

Padmasriya SudasingheDeputy Director,

Payments and

Settlements Dept.,


Officers-in-Charge

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ANNUAL REPORT 2007

Contents

Administrative Organization, 2007................................................................................. 1

Board of Directors, 2007................................................................................................ 2

Officers-in-Charge, 2007 ............................................................................................... 3

Letter of Transmittal to the Board of Directors ............................................................... 4

Global Economic Prospects and Challenges ................................................................ 5

Economic Highlights of the ACU Member Countries ................................................... 12

Country Performance .................................................................................................. 22

Bangladesh.................................................................................................................. 22

Bhutan ......................................................................................................................... 34

India ............................................................................................................................. 43

Iran .............................................................................................................................. 57

Myanmar...................................................................................................................... 72

Nepal ........................................................................................................................... 77

Pakistan ....................................................................................................................... 84

Sri Lanka ..................................................................................................................... 98

Auditor’s Report ......................................................................................................... 108

ACU Operations ........................................................................................................ 109

Clearing Operations................................................................................................... 109

Credit Positions .......................................................................................................... 110

Debit Positions............................................................................................................ 110

Net Credit/Debit Positions .......................................................................................... 111

Interest Received/Paid ............................................................................................... 111

Swap Facility .............................................................................................................. 111

Thirty-Second Years of ACU Operations .....................................................................112

Tables ..........................................................................................................................113

Acronyms and Abbreviations ...................................................................................... 133

Contents

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ANNUAL REPORT 2007


Administrative Organization, 2007

Dr. Salehuddin AhmedChairman of the Board,Governor,Bangladesh Bank

Mrs. Lida Borhan-Azad*Secretary General* From 02.07.2007

Secretariat OfficeNo. 207/1, Pasdaran Ave., P.O. Box 15875/7177Tehran, Islamic Republic of IranPhone: +98-21-22842076, 22854509Fax: +98-21-22847677Telex: 088-21-3120, 6868Swift: BMJIIRTHACUE-mail: [email protected]

Agent BankCentral Bank of Islamic Republic of Iran

Administrative Organization, 2007

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ANNUAL REPORT 2007


Board of Directors, 2007Bangladesh Bank Dr. Salehuddin Ahmed Governor, (Director) Mr. Ziaul Hasan Siddiqui* Deputy Governor, (Alternate) * From 31.05.2007

Royal Monetary Authority of Bhutan Mr. Daw Tenzin Governor, (Director) Mr. Dechen Tshering Deputy Managing Director, (Alternate)

Reserve Bank of India Dr. Y. Venugopal Reddy Governor, (Director) Mrs. Meena Hemchandra* Chief General Manager, (Alternate) * From 16.03.2007

Central Bank of Islamic Republic of Iran Dr. Tahmasb Mazaheri* Governor, (Director) * From 05.09.2007

Dr. Reza Raei* Vice Governor, (Alternate) * From 01.12.2007

Central Bank of Myanmar Mr. Than Nyein* Governor, (Director) * From 12.04.2007

Mr. Maung Maung Win* Deputy Governor, (Alternate) * From 24.04.2007

Nepal Rastra Bank Mr. Krishna Bahadur Manandhar* Governor, (Director) * From 05.07.2007

Mr. Ram Jee Regmi Executive Director, (Alternate)

State Bank of Pakistan Dr. Shamshad Akhtar Governor, (Director) Mr. Yaseen Anwar* Deputy Governor, (Alternate) * From 08.05.2007

Central Bank of Sri Lanka Mr. Ajith Nivard Cabraal Governor, (Director) Mrs. K.R.M. Siriwardhane Director, Payments and Settlements Dept., (Alternate)

Board of Directors, 2007

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ANNUAL REPORT 2007


Officers-in-Charge, 2007Bangladesh Bank Mr. Md. Belayet Hossain General Manager, Forex Reserve and Treasury Management Dept.

Royal Monetary Authority of Bhutan Mrs. Rinzin Lhamu* Head Banking Division * From 01.10.2007

Reserve Bank of India Mr. S. K. Maheshwari* Deputy General Manager, DEIO * From 16.03.2007

Central Bank of Islamic Republic of Iran Mr. Reza Nadali Director, International Dept.

Central Bank of Myanmar Mr. Maung Maung* Director, Accounts Dept. * From 24.09.2007

Nepal Rastra Bank Mr. Shashi Dhar Aryal* Assistant Director, Foreign Exchange Management Dept. * From 05.07.2007

State Bank of Pakistan Mr. Muhammad Habib Khan* Director, Finance Dept. * From 30.03.2007

Central Bank of Sri Lanka Mrs. Padmasriya Sudasinghe Deputy Director, Payments and Settlements Dept.

Officers-in-Charge, 2007

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ANNUAL REPORT 2007

Letter of Transmittal to the Board of Directors

Letter of Transmittal to the Board of Directors

June 18, 2008

The Honorable Than NyeinChairman of the Board,Governor,Central Bank of Myanmar,Nay Pyi Taw, Myanmar

Dear Mr. Chairman,

I have the honor to present to the Board of Directors, the Annual Report of the Asian Clearing Union (ACU) for the year 2007, duly signed by me, in accordance withChapter III, Article VIII, Section 3(c) of the Agreement Establishing the Asian Clearing Union.

Yours sincerely,

Lida Borhan-Azad Secretary General, ACU

5Global Economic Prospects and Challenges

ANNUAL REPORT 2007

Global Economic Prospects and Challenges1

An overviewThe global economy experienced 4.9 percent growth in 2007/08; however it is projected to decline to 3.7 percent in 2008/09. The trend is expected to be the same in 2009/10. The growth pace in advanced economies will remain slow mainly due to trade and financial stress, and slowdown in housing markets. The United States (US) is anticipated to face with moderate recession in 2008/09, despite implementation of supportive monetary and fiscal policies. In the euro area, growth fell to 2.6 percent in 2007/08. Japan’s economy slowed over the year as output growth dropped to 2.1 percent.

In emerging and developing countries, rapid growth was led by China and India. Growth rate in China reached 11.4 percent in 2007/08, driven by investment and export growth. Activity in India slightly declined during the year, with year-on-year (YoY) growth falling to 9.2 percent. Elsewhere, growth was also generally sustained at robust rates, supported by high commodity prices and favorable financial conditions. In 2007/08, rising international oil prices raised concerns

about inflation leading to restrained monetary policy and fiscal discipline.

Consumer price index (CPI) inflation declined to 2.2 percent in the advanced economies. In the United States, headline inflation increased to 3.4 percent, while core inflation (excluding food and energy) remained at 2 percent, although remaining above the Federal Reserve’s (FD) implicit comfort zone. In Japan, core inflation remained negative, however headline inflation was positive. There is rising concern in the euro area on the surge in inflation; headline inflation increased to 3.5 percent (YoY) in March 2008, exceeding the target rate of 2 percent set by the European Central Bank (ECB). Inflation in some countries of emerging Asia - including China, Indonesia, Thailand, the Philippines, and India - increased mainly due to rising food and energy prices.

The advanced economy equity markets remained volatile, reflecting economic weakness. In early 2008/09, equity markets in emerging Asia lost an average of 40 percent of their last year’s

1 This summary report is based on World Economic Outlook (WEO-April 2008), International Monetary Fund.

6 Global Economic Prospects and Challenges

ANNUAL REPORT 2007

gains.

Financial market turbulence has affected foreign exchange markets. Since the second half of 2007/08, real effective exchange rate for the US dollar has dropped markedly. Foreign investment in US bonds and equities declined as a result of rising uncertainty about liquidity and return of such assets, weakening US economy, and declining interest rate. In contrast, the euro, the yen, Canadian dollar, and some emerging economy currencies appreciated.

Global prospects and challengesThe world economy is expected to continue to grow slowly in 2008/09 and 2009/10. Global growth is projected to reach 3.7 percent in 2008/09, about 1.2 percentage point less than the preceding year. The advanced economies, particularly US, are anticipated to experience the most pronounced slowdown in YoY growth in 2008/09. Growth is also projected to decline in the euro area and Japan. Emerging market and developing countries would continue to grow, albeit at a less pace than in 2007/08. The pace of expansion would moderate in China and India in 2008/09. Commodity-rich countries in Africa, and the Middle East would continue to grow, although at a slower pace. In 2008/09, Africa and the Middle East are projected to

grow by 6.3 and 6.1 percent, respectively. Countries in emerging Europe and also Mexico would be more affected by slower growth in Europe and the United States. Overall, downside risks pertinent to the US housing sector, inflation pressures, the oil market, and financial stability have raised concerns.

Regional economic outlookThe United States and Canada

The US economy has slowed noticeably in 2007/08 as output growth declined to 2.2 compared to 2.9 percent a year ago. Despite the Fed’s expansionary monetary policy, the activity slowed in the first quarter to only 0.6 percent (at an annualized rate). The slowdown was mainly due to deteriorated housing market, declined residential and business investment, tightened credit availability, softened consumption, and risen oil prices. The labor market is negatively affected by sluggish housing market. The unemployment rate is anticipated to increase from 4.6 percent in 2007/08 to 5.4 percent in the following year. Corporate profitability and equity prices are volatile. The financial sector is under stress and credit remains constrained. Based on these conditions, it is projected that the US economy will face with mild recession in 2008/09, followed by a gradual recovery in 2009/10. In the


ANNUAL REPORT 2007

US, headline inflation increased to 3.4 percent, while core inflation remained at about 2 percent, although remaining at the top of the Fed’s implicit comfort zone. The Fed has cut its target for the Federal funds rate to 2 percent in 2008/09, compared with about 5.3 percent in the last year.1 The Fed is expected to reduce rates over the next 12 month, depending on the extent of the slowdown. The US net exports have grown, as a result of US dollar depreciation against other currencies. In 2007/08, the current account deficit declined to 5.3 percent of Gross Domestic Product (GDP), but further decline is anticipated in the next year. In 2008/09, the general government deficit is expected to increase markedly to 4.5 percent of GDP, compared with 2.5 percent of GDP in the preceding year. The Canadian economy has also slowed in 2007/08. The growth is projected to decline to 1.3 percent in 2008/09. The downturn is the result of lower external demand and tighter credit conditions. The Bank of Canada has undertaken an expansionary monetary policy, including interest rate cuts in 2007/08. It is expected that CPI inflation to remain close to the center of the 1–3 percent target range.

Western Europe

Activity in western Europe gathered momentum during 2007/08. In the euro area, GDP growth reached 2.6 percent, close to its pace in 2006/07. Germany

recorded 2.5 percent growth. Meanwhile, the United Kingdom (UK) experienced 3.1 percent growth due to strong domestic demand, driven by an increase of employment and investment. At the end of 2007/08, output growth slowed in the euro area as it is projected to drop to 1.4 percent in 2008/09. The downward trend expectation is the result of euro appreciation and deteriorated export market. In the euro area, inflation remains the main area of concern. Headline inflation increased to 3.5 percent (YoY) in March 2008 which exceeds the ECB’s target rate of 2 percent. The increase was due to rising food and energy prices. However, core inflation remained below the target rate during 2007/08. In response to the ECB’s tightening policy, it is projected that headline inflation to decline in 2009/10. Government fiscal deficits declined in most of western Europe countries in 2007/08. In the euro area, the general government deficit dropped to 0.6 percent of GDP. In 2008/09, it is expected that fiscal deficit in the euro area to increase by 0.5 percent of GDP as a result of the economic slowdown.

Industrial Asia

In 2007/08, Japan’s economic situation remained robust, spurred by strong net exports and business investment. Over the same period, real GDP grew at 2.1 percent and it is expected to drop to 1.4 percent in 2008/09. The

1 http://www.bloomberg.com/markets/rates/index.html, May 5, 2008.


ANNUAL REPORT 2007

downward trend expectation is the result of spillovers from a global slowdown to economic activity through lowering export growth and consumption. In the last three months of 2007/08, headline inflation increased in Japan, driven largely by a surge in food and energy prices. However core inflation remained slightly negative. Since February 2007, the Bank of Japan has maintained policy rates unchanged at about 0.5 percent. Despite fiscal consolidation in recent years, Japan registered the highest net public debt among the major advanced economies. In Australia and New Zealand, the output growth remains robust, reflecting a small impact of global financial markets stress on the economic activity. The major short-term policy is to control inflation in the case of domestic demand pressure. In early 2008/09, Australia increased the cash rate. In New Zealand, since July the cash rate maintained unchanged.

Emerging Asia

Emerging Asia continued to grow in the second half of 2007/08, although at a slower pace. China was an engine of growth for Asia as output grew by 11.4 percent (YoY) in 2007/08, arisen from a surge in investment and net exports. In India, the output growth moderated to 9.2 percent as consumption declined due to tighter monetary policy, albeit investment gathered momentum. Inflation pressures were major concern in some countries. In

China, inflation increased to 8.7 percent in the early 2008/09. In light of monetary tightening, inflation eased in India by the end of 2007/08; however inflation increased in 2008/09 due to a surge in commodity prices. Capital inflows into the region gathered momentum in 2007/08, owing to high portfolio inflows into China, Hong Kong SAR, and India and by strong foreign direct investment (FDI) flows. In early 2008/09, regional equity markets lost an average of 40 percent of their last year’s gains. The Output growth in emerging Asia is projected to grow at about 7.5 percent in 2008/09 compared with 9.1 percent in 2007/08. In 2008/09, growth in China and India are expected to drop to 9.3 and 7.9 percent, respectively. The region’s current account surplus increased to 6.5 percent of GDP in 2007/08 due to the strong growth of exports. The region’s current account surplus is expected to decline to 5.3 percent in 2008/09.

Latin America and the Caribbean (LAC)

In 2007/08, economic growth in Latin America and the Caribbean increased slightly to 5.6 percent. The economic slowdown in the US had an adverse effect on Mexico. In the Caribbean, the economic activity moderated, while growth in Central America and in commodity-exporting countries in South America gathered momentum. Brazil grew significantly in 2007/08 due to real interest


ANNUAL REPORT 2007

rates cut and high employment. The major source of growth in the region was domestic demand. The region’s growth is expected to drop to 4.4 percent in 2008/09. Inflation rate is expected to increase to 6.6 percent in 2008/09 compared with 5.4 percent in the preceding year. Current account surplus was 0.5 percent of GDP in 2007/08; however, it is expected that current account positions to deteriorate, and private capital inflows to slow, compared with the last year. In the region, activities of strong economies will be reduced by the US slowdown and external stress but not severely affected. Chile’s fiscal position is strong and public debt is low. Although most of the countries in the region have taken efforts toward fiscal reform, but more has to be done to maintain fiscal performance on a sustainable path.

Emerging Europe

In 2007/08, emerging Europe’s activities declined to 5.8 percent, compared with 6.6 percent a year ago. The slowdown was most severe in Hungary, Turkey, Estonia, and Latvia. The deceleration in Turkey was largely the result of currency appreciation, delayed effects of restrained monetary policy, and drought. It is projected that the region’s GDP growth to moderate further to 4.4 percent in 2008/09, reflecting dampening domestic demand and export growth. The region’s current account deficit increased to 6.6 percent of GDP in 2007/08 due to higher domestic demand

relative to production. It is anticipated that current account deficit to increase further in 2008/09. Inflation rose to 5.7 percent in 2007/08 as the result of a surge in food and energy prices. The region benefited from large capital inflows, particularly FDI in 2007/08. Meanwhile, a capital flow reversal could adversely affect the region through credit crunch and asset price deflation.

Commonwealth of Independent States (CIS)

Activity in the CIS continued to expand to 8.5 percent in 2007/08, driven by rising commodity and asset prices, expansionary macroeconomic policies, capital inflows, and credit growth. In Russia, growth remained robust in 2007/08. The region’s real GDP growth is expected to decline to 7 percent in 2008/09. Current account surplus dropped sharply to 4.5 percent of GDP, compared with 7.5 percent in the preceding year, with the expectation of the same pace in 2008/09. In the region, inflation rose to 9.7 percent in 2007/08. The global financial markets stress has had a negative impact on most countries in the region, owing to dominance of bank and portfolio inflows as sources of financing. A sever slowdown in the global economy would make oil and commodity prices, an engine of regional growth, to decrease. Fiscal policy has increased pressures on domestic demand in Azerbaijan, Georgia, Russia, and Ukraine. In 2007/08, the


ANNUAL REPORT 2007

region’s investment remained low at about 22 percent of GDP, with concentration on extractive industries and construction.

Africa

In Africa, growth of real GDP increased to 6.2 percent in 2007/08, driven mainly by robust growth in oil-exporting countries. Angola registered the highest growth in the region, supported by increased oil and diamond production. In Nigeria, the strong growth in non-oil sector offsets adverse impact of lowered oil production in the Niger Delta. The economic activity slowed in South Africa as a result of restrained monetary policy with the aim to curb inflation, but investment continues to grow. In 2008/09, it is expected that the region to grow at the same pace of the preceding year, led by oil-exporter countries. The region’s inflation slightly declined in 2007/08, but it is anticipated to rise to 7.5 percent in 2008/09. Current account balances moderated to 0.1 percent of GDP in 2007/08. Capital inflows, particularly FDI, increased markedly in 2007/08. A sever slowdown in the advance economies, specially western Europe, could negatively affect commodity-

exporter countries in the region.

Middle East

The direct impact of global financial turmoil on Middle Eastern countries has been small, albeit the US dollar depreciation makes the situation complicated. The region enjoyed another year of solid growth in 2007/08, reaching to 5.8 percent. High oil prices led to increased government spending and credit growth in oil-exporting countries. It is projected that the region’s economic activities to expand by 6.1 percent in 2008/09. Inflation has increased recently, spurred by robust domestic demand, and surging food prices. The region’s inflation increased to 10.4 percent in 2007/08, with expectation of upward trend in the following year. Current account surplus declined slightly as it reached to 19.8 percent of GDP in 2007/08; however, it is expected that the current account surplus to gather momentum in 2008/09. In most of Golf Cooperation Council (GCC) countries (except Kuwait), the exchange rates are pegged to the US dollar. The US dollar depreciation and expansionary fiscal and income policies could add to domestic demand pressures.


ANNUAL REPORT 2007

World Economic Outlook(Annual percent change)

Year 2006/07 2007/08

Current Projections2008/09 2009/10

World output 5.0 4.9 3.7 3.8Advanced economies 3.0 2.7 1.3 1.3

United States 2.9 2.2 0.5 0.6Euro area 2.8 2.6 1.4 1.2Japan 2.4 2.1 1.4 1.5United Kingdom 2.9 3.1 1.6 1.6Canada 2.8 2.7 1.3 1.9Others 4.5 4.6 3.3 3.4

Emerging and developing economies 7.8 7.9 6.7 6.6Africa 5.9 6.2 6.3 6.4Central and Eastern Europe 6.6 5.8 4.4 4.3Commonwealth of Independent States 8.2 8.5 7.0 6.5Developing Asia 9.6 9.7 8.2 8.4Middle East 5.8 5.8 6.1 6.1Western Hemisphere 5.5 5.6 4.4 3.6

European Union 3.3 3.1 1.8 1.7World trade volume (goods and services) 9.2 6.8 5.6 5.8Imports

Advanced economies 7.4 4.2 3.1 3.7Emerging and developing economies 14.4 12.8 11.8 10.7

ExportsAdvanced economies 8.2 5.8 4.5 4.2Emerging and developing economies 10.9 8.9 7.1 8.7

Commodity prices (US dollars)Oil 20.5 10.7 34.3 -1.0Non-fuel (average based on world commodity export weights) 23.2 14.0 7.0 -4.9Consumer prices

Advanced economies 2.4 2.2 2.6 2.0Emerging and developing economies 5.4 6.4 7.4 5.7

London inter-bank offered rate (percent)On US dollar deposits 5.3 5.3 3.1 3.4On Euro deposits 3.1 4.3 4.0 3.6On Japanese Yen deposits 0.4 0.9 1.0 0.8

Source: World Economic Outlook, IMF, April 2008, Page 2

Source: World Economic Outlook, IMF, April 2008, Pages xi-xvi, 1-3, and 65-99

Item

Economic Highlights of the ACU Member Countries12

ANNUAL REPORT 2007

Bangladesh Real Gross Domestic Product (GDP) recorded a strong growth of 6.5 percent in 2006/07, marginally lower than 6.6 percent in 2005/06. The growth performance was underpinned by 9.5 percent growth in industry sector and 6.7 percent growth in services sector.

Domestic Savings per GDP ratio rose to 20.5 percent in 2006/07 from 20.3 percent in 2005/06, while investment per GDP ratio decreased to 24.3 percent in 2006/07 from 24.7 percent of 2005/06.

Bangladesh Bank continued a cautiously restrained monetary policy stance during 2006/07.

Broad money (M2) growth was 17.1 percent during 2006/07, which was lower than 19.3 percent growth in 2005/06, but higher than 14.7 percent growth targeted under programme. The higher growth in broad money than programmed was mainly due to higher than envisaged growth in net foreign assets.

Economic Highlights of the ACUMember Countries

Revenue collection in 2006/07 increased by 10.3 percent over 2005/06.

A substantial growth of knitwear products (19.3 percent) and woven garments (14.1 percent) continued to support the high growth of exports in 2006/07 over 2005/06.

The overall balance of payments (BOP) position of the country showed a significant surplus of USD 1,493 millionin 2006/07, against a surplus of USD 338 million in 2005/06, reflecting a notable improvement in current account balance and a larger surplus in the capital and financial account. The current account balance recorded a surplus of USD 952 million in 2006/07 from a surplus of USD 824 million in 2005/06.

The gross foreign exchange reserves of the Bangladesh Bank stood atUSD 5,077 million at the end of June 2007 and further increased to USD 6,043.6 million as on March 02,

Economic Highlights of the ACU Member Countries 13

ANNUAL REPORT 2007

2008.

The foreign exchange market experienced a mixed trend in 2006/07 under the floating exchange rate regime. However, at the end of 2006/07 Taka-US dollar exchange rates remained relatively stable with exchange rates at Taka 68.7 - 69.2.

Annual average consumer price index (CPI) (base:1995/96=100) inflation demonstrated marginal increase from 7.2 percent in 2005/06 to 7.2 percent in 2006/07.

The expanding pressures of domestic demand supported by continued high monetary and credit growth, increase in international prices of major consumer goods particularly foods and petroleum products, adjustment in domestic fuel price and loss of business confidence contributed to inflation spirals.

BhutanHis Majesty Jigme Singye Wangchuck, the fourth King handed over the responsibilities of monarch and head of state of Bhutan to the Crown Prince, Jigme Khesar Namgyel Wangchuck, who will be formally crowned as the fifth King of Bhutan sometime this year (2008). The country’s first nation-wide elections to form a parliamentary democracy were held on March 24, 2008.

The agreement on trade, commerce, and transit between Bhutan and India was renewed for another 10 years.

Bhutan and India signed an agreement to facilitate the flow of funds and manpower resources from India for the construction of hydropower projects in Bhutan. The agreement is valid for 60 years and will be reviewed every 10 years.

The real GDP grew by 8.5 percent in 2006/07 as compared to 7.1 percent in 2005/06. This higher growth during 2006/07 was mainly due to the coming on stream of the Tala which became fully operational towards the end of March 2007.

The quarterly CPI reported a lower annual inflation rate of 5.9 percent in the second quarter of 2007/08 as compared to 6.2 percent during the same period last year.

Monetary expansion was lower in 2006/07 compared to the previous year. The broad money supply (M2) grew at 8.6 percent with credit to the private sector growing at 35.5 percent.

Merchandise export grew by 62.4 percent resulting in a trade surplus of Nu. 555.1 million. The current account improved from a deficit to a surplus of 12.2 percent of GDP due to improvements in both the services and income accounts. The overall balance was positive which


ANNUAL REPORT 2007

led to an increase in the country’s gross international reserves by 25.1 percent.

On the exchange rate front, in tandem with the Indian rupee, the ngultrum appreciated against the US dollar by around 13 percent between December 2006 and December 2007, averaging Nu.41.35 per US dollar in 2007/08.

IndiaAs per the advance estimates released by the Central Statistical Organisation (CSO), the growth in GDP during 2007/08 is estimated at 8.7 percent as compared with the growth rate of 9.6 percent in 2006/07. The moderation in the rate of growth of overall GDP during 2007/08 is mainly attributable to fall in the growth rate of all the major sectors of the economy.

The growth rate of real GDP originating from industry is estimated to be lower at 8.6 percent in 2007/08 than 10.6 percent in 2006/07, reflecting moderation in all of its sub-sectors, namely, manufacturing (9.4 percent in 2007/08 from 12 percent in 2006/07), and mining and quarrying (3.4 percent in 2007/08 from 5.7 percent in 2006/07).

The growth rate of real GDP originating from services sector has moderated to 10.6 percent in 2007/08 from 11.2 percent in 2006/07 due to deceleration in the growth rates of sub-sectors viz., ‘financing,

insurance, real estate and business services’ (11.7 percent in 2007/08 from 13.9 percent in 2006/07) and construction (9.6 percent in 2007/08 from 12 percent in 2006/07).

The index of industrial production (IIP) recorded an accelerated growth of 11.5 percent during 2006/07 as against 8.2 percent during 2005/06. However, the high growth momentum weakened during April-January 2007/08 with industrial growth moderating to 8.7 percent as against 11.2 percent during the corresponding period of 2006/07.

The gross fiscal deficit (GFD) and revenue deficit (RD) in the revised estimates (RE) for 2007/08 were placed at 3.1 and 1.4 percent of GDP, respectively, as compared with 2007/08 budget estimate (BE) levels of 3.3 percent and 1.5 percent of GDP. The GFD is budgeted to further decline to 2.5 percent of GDP during 2008/09. RD is budgeted to decline to 1 percent of GDP during 2008/09. The tax revenue per GDP ratio is budgeted to improve further to 13 percent in 2008/09 from 12.5 percent in 2007/08.

Broad money (M3) expanded by 23.9 percent as on February 1, 2008 on a year-on-year (YoY) basis, as compared with 21.4 percent a year ago. Bank credit to commercial sector expanded by 21.2 percent YoY as on February 1, 2008, as compared with 26.9 percent growth


ANNUAL REPORT 2007

a year ago. Acceleration of growth in aggregate deposits to 25.7 percent, as on February 01, 2008, from 22.3 percent a year ago largely accommodated the credit expansion.

Reserve money (RM) grew by 26.8 percent as on February 29, 2008 on YoY basis (21.3 percent last year).

Headline inflation, measured by YoY changes in the wholesale price index (WPI), was 5.1 percent during the week ended March 2, 2008 as compared with 5.9 percent at end-March 2007 and 6.6 percent a year ago. During 2007/08 so far, the easing in inflation from year ago was mainly led by primary articles and some manufactured products items.

Merchandise exports during April-January 2007/08 at USD 124.1 billion recorded a growth of 21.5 percent on top of 24 percent a year ago. Imports during April - January 2007/08 atUSD 191.4 billion grew by 29.5 percent as compared with 25.4 percent a year ago. Non-oil imports grew by 35.9 percent during April-January 2007/08, while oil imports rose by 16.5 percent. Trade deficit touched USD 67.4 billion, an increase of USD 21.7 billion compared with the previous year.

During 2006/07 (April-September), the rising trade deficit mainly on account of higher oil imports led to the expansion of

current account deficit. Current account deficit during 2006/07 (April-September) increased to USD 11.7 billion fromUSD 7.2 billion in the corresponding period of the previous year. Sustained growth in exports of services and remittances continued to provide buoyancy to the surplus in the invisibles account, which enabled financing a large part of the deficit on the merchandise trade account. Net invisible surplus expanded of USD 23.5 billion during 2006/07 (April-September) as against USD 19.9 billion.

Capital flows at USD 19.3 billion during 2006/07 (April-September) have been higher than USD 13.1 billion in the corresponding period of the previous year, reflecting growing investor interest in the Indian economy on the back of strong growth prospects and buoyant investment demand.

Foreign exchange reserves at a level of USD 304.7 billion posted a rise of USD 105.5 billion during 2007/08 so far (up to March 21, 2008) which has been almost entirely in terms of foreign currency assets.

India’s total external debt at USD 190.5 billion at the end of September 2007 recorded an increase of USD 20.9 billion over the end-March 2007 level.


ANNUAL REPORT 2007

IranIranian economy performed relatively well in 2006/07, the second year of the fourth Five-Year Development Plan (FFYDP), despite escalation of tensions in the region and international sanctions. Oil price surges in this year strengthened external sector as previous year.

In the review year, GDP grew by 6.2 percent at constant 1997/98 prices. Average crude oil production, in adherence to the production quotas set by the Organization of Petroleum Exporting Countries (OPEC), amounted to 4.1 million barrels per day (mb/d). Crude oil exports fell by 6.5 percent to 2.4 mb/d; however, exports of oil products surged by 8.6 percent to 266 thousand b/d compared with the previous year. The average spot price of Iran’s crude oil export grew by 12.3 percent to about USD 59.7.

Current account balance recorded a USD 20,650 million surplus. This shows 24.1 percent growth. The balance of the Oil Stabilization Fund (OSF) (in the form of both cash and claims) grew by 25.1 percent to reach USD 20,555 million at the end of 2006/07, of which USD 9,555 million was in the form of cash and USD 11,000 million in the form of claims.

Government expenses increased by 25.7 percent compared with the previous year. In 2006/07, the amount of subsidy paid on

essential goods, chemical fertilizers, Tehran subway ticket, medicine, powdered milk and pesticides showed 16.1 percent rise compared with the previous year, with the subsidy on essential goods comprising 14 percent of total government expenses.

Monetary base surged by 26.9 percent in the review year, mostly owing to the rise in the Central Bank of Iran’s (CBI) net foreign assets by 51.5 percentage points. Meanwhile, money multiplier grew by 9.8 percent in this year.

Liquidity grew by 39.4 percent in 2006/07, indicating a rise compared with the growth figure of the previous year. This high liquidity growth was despite the sale of participation papers by the CBI.

According to the Money and Credit Council (MCC) approval, for transaction contracts, the expected rate of return on extended facilities for public banks was determined at 14 percent. Moreover, the expected rate of return on private banks and non-bank credit institutions’ facilities for all economic sectors was determined at 3 percentage points higher than that of public banks.

The relatively recessionary condition in stock market in 2005/06 ran into 2006/07. The Tehran Stock Exchange Price Index (TEPIX) and ‘industrial’, ‘price and dividend’, and ‘cash dividend’ indices rose and the ‘financial’ index and ‘top


ANNUAL REPORT 2007

50 companies’ index fell in 2006/07. The TEPIX and industrial index went up by 3.8 and 4.4 percent and financial index fell by 0.8 percent.

Of the key objectives of the fourth Plan is to reduce unemployment rate to 8.4 percent by the end of the Plan. However, unemployment rate stood at 12.1 percent in winter 2006/07, roughly at the same level of the respective period of the previous year. This rate was recorded unchanged at 13.8 percent for urban areas and at 8.8 percent for rural areas.

The inflation rate stood at 13.6 percent in the review year. Growth in the CPI was largely ascribable to increase in the price index of two groups of ‘housing, water, fuel and power’ and ‘food, beverages and tobacco’. The overall CPI increase was largely due to the structural impediments to the economy such as high dependence of the government budget on oil revenue, inflationary expectations, increase in liquidity, rise in costs of factors of production, and lower price elasticity of supply of goods.

MyanmarSince fiscal year (FY) 1992/93, Myanmar has been formulating and implementing economic short-term plans aiming to achieve balanced economic development in all the economic sectors. Three

economic short-term plans have already been successfully completed with remarkable growth rates. The fourth five year short-term plan, from 2006/07 to 2010/11, has been formulated based on these achievements. During the first year of the current short-term plan, which is FY 2006/07, the economy had registered a strong growth rate of 12.7 percent against the targeted growth rate of 12 percent. The agriculture sector, serving as a leverage of the economy in enhancing the economic activities, achieved high growth rate of 9.2 percent. At the same time, the manufacturing sector and trade sector recorded the strong growth rates of 22 percent and 13.9 percent respectively. The services sector has also registered a growth rate of 15.7 percent.

The growth thus far achieved reflected a more diversified and broad based expansion of the economy. It can be said that the country’s economic structure has been gradually changing. The primary sector, which includes agriculture, livestock, fishery and forestry accounted 44 percent of GDP in 2006/07 decreasing from 50.7 percent and 47 percent in 2004/05 and in 2005/06 respectively. Accordingly, the shares of manufacturing and services sectors in GDP composition are on rising trends.

The Government’s fiscal policy continued to emphasize on development of the infrastructure sector ensuring to be


ANNUAL REPORT 2007

supportive of enhancing further economic activities. On the revenue side, measures taken to improve the budget position such as broadening tax base and strengthening tax administration and collection as well as enhancing the State Economic Enterprises’ (SEEs’) performance have resulted in a substantial increase in revenue. However, Myanmar has to rely solely on its own domestic resources for its developmental investment, as external developmental assistance is minimal. Therefore, Myanmar’s budget still remains in deficit.

Monetary policy continues to support economic growth in 2006/07. However, maintaining accommodative monetary stance became more challenging particularly in light of inflationary pressures. The Central Bank of Myanmar had raised its central bank rate from 10 percent to 12 percent on April 1, 2006. Deposit and lending rates were also raised to 12 percent and 17 percent respectively. The banking system remains the main mobiliser of funds in the economy, supporting the financing needs from the business sector.

On the external front, the BOP position remains favourable in 2006/07 registering an overall surplus of USD 997.3 million. Total exports increased by 47.3 percent mainly due to continued increase in gas exports while imports increased by 48.1 percent as a result of increase in imports

of intermediate goods and consumer goods. Reflecting the trade surplus and other capital inflows, gross official reserves increased and was adequate to finance 9.1 months of imports at the end of March 2007.

NepalThe year 2006/07 remained historical following the second people’s movement which settled the political issue, leading to an end of the decade long insurgency. This also raised expectations of higher economic growth. With the end of insurgency, a significant expansion in economic activities was expected. However, things did not happen as expected on account of protracted political transaction.

As a result, Nepal’s economic growth remained low at 2.5 percent in 2006/07, lower than that of the previous year’s of 2.8 percent. The less-than-satisfactory peace and security situation and frequent strikes and bandhs largely accounted for a lower than expected economic growth. In addition, the unsatisfactory weather condition also caused the economic growth to slowdown. However, the annual average consumer price inflation moderated to 6.4 percent in 2006/07 from 8 percent in the previous year. Lower price rise of non-food and services items eased the inflationary pressure. The base effect of the hike in prices of petroleum


ANNUAL REPORT 2007

products in March 2006 accounted for the deceleration in non-food inflation. The appreciation of the Nepalese currency against the US dollar also contributed to keep the prices of imported goods low.

Monetary growth was lower than that of the previous year. For example, M2 rose by 14 percent in 2006/07 compared to a growth of 15.6 percent in the previous year. Likewise narrow money (M1) showed a growth of 12.1 percent compared to an increase of 14.2 percent in the previous year. The lower level of reserve accumulation accounted for the deceleration in monetary growth.

The Government’s budget on a cash basis recorded a deficit of Rs. 18.8 billion in 2006/07 compared to the deficit ofRs. 16.4 billion a year ago. The higher growth of government expenditure relative to the growth of revenue widened the budget deficit. The budget deficit to GDP ratio increased marginally to 2.6 percent from 2.5 percent a year ago.

On the external sector front, the trade deficit expanded by 15.3 percent. This was on account of higher import growth of 10.3 percent and a meager export growth of 0.9 percent. However, the current account showed a surplus of Rs. 3.5 billion mainly due to the elevated level of remittances. Likewise, financial account posted a surplus of Rs. 2.4 billion on account of rise in trade

credit. As a result, the overall BOP posted a surplus of Rs. 5.9 billion in 2006/07.

The Nepalese stock market witnessed a major expansion in 2006/07. The YoY Nepal Stock Exchange (NEPSE) index increased by 76.8 percent to 684 points in mid-July 2007. The index was at 386.8 points a year ago. The increased confidence of investors in the aftermath of political change and a number of corporate actions taken by bank and financial institutions contributed to the upsurge in the NEPSE index.

PakistanPakistan’s economy recorded one of the fastest growth rates in Asia during 2006/071. Real GDP growth accelerated to 7 percent, which was surpassed only by China and India.

Consistent with recent trends, 2006/07 growth profile is broad based. Most vibrant has been once again the services sector, though accompanied this year by the above-target performance of the agriculture sector, and an improvement in industrial growth over the preceding year.

Inflationary pressures remained strong throughout 2007/08, headline CPI inflation rose to 11.9 percent YoY in January 2008; the highest level since July 1997 compared 6.6 percent YoY in January 2007.

1 Fiscal year is from July to June.


ANNUAL REPORT 2007

Food inflation remained in double digits for most of the months of 2007/08 mainly due to (i) rising food prices in international market, (ii) domestic supply shortages of some important minor crops, and (iii) higher demand on the back of increasing income levels.

The central bank has tightened its monetary posture four times since April 2005 by gradually raising key policy rate (3-day repo rate) from 7.5 percent to 10.5 percent.

Monetary tightening is aiming to (a) contain excess aggregate demand, as well as (b) minimize second round impacts of inflation.

Although fiscal indicators witnessed some deterioration during July-December 2007/08 on the back of weak growth in revenues and ballooning expenditures, however likely to improve in the second half of the fiscal year (i.e. January-June).

Pakistan’s debt indicators continued to improve in 2006/07, with total debt and liabilities (TDL) as a share of GDP dropping to 56.7 percent in 2006/07.

Trade deficit is rising amidst strong imports growth; import growth 18.9 percent while export growing by only 5.9 percent during the first half of 2007/08.

Current account deficit (CAD) is also

worsened during the first half of 2007/08. CAD is likely to reach about 6 percent of GDP for 2007/08.

Pakistan’s economy is expected to overcome the recent macroeconomic challenges and able to sustain growth significantly above the historical average.

Sri LankaIn 2007, Sri Lankan economy has demonstrated that it has now moved on to a higher growth path of above 6 percent per annum for the third consecutive year from the historical average of around 4-5 percent. During the year 2007, the economy grew by 6.8 percent, the annual average rate of unemployment reached its lowest ever recorded level of 6 percent, while the per-capita income rose further to USD 1,617 in 2007. These developments were achieved in a challenging environment of rising petroleum and commodity prices in international markets. However, achieving price stability remain a challenge in an environment of external price shocks and supply side shocks amid the tight monetary policy stance of the Central Bank which decelerated the growth in monetary aggregates and slowed down the aggregate demand to a certain extent during 2007.

The fiscal consolidation process pursued by the government moved in the right direction by way of pruning down of both


ANNUAL REPORT 2007

the fiscal deficit and public debt in line with the trend observed in recent years. The government’s public investment programme, aiming at expanding the country’s economic and social infrastructure to facilitate future economic growth accelerated during 2007. Another notable development in 2007 was the government’s ability to reduce the deficit financing from domestic banking sources substantially, complementing the tight monetary policy stance of the Central Bank.

The external sector demonstrated its resilience to external shocks, with the BOP recording a surplus of USD 531 million, which raised the country’s external reserves to a higher level, along with a greater stability in the exchange rate. During 2007, demonstrating the continuous foreign investor confidence, Sri Lanka received the highest ever foreign direct investment (FDI) inflow of around USD 734 million. While higher growth in exports and a steady increase in worker remittances

mitigated the impact of higher petroleum and commodity prices on imports to some extent, the higher expenditure on import of investment goods required for infrastructure development was financed partly through debt and partly through FDI inflows.

The financial sector continued to grow strongly and the financial system remained resilient in the face of unfavourable global financial market conditions and rising domestic interest rates. The financial institutions maintained their financial soundness through continued high profitability, stronger capitalisation, improved asset quality and enhanced risk management, which consolidated their capacity to deal with the stressful environment. The regulation and supervision of the financial system was further strengthened with the implementation of several new prudential regulations, while the systemically important payment and settlement systems operated with near 100 percent availability and safety.

ANNUAL REPORT 2007

22 Country Performance / Bangladesh

BangladeshThe overall economic performance in Bangladesh remained strong and macroeconomic stability sustained during financial year (FY) 2007 (July 2006-June 2007). The Government and the Bangladesh Bank adopted supportive macroeconomic policies to enhance the resilience of the economy for maintaining macroeconomic stability. These policies significantly contributed toward maintaining a strong real Gross Domestic Product (GDP) growth of 6.5 percent in 2006/07, a slightly lower than 6.6 percent in 2005/06. The growth performance was underpinned by the robust growth in services and notable expansion in manufacturing activities, despite facing high and volatile oil prices in the international market and phasing out of the Multi-Fibre Arrangement (MFA) quota. Economic growth was also aided by the strong growth in exports and workers’ remittances from abroad. Export earnings recorded a moderate growth of 15.8 percent and remittances from non-resident Bangladesh nationals increased substantially by 24.5 percent in 2006/07.

The rising trend in inflation of 2005/06 continued in 2006/07 due mainly to higher import prices of fuel oil, metal, foodgrains and some other essentials in the international market coupled with problems in the domestic supply chains like political turmoil in the first half of 2006/07 and lower growth of crop production. Increasing domestic demand induced by high monetary and credit growth also added to the uptrend in consumer prices. Bangladesh Bank continued to pursue a cautious and restrained monetary policy stance during 2006/07 with a view to curbing excess demand from inflationary expectations while supporting the highest sustainable real GDP growth. In line with this policy stance, an upward bias in the policy interest rates such as, repo and reverse repo interest rates, treasury bill/bond yield rates was maintained during the year.

Economic Growth

The 6.5 percent real GDP growth in 2006/07 was underpinned, on supply

Country Performance

23Country Performance / Bangladesh

ANNUAL REPORT 2007

side, by a robust growth in the industry sector and continued strong growth in the services sector offsetting lower growth in agriculture sector. The growth rate in agriculture sector achieved a moderate growth of 3.2 percent in 2006/07 following the post flood high growth of 4.9 percent in 2005/06, resulting mainly from a lower growth in crops and horticulture sub-sector. The industry sector attained a growth of 9.5 percent in 2006/07, slightly lower than 9.7 percent of 2005/06. The high rate of growth was supported mainly by a continued improved performance in manufacturing sub-sector, facilitated by strong and sustained growth in export-oriented manufacturing activities and expansion in domestic demand. The services sector grew by 6.7 percent in 2006/07, slightly higher than 6.4 percent recorded in 2005/06.

to 24.3 percent in 2006/07.

Price Situation

The rising trend of inflation for a couple of years as measured by Consumer Price Index (CPI) continued during 2006/07. The expanding pressures of domestic demand supported by continued high monetary and credit growth, increase in international prices of major consumer goods particularly foods and petroleum products, adjustment in domestic fuel price and loss of business confidence resulting from anti-corruption and anti-hoarding drive in the country contributed to inflation spirals. Annual average CPI (base: 1995/96=100) inflation demonstrated marginal increase reaching to 7.2 percent in 2006/07. On a point to point basis, the rate of inflation showed a significant increase from 7.5 percent in 2005/06 to 9.2 percent in 2006/07.

Savings and Investment

Domestic savings per GDP ratio rose from 20.3 percent of 2005/06 to 20.5 percent in 2006/07 while investment per GDP ratio decreased from 24.7 percent of 2005/06

Fiscal Developments

In the revised budget, revenue as a percentage of GDP fell to 10.6 in

National CPI Inflation

0

2

4

6

8

10

12

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2003/04

2004/05

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2006/07

Pe

rce

nt

General Food Non-food

GDP growth Per capita GDP growth

Real GDP Growth

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

0

1

2

3

4

5

6

7

GD

Pg

ro

wth

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ap

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ANNUAL REPORT 2007


2006/07 as compared to 10.8 in 2005/06. Expenditure on Annual Development Program (ADP) as percentage of GDP decreased to 4.6 during 2006/07 from 5.2 in 2005/06. To meet the expenditure partially, government borrowings from the banking system was Taka 65.3 billion (1.4 percent of GDP). The rest amount of Taka 35 billion (0.7 percent of GDP) of domestic financing of the deficit was non-bank borrowings mainly consisting of National Savings Scheme Certificate bought and held by the public. The foreign financing component of the budget deficit was Taka 73.3 billion (1.6 percent of GDP), consisting of grants and loans. The overall budget deficit (excluding grants) as percentage of GDP, however, stood at Taka 173.7 billion or 3.7 percent of the GDP in 2006/07 which was equal to the amount initially projected.

Monetary and Credit Situation

Bangladesh Bank continued a cautiously restrained monetary policy stance with the prime objective of keeping inflationary pressure under control while supporting the targeted real output growth during 2006/07. Broad money (M2) growth was 17.1 percent during 2006/07 which was lower than 19.3 percent growth in 2005/06 but higher than 14.7 percent growth targeted under the programme. The higher growth in broad money than programmed was mainly due to higher than envisaged growth in net foreign assets. The growth in

net foreign assets stood at 49.3 percent as against projection of 16.8 percent during 2006/07 and higher than the actual growth of 17.9 percent in 2005/06. The growth in net foreign assets was due mainly to increase in export earnings and workers’ remittances, despite appreciation in Taka-dollar exchange rates during 2006/07.

Total domestic credit increased by 14.5 percent during 2006/07, lower than 21.1 percent increase during 2005/06. The private sector credit increased by 15.1 percent during 2006/07 compared to 18.3 percent in 2005/06. The public sector credit increased by 12.5 percent during 2006/07 compared to projected growth of 13.7 percent and actual growth of 30.6 percent in 2005/06 mainly due to downsizing of ADP.

The cash reserve requirement (CRR) for the scheduled banks with the Bangladesh Bank has been revised upward to 5 percent of their total demand and time liabilities from October 2005. Statutory Liquidity Ratio (SLR) for the scheduled banks, except banks operating under the Islamic Shariah and the specialized banks, has been revised upward in October 2005 at 18 percent of their total demand and time liabilities, excluding inter-bank items. The SLR for the Islamic banks remained unchanged at 10 percent. The specialized banks continued to remain exempted from maintaining the SLR.


ANNUAL REPORT 2007

Exchange Rate Developments

The foreign exchange market experienced a mixed trend in 2006/07 under the floating exchange rate regime. During the first quarter of 2006/07, Taka-US dollar exchange rate experienced pressure with exchange rates ranging within Taka 69.5-69.9. With the beginning of second quarter Taka started to gradually recover its lost value and by mid-October 2006 it appreciated upto Taka 66 against US dollar. But it again weakened and by the end of November 2006 it depreciated upto a record high of Taka 73 per US dollar. During the third quarter of the year Taka showed somewhat appreciating trend due to improved liquidity in the market, resulting from increased inward remittances with exchange rates ranging within Taka 68.8-70.6. However, at the end of 2006/07 Taka-US dollar exchange rates remained relatively stable with exchange rates at Taka 68.7-69.2. During 2006/07 Bangladesh Bank purchased US dollar 649.5 million from the commercial banks for absorbing excess liquidity from the market. However, the nominal Taka-US dollar exchange rate appreciated by 1.3 percent from Taka 69.7 per US dollar at end-June 2006 to Taka 68.8 per US dollar at end-June 2007.

Exports (fob)

Export earnings (fob including Export

Processing Zone (EPZ)) during 2006/07 increased by 15.8 percent to USD 12,053.3 million as compared to USD 10,412 million in the preceding year. A substantial growth of knitwear products (19.3 percent) and woven garments (14.1 percent) continued to support the high growth of exports in 2006/07 over 2005/06. The growth in export was also supported by the growth in terry towels (32.2 percent), frozen shrimps and fish (12.2 percent ) and leather (3.4 percent).

Imports (fob)

Import payments (fob) during 2006/07 stood at USD 15,511 million registering a growth of 16.6 percent as compared to USD 13,301 million in 2005/06. Increased imports of sugar (137.1 percent), rice (53.8 percent), capital machinery (25.3 percent), edible oil (23.3 percent), plastic and rubber & articles thereof (22.9 percent) and petroleum, oil and lubricants (POL) (22.1 percent) contributed in varying degrees to the rise in aggregate imports during 2006/07 over 2005/06.

1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

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-5

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10

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ANNUAL REPORT 2007


Workers’ Remittances

Workers’ remittances stood at USD 5,979 million in 2006/07 which was 24.5 percent higher than USD 4,802 million in 2005/06. The underlying reason for growth of remittances was that Bangladesh Bank made vigorous efforts such as expansion of activities of drawing arrangements, review of statements received from foreign banks/exchange houses, close monitoring and supervision of banks, etc. Besides, the concerned scheduled banks had ensured quick delivery of remittances by reducing lead time to the beneficiaries in Bangladesh, which brought substantial development in the delivery system.

Foreign Exchange Reserves

The gross foreign exchange reserves of the Bangladesh Bank continued to grow in the backdrop of steadily increasing export earnings and workers’ remittances and stood at USD 5,077 million at the end of June 2007 as against USD 3,484 million at the end of June 2006. Foreign

exchange reserves further increased and stood at USD 6,043.6 million as on March 02, 2008.

Balance of Payments (BOP)

The overall BOP position of the country showed a significant surplus of USD 1,493 million in 2006/07, against a surplus of USD 338 million in 2005/06, reflecting a notable improvement in current account balance and a larger surplus in the capital and financial account. The current account balance recorded a surplus of USD 952 million in 2006/07 from a surplus of USD 824 million in 2005/06 due mainly to a hefty 24.5 percent rise in workers’ remittances. The surplus in the capital and financial account increased from USD 234 million in 2005/06 to USD 1,211 million in 2006/07.

Trade with ACU Member Countries

Total trade (exports + imports) of Bangladesh under ACU increased in 2006/07 compared to that in the

-10

-5

0

5

10

15

20

25

1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Percen

t

Trends of Trade, Current Account and

Overall Balances

-6

-5

-4

-3

-2

-1

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3

1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

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DP

Trade balance Current account balance Overall balance


ANNUAL REPORT 2007

1 1ACUD = 1 USD.

previous year. As in the preceding years, Bangladesh remained a net debtor in all the six bi-monthly settlements during the year. Export receipts decreased while import payments increased substantially with the ACU member countries during the year under report. Exports of Bangladesh to ACU member countries recorded a decrease of USD 13.21 million or 9.1 percent to USD 131.5 million during 2006/07 from USD 144.7 million in 2005/06. On the other hand, import from the ACU member countries increased substantially by USD 368.3 million or 19.1 percent from USD 1,932.8 million in 2005/06 to USD 2,301.1 million in 2006/07. As a result, the net debtor position of Bangladesh increased in 2006/07 by USD 381.5 million or 21.3 percent to USD 2,169.6 million compared to USD 1,788.1 million in the preceding year.

Outlook and challenges

Stabilizing the inflation rate that the economy of Bangladesh has faced during 2006/07 is a major challenge for the policymakers, because a low and stable rate of inflation is critical for accelerated economic growth and poverty reduction. Presently, the sustained high global oil and commodity prices have heightened pressure on country’s BOP, threatened fiscal and monetary stability alongside adversely affecting the economic activity. In this regard, a pricing system providing for automatic adjustment of domestic fuel

prices to international market prices may be considered, with some mechanisms to protect the poor from hardships. Besides, there is a need to reduce dependency on imported petroleum products by maximizing the use of alternative indigenous fuels and enhancing the efficiency of energy use. Moreover, a significant increase in allocation for research and other activities in agriculture sector to increase agricultural productivity should be considered on a priority basis.

After expiry of MFA quota, Bangladesh achieved a successful exports growth during the last two years. But the probable adverse effects from the quota elimination for Bangladesh may come after 2007/08, when the restriction imposed on China will expire. Therefore, for survival in the increasingly competitive global garment trade, a competitive Ready-Made Garments (RMG) sector needs to be built with upgrading infrastructures, labour compliance standards, design and product development capability, advanced production facilities, long term business relationship and the development of internationally reputed customer bases. On the other hand, to reduce the overwhelming dependence on RMG, measures are needed to be taken to diversify the exports.

Recent domestic and global developments including natural calamities, temporary disruptions in domestic production and

ANNUAL REPORT 2007


adverse price developments in the international market, have adversely affected the growth performance of the economy. Taking into consideration the

present state of the economy and future challenges and opportunities Bangladesh Bank has estimated a range of GDP growth between 6 to 6.2 percent for 2007/08.

Bangladesh: Major Economic Indicators

Year 2001/02 2002/03 2003/04 2004/05 2005/06 2006/071

National Income and PricesReal GDP growth (percent) 4.4 5.3 6.3 6.0 6.6 6.5

GDP deflator (percent change) 3.2 4.5 4.2 5.1 5.2 5.6

CPI inflation (annual average) 2.8 4.4 5.8 6.5 7.2 7.2

GDP growth at current market prices 7.7 10.0 10.8 11.3 12.1 12.4

GDP at current market prices (billion Taka) 2,732 3,005.8 3,329.7 3,707.1 4,157.3 4,674.9

GDP at current market prices (billion US dollar) 47.6 51.9 56.5 60.4 61.9 67.7

Fiscal Sector (percent of GDP)Total revenue 10.2 10.4 10.6 10.6 10.8 10.6

Total expenditure 14.9 14.6 14.8 15.1 14.7 14.3

Overall budget deficit (excluding grants) 4.7 4.2 4.2 4.5 3.9 3.7

Financing of overall budget deficit 2 4.8 3.6 4.6 4.5 3.9 3.7

Net domestic financing 2.7 1.3 2.2 2.1 2.0 2.1

Bank borrowings 0.9 -0.3 0.8 1.0 1.2 1.4

Public borrowings 1.8 1.6 1.4 1.1 0.8 0.7

Net foreign financing 2.1 2.3 2.4 2.4 1.9 1.6

Money and Credit (percent change)Private sector 13.5 12.7 14.2 17.0 18.3 15.1

Broad money (M2) 13.1 15.6 13.8 16.8 19.5 17.0

Balance of Payments (percent change)Exports (fob) -7.6 9.5 15.9 14.0 21.5 15.8

Imports (fob) -8.7 13.1 13.0 20.6 12.1 16.6

Remittances 32.9 22.4 10.1 14.1 24.8 24.5

Gross official reserve (million US dollar) 1,583.0 2,470.0 2,705.0 2,930.0 3,484.0 5,077.0

In months of imports of goods & services 2.1 2.9 2.8 2.5 2.7 3.31 Provisional data.2 Discrepancy between overall budget deficit and its financing arises due to cheque floats and other errors and omission.

Sources: (i) Bangladesh Bank Annual Report 2005/06; (ii) Bangladesh Bureau of Statistics; (iii) Economic Trends, September 2006, Bangladesh Bank; and (iv) Bangladesh Bank Quarterly, July-September 2007

Item


ANNUAL REPORT 2007

Bangladesh: Total Exports and Imports(In millions of USDs)

YearSectors

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Exports (fob, including EPZ)5,929 6,492 7,521 8,573 10,412 12,053

(-7.6) (9.5) (15.9) (14.0) (21.5) (15.8)

Imports (fob, including EPZ)7,697 8,707 9,840 11,870 13,301 15,511

(-8.7) (13.1) (13.0) (20.6) (12.1) (16.6)

Trade Balance -1,768 -2,215 -2,319 -3,297 -2,889 -3,458

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

Source: Annual Report, Bangladesh Bank

Item

ANNUAL REPORT 2007


Bangladesh: Exports to ACU Member Countriesduring January–December, 2007

(In millions of Taka)

Commodity/Country ValueBhutan 74.6

Chemical products 10.5Woven garments 22.0Others 42.1

India 20,016.8Frozen foods 1,014.3Agri-products 1,227.4Chemical products 7,262.3Leather 345.3Raw jute 2,867.0Jute goods 1,262.1Knitwear 47.4Woven garments 230.0Others 5,761.0

Iran 3,506.0Jute goods 3,385.7Others 120.3

Myanmar 570.3Chemical products 210.9Leather 20.9Others 338.5

Nepal 93.2Chemical products 58.2Other 35.0

Pakistan 4,563.0Agri-products 92.8Tea 723.2Raw jute 3,214.9Others 532.1

Sri Lanka 1,141.3Chemical products 216.4Jute goods 65.5Others 859.4Source: Export Promotion Bureau


ANNUAL REPORT 2007

Bangladesh: Import Payments to ACUMember Countries

during January–December, 2007(In millions of Taka)

Commodity/Country Value

Bhutan 719.5Vegetable products 377.1Mineral Products 325.7Others 16.7

India 182,232.8Live animals, animals products 1,620.6Edible vegetable certain roots and tubers 6,335.3Edible fruits and nuts peel of citrus fruits or melons 1,249.4Coffe, tea, mate and spices 4,071.1Cereals 33,680.8Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes 13,981.6

Salt, sulphur, earths and stone, plastering materials 1,839.1Mineral fuels, mineral oils and products of their distillation, bituminous substances; mineral waxes 16,611.5

Organic chemicals 4,530.3Tanning or dyeing extracts 3,170.6Plastics and rubber and articles thereof 1,147.6Paper and paperboard and articles thereof 1,287.3Textile and textile articles thereof 38,841.3Base Metals and article of base metals 10,875.5Machinery and mechanical appliances, electrical machinery and equipment and parts thereof 13,804.1

Vehicles other then railway or tramway, rolling stock, parts and accessories thereof 9,496.3

Others 19,690.4Iran 2,622.6

Vegetable products 794.7Mineral products 324.4Cotton 1,002.1Others 501.4

ANNUAL REPORT 2007


Bangladesh: Import Payments to ACUMember Countries

during January–December, 2007(In millions of Taka)

Commodity/Country ValueMyanmar 2,042.1

Vegetable products 192.7Wood and articles of woods; wood charcoal 1,805.0Others 44.4

Nepal 1,077.1Vegetable products 1,033.9Others 43.2

Pakistan 13,565.6Vegetable products 1,138.2Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes 59.6

Mineral products 173.4Products of the chemical or allied industries 458.1Textiles and textile articles 10,370.3Machinery and mechanical appliances, electrical equipment and parts thereof 585.0

Vehicles, aircraft, vessels and associated transport equipment 158.4Others 622.6

Sri Lanka 925.3Live animals, animals products 35.5Products of the chemical or allied industries 341.5Plastics and rubber and articles thereof 77.8Textiles and textile articles 283.6Others 186.9Source: Statistics Department, Bangladesh Bank

Bangladesh: Trade through EPZduring January-December, 2007

(In millions of USDs)

Item Export Import

ACU countries 9.8 111.4ACU countries over Total trade routed through EPZ (percent) 0.5 7.8Note: There is no free trade zone (FTZ) in bangladesh.

Source: Bangladesh Export Processing Zones Authority (BEPZA)


ANNUAL REPORT 2007

Bangladesh: Trade in Major Services withACU Member Countries during

January–December, 2007(In millions of Taka)

Country Bhutan India Iran Myanmar Nepal Pakistan SriLanka

Net Services (A-B) 6.6 509.3 -48.6 -59.2 79.2 -82.6 351.5 Receipts (A) 27.7 1,838.2 9.4 13.3 158.5 84.6 580.7 Transportation 14.8 242.7 2.2 9.8 10.0 3.6 0.7

Travel 0.0 121.9 0.3 0.0 71.6 8.4 43.5

commercial 0.0 0.5 0.0 0.0 3.2 0.0 0.4

education 0.0 31.4 0.0 0.0 64.9 0.5 35.5

tourist 0.0 57.2 0.0 0.0 2.6 4.3 2.1

other 0.0 32.8 0.3 0.0 0.9 3.6 5.5

Communication service 0.0 11.8 0.0 0.0 0.0 0.4 17.6

Insurance services 0.0 47.2 0.0 0.0 0.0 0.8 0.0 Bank commission and charges 0.0 33.2 0.9 0.0 0.0 0.4 0.0

Misc. business, professional & technical services

4.2 819.4 3.9 0.0 68.8 16.3 478.8

Government services n.i.e 8.7 562.0 2.1 3.5 8.1 54.7 40.1

Payments (B) 21.1 1,328.9 58.0 72.5 79.3 167.2 229.2 Transportation 0.0 158.1 0.0 21.5 0.0 1.7 124.0

Travel 3.7 531.3 2.3 2.3 27.5 47.9 23.2

commercial 1.1 54.0 0.0 0.1 3.0 4.3 3.4

education 0.0 82.4 0.4 0.1 0.7 15.3 1.2

tourist 1.0 204.2 1.2 1.1 15.6 11.9 4.1

other 1.6 190.7 0.7 1.0 8.2 16.4 14.5

Communication service 0.0 187.3 0.0 0.0 0.0 0.0 37.8

Insurance services 0.0 29.5 0.0 0.1 0.0 0.9 0.0

Bank commission and charges 0.0 44.8 8.6 0.0 0.0 55.0 0.5

Misc. business, professional & technical services

4.2 233.8 2.6 1.1 3.0 18.6 27.6

Government services n.i.e 13.2 144.1 44.5 47.5 48.8 43.1 16.1

Source: Statistics Department, Bangladesh Bank

Source: Bangladesh Bank

Item

34 Country Performance / Bhutan

ANNUAL REPORT 2007

BhutanFiscal year (FY) 2006/07 marked a momentous event of historic significance for Bhutan. In December 2006, His Majesty Jigme Singye Wangchuck, the fourth King handed over the responsibilities of monarch and head of state of Bhutan to the Crown Prince, Jigme Khesar Namgyel Wangchuck, who will be formally crowned as the fifth King of Bhutan sometime this year (2008). The country’s first nation-wide elections to form a parliamentary democracy were held on March 24, 2008.

On the bilateral front, the agreement on trade, commerce, and transit between Bhutan and India was renewed for another 10 years. Further, the India-Bhutan friendship treaty of 1949 was reviewed and updated to reflect the contemporary nature of the relationship between the two countries and to maintain the strong foundation for the continued growth of the relationship in the 21st century.

Strengthening cooperation in hydropower between the two countries, Bhutan and India also signed an agreement to facilitate the flow of funds and manpower resources from India for the construction of hydropower projects in Bhutan. The agreement is valid for 60 years and will be reviewed every 10 years.

Real Sector

The real Gross Domestic Product (GDP) grew by 8.5 percent in 2006/07 as compared to 7.1 percent in 2005/06. This higher growth during 2006/07 was mainly due to the coming on stream of the Tala hydropower project (Tala) which became fully operational towards the end of March 2007. As a sector, the tertiary sector (which includes wholesale and retail trade; restaurants and hotels; transport, storage and communications; finance, insurance and real estate; community, social and personal services; and private social, personal and recreational services) was the main contributor to the growth followed by secondary (which includes manufacturing, electricity and construction), and lastly by the primary sector (which includes agriculture proper, livestock production, forestry and logging, and mining and quarrying). Looking at individual sub-sector’s contribution, the electricity sub-sector contributed the highest; followed by mining and quarrying; and financing, insurance and real estate. However, the completion of Tala and other major construction activities such as the low-income housing project and the express highway has led to a fall in the overall contribution of the construction sector.

35Country Performance / Bhutan

ANNUAL REPORT 2007

social sectors, private sector development and other programs targeting the rural poor. The unemployment rate has increased from 3.1 percent in 2005 to 3.2 percent in 2006/07.

Monetary Sector

Monetary expansion in general was lower in 2006/07 compared to the previous year. The broad money supply (M2) grew at a much slower rate of 8.6 percent, as compared to 26 percent in 2005/06. Credit to the private sector grew at 35.5 percent in 2006/07 compared to 32.2 percent in the previous year.

As for the share in the total GDP, the tertiary sector accounted for 42.4 percent of the nominal GDP, followed by the secondary sector, which accounted for 34 percent. The primary sector accounted for the remaining 23.7 percent. The past 5 year trend indicates that while the share of the secondary sector has remained more or less the same, the share of the tertiary sector in the overall GDP has been increasing. On the other hand, the share of primary sector shows a decreasing trend. This sectoral trend reveals a gradual shift of the Bhutanese economy towards the services sector.

The annual inflation as measured by quarterly consumer price index (CPI) increased to 6 percent in the first quarter of 2008/09 from 4.8 percent in the last quarter of 2007/08.

Despite impressive GDP growth and increase in nominal per capita GDP, poverty remains high at 32 percent. While abject poverty is not prevalent, the government has been actively intervening to alleviate poverty through investment in

In response to the rapid credit growth, the Royal Monetary Authority of Bhutan (RMA) tightened its monetary policy by increasing the cash reserve ratio (CRR) and the volume of RMA Bills in September 2007. Further, provisioning requirements for loans in the most exposed sector have been increased on both substandard and doubtful loans. The capital adequacy ratio (CAR) was also increased from 8 percent to 10 percent to ensure the soundness of

GDP Growth

0

2

4

6

8

10

12

2002/03 2003/04 2004/05 2005/06 2006/07(1)

Per

cen

t

(1)

-20

0

20

40

60

80

100

120

2002/03 2003/04 2004/05 2005/06 2006/07

Percen

t

NFA DC OIN M2

Growth in M2 & its Counterparts


ANNUAL REPORT 2007

the financial institutions.

The assets of financial institutions grew by 12.2 percent, reaching Nu. 30.7 billion at the end of June 2007 while total credit of the financial institutions grew by 28.2 percent. The total non-performing loans (NPL) of the Financial Institutions (FIs) also increased by 38.8 percent, resulting in an increase in the gross NPL ratio to 12.4 percent from 11.4 percent during 2005/06.

External Sector

Developments in Bhutan’s external sector as indicated by the balance of payments (BOP) statistics were characterized by highly increased merchandise exports and foreign direct investment (FDI)- related inflows. The annual growth in exports (by 62.4 percent compared to a 13.7 percent growth in imports) resulted in an overall trade surplus of Nu. 555 million in 2006/07. Hydropower, Bhutan’s major export, accounted for 26.5 percent of the total exports in 2006/07, largely because of additional sales from Tala while exports of Chukha hydro power also increased.

New developments in the composition of trade in 2006/07 include the export of recorded media (records, tapes and magnetic discs and cards) worthNu. 3,162.5 million (from Nu. 188 million in 2005), with a 16.8 percent share in total exports. Palm oil exports have

also picked up, increasing from Nu. 195 million in 2005/06 to Nu. 1,380.5 million in 2006/07. Other major export items in 2006/07 included copper products (wires, stranded wires & cables, bars, rods & profiles collectively worth Nu. 2,702.2 million), cement, ferro-alloys, iron & non-alloy steel ingots, carbide, unrecorded magnetic discs, and mineral products.

In terms of the direction of trade, 77.2 percent of Bhutan’s exports in 2006 were to India. Major exports to India included hydropower, base metal and base metal products (chiefly copper products, iron/non-alloy steel ingots and ferro-alloys), mineral products, palm oil and cement. Major exports to countries other than India included magnetic discs, tapes, cards and media (recorded and unrecorded), mineral products, wood pulp products and fruits to countries such as Hong Kong with a 15.3 percent share in total exports, Singapore (3.1 percent) and Thailand (1.5 percent) and Bangladesh (2.5 percent).

India is also the largest source of imports for Bhutan accounting for 68.7 percent of total imports in 2006/07. Indonesia accounted for 7 percent (major import – crude palm oil), the Russian Federation 4.6 percent (major import – copper wire), Singapore 2.7 percent (major import– crude palm oil) and South Korea 2.4 percent (major import – copper wire).


ANNUAL REPORT 2007

Bhutanese based in countries other than India (COTI), and channeled through the banking system, increased from Nu. 55.1 million in 2005/06 to Nu. 70.4 million in 2006/07.

In the capital and financial account, the completion of Tala has led to a decrease in related aid inflows and convertible currency loan disbursements have also fallen in 2006/07. However, FDI-related inflows increased substantially and as a result, the capital and financial account balance was a surplus ofNu. 5,193.2 million. The overall balance was positive at Nu. 5,184.4 million with a consequent increase in the country’s gross international reserves by 25.1 percent.

This increase in the gross international reserves from USD 478.8 million in 2005/06 to USD 599 million was driven solely by the rise in convertible currency reserves as the Indian rupee reserves fell by 75.4 percent. The reserves were sufficient to meet 12.9 months of merchandise imports, however, if import of services is included, the reserves can finance only 11.5 months. Based on the reserves position, the International Monetary Fund (IMF) Article IV consultation missions have been stressing for Bhutan to migrate to Article VIII from its current Article XIV status. However, over 70 percent of the reserves have been built through official concessional loans and grants, and not through the country’s export performance,

Petroleum, oil and lubricant (POL) products, rice, iron & non-alloy steel bars & rods, electrical transformers and motorcars were among the ten major imports from India with high-speed diesel dominating at Nu. 1,504.7 million. From countries other than India, major imports included copper products (copper wire and refined, unwrought copper & copper alloys), machinery, mechanical and electronic appliances & equipment, electronics, crude palm oil, and textiles.

The current account improved from a deficit of 4.6 percent of GDP in 2005/06 to a surplus of 12.2 percent of GDP in 2006/07. In the services account the export of transportation services grew by 46.7 percent and travel services by 21.3 percent. Convertible currency earnings from tourism continue to dominate accounting for 43.2 percent of total services export. On the other hand, the import of construction services decreased by 38.4 percent.

Inward remittances from non-resident

Overall BOP

-15

-10

-5

0

5

10

15

2002/03 2003/04 2004/05 2005/06 2006/07 (1)

In b

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of

NU

.

Trade balanceCurrent account balanceOverall balanceCapital & financial account balance

(1) Provisional data.


ANNUAL REPORT 2007

while at the same time the trend in reserves in the recent past indicates that it has been difficult to meet 12 months of imports cover. Therefore, the RMA management feels that the recommendation by the IMF missions to migrate to Article VIII status is neither practical nor sustainable considering the situation Bhutan is facing at the moment.

External Debt and Debt Service

The stock of external debt outstanding increased by 11.7 percent from an equivalent of USD 677.1 million in 2005/06 to USD 756.2 million in 2006/07. Out of this total, 40.4 percent or an equivalent of USD 305.6 million were outstanding convertible currency debt while the remaining 59.6 percent (Rs. 18,369.9 million or USD 450.5 million equivalent) were Indian rupee denominated public debt on hydropower. Within the convertible currency loan portfolio, concessional public debt accounted for 94.2 percent while the remaining 5.8 percent was outstanding external debt of the private sector.

Despite the increase in the country’s external debt, the debt to GDP ratio improved from 85.2 percent in 2005/06 to 74.4 percent 2006/07 due to increased GDP growth. The debt service ratio also improved from 5.1 percent to 4.2 percent between 2005/06 and 2006/07 because of the much-increased exports.

The government of India continues to be Bhutan’s biggest creditor, followed by the Asian Development Bank (ADB), the World Bank, and the government of Austria, in that order.

Exchange Rate Developments

On the exchange rate front, in tandem with the Indian rupee, the ngultrum appreciated against the US dollar by around 13 percent between December 2006 and December 2007, averaging Nu. 41.35 per US dollar in 2007/08.

Fiscal Sector

With the extension of the ninth five-year plan by one more year, the revised total outlay for FY 2006/07 increased to Nu. 18,316.2 million from Nu. 13,770.9 million in 2005/06. The total expenditure increased by 33 percent whereas the total resource increased only by 24 percent, resulting in higher budget deficit of Nu. 1,646.7 million in 2006/07. Likewise, the budget deficit as a percentage of GDP increased from 0.3 percent to 3.5 percent.

Despite the widening resource gap, the royal government was able to meet at least the current expenditure from domestic revenue and contain the overall budget deficit within 5 percent of GDP. Around 42 percent of total expenditure outlay was financed by grants and


ANNUAL REPORT 2007

concessional loans, indicating how important development partners are in Bhutan’s development process.

Total revenue consisting of domestic revenue (tax revenue, non-tax revenue and others receipts) and grants increased from Nu. 13,452.2 million in 2005/06 to Nu. 16,669.5 million in 2006/07, an annual increase of 24 percent. Domestic revenue,

which financed over 54 percent of the total outlay, grew by around 42 percent to Nu. 9,951 million. Tax revenue, which accounted for 41 percent of the domestic revenue, declined by 1.2 percent to Nu. 4,073.7 million, while non - tax revenue, which constituted 59 percent of the domestic revenue, increased significantly by 99.6 percent in the review year.


ANNUAL REPORT 2007

Bhutan: Major Economic Indicators

Year 2002/03 2003/04 2004/05 2005/06 2006/071

GDP Growth and Prices (percent change)GDP at constant (2000) price 2, 3 10.9 7.2 6.8 7.1 8.5Consumer prices 4 1.8 4.6 5.5 6.2 5.9Wholesale prices (India) 5 5.7 5.6 5.2 4.6 5.4

Government Budget (in millions of Nu.) 6

Total revenue & grants 7,054.3 11,113.9 10,501.1 13,452.2 16,669.5of which: foreign grants 2,269.1 5,367.4 4,373.1 6,424.7 6,718.5Total expenditure and net lending 9,945.3 10,534.1 12,893.7 13,770.9 18,316.2Current balance 204.4 597.3 -42.6 355.1 1,765.3Overall balance -2,891.0 579.8 -2,392.6 -318.7 -1,646.7

Money and Credit(percent change, end of period)

Broad Money, M2 43.6 4.4 10.7 26.3 8.6Credit to private sector 23.4 32.8 26.3 32.2 35.5

Interest Rates (end of period)1- year deposits 7.0 6.0 4.5 4.5 4.5Lending rate 12-16 10-16 10-16 10-16 10-1691- day RMA bills 3.5 3.5 3.5 3.5 3.5

Balance of Payments (in millions of Nu.)Trade balance -4,481.0 -4,766.0 -11,099.0 -5,496.7 555.1with India -3,911.3 -3,820.7 -3,601.2 -3,170.7 1,705.6Current account balance -6,597.5 -5,519.3 -10,487.4 -1,695.7 5,057.8in percent of GDP -25.0 -18.8 -32.4 -4.6 12.2with India -7,110.2 -5,707.7 -5,253.9 -2,344.6 2,930.3in percent of GDP -26.9 -19.4 -16.3 -6.4 7.1Foreign aid (concessional loans net) 4,527.5 4,666.2 2,939.4 3,474.7 881.0of which: India 3,116.0 3,258.6 1,853.1 2,324.8 -30.3Errors and omissions -1,653.4 -2,912.2 95.5 1,057.7 -5,066.6Overall balance 2,613.6 370.1 -918.6 5,209.1 5,184.4in percent of GDP 9.9 1.3 -2.8 14.2 12.5

External Indicators (end of period)Gross official reserves (in millions of USD) 373.3 383.3 366.5 478.8 599.0in months of merchandise imports 21.2 17.6 9.3 13.6 13.2External debt (percent of GDP) 73.6 81.8 83.9 85.2 74.4Debt-service ratio 7 5.3 4.3 6.4 5.1 4.2

Item


ANNUAL REPORT 2007

Bhutan: Major Economic Indicators

Year 2002/03 2003/04 2004/05 2005/06 2006/071

Memorandum Items:

Nominal GDP (in millions of Nu.) 2, 3 26,422.2 29,385.5 32,319.7 36,581.2 41,443.5

Ngultrum per USD (fiscal year period average) 47.9 45.4 44.6 44.7 44.2

Money supply, M2 (end of period) 15,904.7 16,597.7 18,376.9 23,208.7 25,208.7

Money supply, M1 (end of period) 7,502.5 8,524.7 9,331.9 10,678.1 13,542.3

Counterparts

foreign assets (net) 17,519.8 16,456.8 16,397.2 22,505.0 24,881.3

domestic credit 5,357.1 5,929.5 6,553.7 8,651.9 10,063.3

claims on private sector 3,366.7 4,470.5 5,645.4 7,462.5 10,111.7

Components

currency outside banks 1,699.0 2,015.2 2,303.4 2,614.9 3,166.0

demand deposits 5,803.5 6,509.4 7,028.5 8,063.1 10,376.3

quasi-money 8,402.1 8,073.0 9,045.1 12,530.6 11,666.4

Reserve money , M0, of which 8,008.0 9,370.3 9,340.1 13,474.7 13,319.6

banks’ deposits 6,242.9 7,261.7 6,929.5 10,703.0 9,982.3

Money multiplier (M2/M0) 2.0 1.8 2.0 1.7 1.9

Income velocity (GDP/M2) 1.7 1.8 1.8 1.6 1.6

Population growth rate 2, 8, 9 2.4 1.3 2.5 1.3 1.3

Unemployment rate 2, 8, 9 - 1.8 2.5 3.1 3.21 Provisional data.

2 On a calendar year basis, e.g., the entry under 2006/07 is for 2006.

3 Source: National Accounts Statistics (2007), NSB.4 Data till 2002/03 are based on the old half-yearly average CPI of the NSB (1979 base year). This was replaced by a new quarterly CPI with a revised basket and third quarter of 2003/04 as the base. Rates of change (year-to-year) for the quarterly CPI are therefore not available prior to third quarter of 2004/05. The CPI reflected in this table is for the last quarter of the fiscal year.5 Source: Reserve Bank of India. Wholesale price index of all commodities, 1993/94 base; reference period same as for Bhutan CPI.6 Data for 2006/07 are revised estimates.

7 Debt service payments in percent of exports of goods and services.

8 Data for 2005/06 is from the Population & Housing Census of Bhutan 2005/06.9 Source: Comparative Socio-Economic Indicators for Bhutan (June 2005), NSB; Labour Market Information Bulletin (2007/08) & Labour Force Survey (May 2007), Ministry of Labour and Human Resources (MLHR).

Item


ANNUAL REPORT 2007

Bhutan: Real GDP Growth by Sectorduring 2001-2007

(YoY, change in percent) Year 2002/03 2003/04 2004/05 2005/06 2006/07 2007/081

GDP 10.9 7.2 6.8 7.1 8.5 23.6Primary sector 3.2 1.9 1.4 1.3 5.7 1.7Secondary sector 18.1 8.1 4.5 2.6 7.6 60.6Tertiary sector 10.4 10.2 12.6 14.6 10.6 6.11 Provisional data.

Source: National Statistics Bureau

Bhutan: Main Items of Goods and Services Exportedto ACU Member Countries in 2007

Sector/CountryBangladesh

Goods Fruits (oranges, apples); mineral products (quartz, dolomite, limestone)India

GoodsHydropower; vegetable products (palm oil); base metal & base metal products (wires, cables, rods & profiles of copper; ferro alloys; iron & non-alloy steel ingots); mineral products (cement); calcium carbides

Services Transportation (passenger air transport)Nepal

Goods Bituminous coal; carboys, bottles, flasks etc of plastic

Bhutan: Main Items of Goods and Services Importedfrom ACU Member Countries in 2007


Goods Garments; prepared foodstuff (biscuits, wafers, etc.) & juices; table & kitchen waresIndia

Goods

Mineral products (high speed diesel, petrol, kerosene); vegetable products (rice, malt beer); base metal & base metal products (iron & non-alloy steel rods and other ferrous products); machinery & mechanical appliances, electrical equipment & parts (electrical transformers & converters); vehicles & parts (motor cars)

Services Construction; education; business-relatedNepal

Goods Yarn, textiles & garments; prepared foodstuff (noodles, pasta, etc.); soapsSource: Department of Revenue and Customs

Source: Royal Monetary Authority of Bhutan

Item

43Country Performance / India

ANNUAL REPORT 2007

IndiaReal Sector

As per the advance estimates released by the Central Statistical Organisation (CSO), the growth in Gross Domestic Product (GDP) during 2007/08 is estimated at 8.7 percent as compared with the growth rate of 9.6 percent in 2006/07. The moderation in the rate of growth of overall GDP during 2007/08 is mainly attributable to fall in the growth rate of all the major sectors of the economy.

Sectoral Growth Trends

The growth rate of GDP originating from Agriculture and allied activities decreased to 2.6 percent in 2007/08 from 3.8 percent in 2006/07. The growth rate of real GDP originating from industry is estimated to be lower at 8.6 percent in 2007/08 than 10.6 percent in 2006/07, reflecting moderation in all of its sub-sectors, namely, manufacturing (9.4 percent in 2007/08 from 12 percent in 2006/07), and mining and quarrying (3.4 percent in 2007/08 from 5.7 percent in 2006/07).

The growth rate of real GDP originating from services sector has moderated to 10.6 percent in 2007/08 from 11.2 percent in 2006/07 due to deceleration in the growth rates of sub-sectors viz., ‘financing,

insurance, real estate and business services’ (11.7 percent in 2007/08 from 13.9 percent in 2006/07) and construction (9.6 percent in 2007/08 from 12 percent in 2006/07). However, the sub-sectors witnessed somewhat rise in the growth rates are ‘trade, hotels transport and communication’ (12.1 percent in 2007/08 from 11.8 percent in 2006/07), and ‘community, social and personal services’ (7 percent in 2007/08 from 6.9 percent in 2006/07).

Saving and Investment

As per the Quick Estimates, the Gross Domestic Savings (GDS) (base year: 1999/2000) in India has increased at current market prices to 34.8 percent in 2006/07 from 34.3 percent in 2005/06 mainly due to improvement in saving performance by the public sector. The rate of Gross Domestic Capital Formation (GDCF) rose to 35.9 percent in 2006/07 from 35.5 percent in 2005/06 due to buoyant performance by private corporate sector and public sector.

Agriculture Sector

According to the CSO’s Advance

44 Country Performance / India

ANNUAL REPORT 2007

Estimates for the financial year (FY) 2007/08, the ‘agriculture and allied’ sector is likely to show a growth rate of 2.6 percent in its GDP, as against the previous year’s growth rate of 3.8 percent. The moderation in growth during 2007/08 reflects the lower growth in the foodgrains production at 0.9 percent as against 4.2 percent during the previous year. Despite a brief spell of hiatus during the early June in the advancement of monsoon due to the formation of a Super Cyclone “Gonu” over the East-Central Arabian Sea, the South-West monsoon covered the entire country on July 4, nearly 11 days ahead of the normal schedule. The South-West monsoon season (June to September) rainfall over the country as a whole was 105 percent of its Long Period Average (LPA). The above normal rainfall during the South-West monsoon was offset during the North-East monsoon season (October to December), which witnessed deficient rainfall at 32 percent below LPA. According to the Second Advance Estimates of the Ministry of Agriculture, total foodgrains production for 2007/08 is pegged at 219.3 million tonnes (217.3 million tonnes last year). While the production of coarse cereals, pulses and rice is likely to increase over the previous year, the production of wheat is expected to decline on account of lower sown area. Among non-foodgrains, while the production of oilseeds is anticipated to increase owing mainly to the enhanced production of groundnut, that of sugarcane

is likely to decline from the high base of the previous year. Among fibre crops, while cotton production is expected to increase somewhat slowly as compared with a large jump witnessed during the previous year, jute and mesta production is likely to remain at its previous year’s level.

Industrial Sector

The index of industrial production (IIP) recorded an accelerated growth of 11.5 percent during 2006/07 as against 8.2 percent during 2005/06. However, the high growth momentum weakened during April-December 2007/08 with industrial growth moderating to 9 percent as against 11.2 percent during the corresponding period of 2006/07. This could be attributable to deceleration in manufacturing sector and lower growth of the electricity sector. Manufacturing sector recorded a lower growth at 9.6 percent during April-December 2007/08 as against 12.2 percent during the corresponding period of the previous year. Eleven industries out of seventeen manufacturing two digit level groups saw a deceleration or negative growth during 2007/08 so far. The electricity sector recorded a decelerated growth of 6.6 percent due to decline in growth of nuclear power generation where the plant load factor has declined to 47.3 percent as against 56 percent (April-December 2006), and also some deceleration in


ANNUAL REPORT 2007

hydro and thermal power generation. Mining sector recorded a higher growth of 4.9 percent during the period as against 4.4 percent during the corresponding period of 2006/07. The performance of capital goods sector has been significant as it recorded a double-digit growth of 20.2 percent during April-December 2007/08 as against 18.6 percent during the corresponding period of 2006/07. The growth in capital goods was largely aided by significant capacity addition across a wide spectrum of industries.

Services Sector

During 2006/07, services sector recorded a robust growth of 11.2 percent as against 11 percent during 2005/06. The acceleration in services growth during 2006/07 was driven by ‘trade, hotels, transport and communication’ followed by construction. In fact, all the sub-sectors in services sector except ‘community, social and personal services’ recorded impressive growth.

Services sector continued to be the growth-driver of GDP during the first two quarters of 2007/08 as the sector recorded a growth of 10.6 percent and 10.3 percent during the first and second quarters of 2006/07 as compared with 11.6 percent and 11.7 percent during the corresponding quarters of the previous year. The growth of services sector in the first two quarters of 2007/08 was largely driven by ‘trade,

hotel, transport and communication’.

According to recent studies by the National Association of Software and Services Companies (NASSCOM), the Indian Information Technology - Information Technology Enabled Services (IT-ITES) industry (including domestic market) recorded an overall growth of 30.7 percent as against projected growth of 27 percent, clocking revenues of USD 39.6 billion in FY 2006/07 up from USD 30.3 billion in 2005/06. The software and services exports segment grew by 33 percent to register revenues of USD 31.4 billion in 2006/07 up from USD 23.6 billion in 2005/06. The domestic segment grew by 23 percent to register revenues of USD 8.2 billion in 2006/07 up from USD 6.7 million. Findings of NASSCOM survey indicate software and services exports are expected to cross USD 40 billion and the domestic market is expected to touch USD 23 billion in 2007/08.

Fiscal Developments

The Union Budget 2008/09 reflects the strong commitment to strengthen the process of fiscal correction and consolidation set out in the Fiscal Responsibility and Budget Management (FRBM) Rules, 2004 with a reduction of gross fiscal deficit (GFD) by 0.6 percent of GDP. On account of the conscious shift in expenditure in favour of health, education and the social sector, elimination of


ANNUAL REPORT 2007

revenue deficit may require one more year.

The GFD and Revenue Deficit (RD) in the revised estimates (RE) for 2007/08 were placed at 3.1 and 1.4 percent of GDP, respectively, as compared with 2007/08 budget estimate (BE) levels of 3.3 percent and 1.5 percent of GDP. The GFD is budgeted to further decline to 2.5 percent of GDP during 2008/09. RD is budgeted to decline to 1 percent of GDP during 2008/09. The tax revenue/GDP ratio is budgeted to improve further to 13 percent in 2008/09 from 12.5 percent in 2007/08.

Aggregate expenditure and non-plan expenditure is budgeted to increase by 5.9 and 1.1 percent respectively in 2008/09. Plan expenditure is budgeted to show a growth of 17.3 percent over 22.2 percent growth in the previous year.

Net market borrowings (excluding allocations budgeted under Market Stabilization Scheme (MSS)) is budgeted at Rs. 99,000 crore and would finance 74.3 percent of GFD in 2008/09 as compared with Rs. 1,10,727 crore (77.1 percent of GFD) in the previous year.

The State Governments presented their budgets for 2007/08 in an environment of growing recognition to pursue fiscal correction and consolidation. The progressive enactment of Fiscal

Responsibility Legislation (FRL) by twenty-six States so far ushered in a rule-based fiscal regime for the State Governments. The efforts of the State Governments towards reducing fiscal imbalances were aided by larger devolution and transfers from the Centre based on the recommendations of the Twelfth Finance Commission (TFC) along with the improvement in tax buoyancy on the strength of macroeconomic fundamentals. Furthermore, all States have implemented Value Added Tax (VAT) in lieu of sales tax, which has been an unqualified success in raising the tax revenue for the States. The consolidated fiscal position shows that the States have budgeted a revenue surplus amounting to 0.3 percent of GDP in 2007/08 as compared with a deficit of 0.1 percent of GDP in 2006/07 (RE), after a period of two decades. The GFD to GDP is budgeted at 2.3 percent of GDP in 2007/08, as compared with 2.8 percent of GDP in 2006/07 (RE). However, there exist wide variations across the States.

State Governments proposed various policy initiatives to carry forward the process of fiscal correction and consolidation through measures aimed at augmenting revenue and improving expenditure management. To augment their revenues, the State Governments announced measures for enhancing resource mobilisation through simplification/rationalisation of


ANNUAL REPORT 2007

tax structure, better enforcement and tax compliance. Some States proposed to review the user charges on power, water and transport. By adopting an outcome-oriented budgetary framework, some States have emphasised on translation of outlays into defined outcomes through monitorable performance indicators. A few States also proposed a comprehensive review of the functioning of the State Public Sector Undertaking (PSUs) and their restructuring.

Monetary Developments

Broad Money (M3) expanded by 23.9 percent as on February 01, 2008 on a year-on-year (YoY) basis, as compared with 21.4 percent a year ago. Growth in Bank credit moderated somewhat during 2007/08 so far from the strong pace of the previous three years. Bank credit to commercial sector expanded by 21.2 percent (YoY) as on February 1, 2008, as compared with 26.9 percent growth a year ago. Acceleration of growth in aggregate deposits to 25.7 percent, as on February 1, 2008, from 22.3 percent a year ago largely accommodated the credit expansion. Commercial banks’ holdings of Government securities declined marginally to 28.3 percent of their Net Demand and Time Liability (NDTL) as on February 1, 2008 from 28.9 percent a year ago.

On YoY basis, growth in reserve money

was 24 percent as on February 15, 2008, as compared with an increase of 23.4 percent last year. Adjusted for the first round effect of the hike in cash reserve ratio, reserve money growth was 15.2 percent as compared with 20.9 percent a year ago. Expansion in reserve money during 2007/08 so far continued to be driven largely by foreign currency assets. The Reserve Bank continued to ensure the maintenance of appropriate liquidity in the system during 2007/08 so far such that all legitimate requirements of credit were met, particularly for productive purposes, consistent with the objective of price and financial stability. Towards this end Reserve Bank modulated liquidity through issuances of securities under MSS, operations under the liquidity adjustment facility (LAF), changes in the cash reserve ratio (CRR) as and when warranted and conduct of open market operations. During the 2007/08 so far capital flows and variation in cash balances of the Central Government remained the key drivers of liquidity conditions.

Price Situation

Headline inflation, measured by YoY changes in the wholesale price index (WPI), was 4.1 percent during the week ended February 2, 2008 as compared with 5.9 percent at end-March 2007 and 6.6 percent a year ago. During 2007/08 so far, the easing in inflation from year ago was mainly led by primary articles


ANNUAL REPORT 2007

and some manufactured products items. The primary articles inflation eased to 4 percent on February 2, 2008, from 6.2 percent in September 2007 and 11.7 percent a year ago. The deceleration was mainly due to easing of primary food articles’ inflation to 2.2 percent from 11 percent a year ago, which was led by decline in the prices of pulses, fruits and condiments and spices, partly offset by increase in the prices of milk and oilseeds. Fuel group’s inflation, which was negative during June-November 2007, turned positive from the beginning of December 2007 partly reflecting increase in prices of some petroleum products such as naphtha, furnace oil, aviation turbine oil, etc. Among the major groups of WPI, fuel group registered the highest annual rate of inflation of 4.15 percent (2.3 percent a year ago) as on February 2, 2008. Within the fuel group, mineral oils inflation was higher at 5.8 percent (2.5 percent a year ago). With effect from midnight of February 14, 2008, the Government has announced a hike in petrol prices by Rs. 2 per litre and diesel prices by Rs. 1 per litre. Manufactured products inflation eased to 4.1 percent, YoY, as on February 2, 2008 from 6.3 percent a year ago, due to deceleration in the prices of cotton textiles, non-ferrous metals and grain mill products.

In order to contain inflationary expectations, the Reserve Bank continued with the process of gradual withdrawal of

monetary accommodation which had begun in September/October 2004. Accordingly, the LAF reverse repo has been increased by 150 basis points and the repo rate by 175 basis points since October 2004; CRR has been increased by 300 basis points since September 2004. The Government also initiated a number of fiscal and supply augmenting measures during 2007/08 to contain the price rise in primary commodities as well as some manufactured items. These included reductions in customs duties on select items and allowing imports of certain commodities at concessional rates as well as ban on exports of certain commodities for a specific period of time. Furthermore, the subsidy schemes for kerosene and Liquefied Petroleum Gas (LPG), which were available through the public distribution system (PDS) till March 2007, were extended till March 2010.

At the retail level, various measures of consumer price inflation have eased since October 2007 (from a year ago) but continued to remain above the WPI inflation, mainly reflecting the impact of food prices and their higher weights in the consumer price index (CPI) vis-à-vis WPI. Consumer price inflation for industrial workers decreased to 5.5 percent in December 2008 from 6.7 percent in March 2007 and 6.9 percent a year ago. As noted in the Third Quarter Review of the Annual Statement on Monetary Policy for 2007/08 (January 2008), the Reserve


ANNUAL REPORT 2007

Bank will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants.

Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in the period ahead will broadly continue to be:

• To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to continuation of the growth momentum and orderly conditions in financial markets.

• To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

• To monitor the evolving heightened global uncertainties and domestic situation impinging on inflation expectations, financial stability and growth momentum in order to respond swiftly with both conventional and unconventional measures, as appropriate.

Banking Developments

Aggregate deposits of scheduled commercial banks (SCBs) expanded by 27.3 percent, YoY, as on February 1, 2008 as compared with 23.2 percent a year ago. The growth was led by acceleration in time deposits which increased to 26 percent as on February 1, 2008 YoY, from 23.9 percent a year ago. Demand for bank credit moderated during 2007/08. Non-food credit extended by SCBs increased by 23.5 percent, YoY, as on February 1, 2008 on top of 30.3 percent a year ago.

Disaggregated sectoral data available up to November 23, 2007 show that about 43 percent of incremental non-food credit (YoY) was absorbed by industry, as compared with 34 percent in the corresponding period of the previous year. The expansion of incremental non-food credit to industry during this period was led by infrastructure (power, port and telecommunication), iron and steel, textiles, engineering, food processing, vehicles, petroleum, chemicals and construction industries. The infrastructure sector alone accounted for over 28 percent of the incremental credit to industry as compared with 18 percent in the corresponding period of the previous year. The agricultural sector absorbed around 12 percent of the incremental non-food bank credit expansion. Personal loans accounted for nearly 23 percent of incremental non-food credit as compared


ANNUAL REPORT 2007

with 29 percent a year ago; within personal loans, the share of incremental housing loans stood at 40 percent. Growth in loans to commercial real estate remained high, notwithstanding some moderation.

External Sector

Merchandise exports during April-December 2007/08 at USD 111 billion recorded a growth of 21.6 percent on top of 24.8 percent a year ago. Imports during April-December 2007/08 at USD 168.8 billion grew by 25.9 percent as compared with 27.3 percent a year ago. Non-oil imports grew by 32.5 percent during April-December 2007/08 and accounted for 84.6 percent of the rise in total imports, while oil imports rose by 12.2 percent. Trade deficit touched USD 57.8 billion, an increase of USD 15 billion compared with the previous year.

Current Account

During 2006/07 (April-September), the rising trade deficit mainly on account of higher oil imports led to the expansion of current account deficit. Current account deficit during 2006/07 (April-September) increased to USD 11.7 billion from USD 7.2 billion in the corresponding period of the previous year. Sustained growth in exports of services and remittances continued to provide buoyancy to the surplus in the invisibles account, which enabled financing a large part of

the deficit on the merchandise trade account. Net invisible surplus expanded of USD 23.5 billion during 2006/07 (April-September) as against USD 19.9 billion.

Capital Account

Capital flows at USD 19.3 billion during 2006/07 (April-September) have been higher than USD 13.1 billion in the corresponding period of the previous year-reflecting growing investor interest in the Indian economy on the back of strong growth prospects and buoyant investment demand. Under net capital flows, external commercial borrowings (ECBs), foreign direct investment, and Non Resident Indian (NRI) deposits and short-term trade credit showed robust growth. Net Foreign Direct Investment (FDI) into India accelerated on the strength of sustained domestic activity and positive investment climate with inflows channeling into manufacturing, business and computer services. Outward FDI remained on track as reflecting the appetite of Indian companies for global expansion in terms of markets and resources. Higher recourse to ECBs and short-term credit was enabled by lower spreads on external borrowings and rising financing requirements for capacity expansion.

Foreign Exchange Reserve

The strength of the external sector was reflected in substantial accumulation


ANNUAL REPORT 2007

of India’s foreign exchange reserves comprising foreign currency assets, gold, Special Drawing Rights (SDRs) and reserve tranche position with the International Monetary Fund (IMF) which touched USD 304.7 billion as on March 21, 2008. Foreign exchange reserves posted a rise of USD 105.5 billion during FY 2007/08 so far which has been almost entirely in terms of foreign currency assets.

The overall approach to the management of India’s foreign exchange reserves in recent years has reflected the changing composition of the balance of payments (BOP), and the liquidity risks associated with different types of flows and other requirements. The policy for reserves management is judiciously built upon a host of identifiable factors and other contingencies. Taking these factors into account, India’s foreign exchange reserves are at present comfortable and consistent with the rate of growth, the share of the external sector in the economy and the size of risk-adjusted capital flows.

External Debt

India’s total external debt at USD 190.5 billion at the end of September 2007 recorded an increase of USD 20.9 billion over the end-March 2007 level. The rise in external debt outstanding at end-September 2007 was essentially brought about by a rise in external commercial

borrowings, NRI deposits and short-term debt. Higher commercial borrowings and short term credits could be attributed to positive valuation changes. The US dollar continued to dominate the currency composition of India’s external debt at end-September 2007.

External debt sustainability indicators have exhibited continued improvement. On account of rise in short-term debt, the proportion of short-term debt in total debt rose from 15.5 percent at end-March 2007 to 16.2 percent at the end of September 2007, though remains at modest levels. While, the ratio of short-term debt to foreign exchange reserves decreased from 13.2 percent to 12.4 percent during this period. The share of concessional debt in total external debt declined to 21.4 percent at end-September 2007 from 23.3 percent at end-March 2007 reflecting a gradual surge in non-concessional private debt in India’s external debt stock. India’s foreign exchange reserves exceeded the external debt by USD 57.2 billion providing a cover of 130 percent to the external debt stock at the end of September 2007.

Improvement in external debt profile of India reflects the impact of prudent external debt management policies pursued by the Government. The policy emphasises the use of less expensive fund sources with longer maturity profiles, encouragement of non-debt creating capital flows, tight monitoring of short-term flows and


ANNUAL REPORT 2007

India : Main Items of Goods Exported to ACU Member Countries(In millions of USDs)

Year 2005/06 2006/07 2006/07 2007/081

April-March April-September

Engineering goods 1,773 1,799 852 920

Petroleum, crude & products 1,483 1,700 1,025 1,637

Chemicals & related products 1,162 1,349 702 786

Sugar & mollases 82 524 437 184

Cotton yarn, fabrics, madeups, etc. 393 386 191 190

Cotton raw incl. waste 95 246 42 43

Oil meals 109 188 89 121

Rice 169 159 66 245

Manmade yarn, fabrics, madeups 152 151 71 72

Fresh vegetables 101 138 61 69

Paper/wood products 118 115 62 58

Spices 52 97 39 73

Coal 60 69 22 19

Pulses 131 67 48 29

Other cereals 60 65 30 24

Others 696 752 351 322

Total Export 6,636 7,804 4,088 4,7931 Provisional data.

Source: Directorate General of Commercial Intelligence and Statistics

Commodity

prepayment of high cost loans.


ANNUAL REPORT 2007

India : Main Items of Goods Imported from ACU Member Countries(In millions of USDs)

Year 2005/06 2006/071 2006/07 2007/082

April-March April-September

Petroleum, crude & products 0 6,913 3,475 4,234

Non-ferrous metals 350 358 201 149

Pulses 288 355 146 210

Chemicals, organic & inorganic 290 330 178 148

Wood & products 275 285 135 159

Iron & steel 215 204 100 81

Textile yarn, fabrics, madeup articles 153 175 83 78

Fruits & nuts excl. cashew nuts 85 166 54 48

Metalliferrous ores & metal scrap 77 94 24 143

Fertilizers 43 60 29 58

Electric machinary excl. electronic 30 58 31 22

Manufactures of metals 33 45 25 5

Spices 52 40 25 25

Chemical material & products 16 36 22 22

Vegetable oils fixed (edible) 7 36 12 19

Others 667 715 418 434

Total Import 2,581 9,872 4,958 5,8341 Import figure for 2006/07 include imports of petroleum, crude and products and therefore is not strictly comparable

with the data for previous years.2 Provisional data.

Source: Directorate General of Commercial Intelligence and Statistics

Commodity


ANNUAL REPORT 2007

India: Foreign Trade(In millions of USDs)

Year 2005/06 2006/07 2007/08

April-March April-December

Exports103,091 126,361 110,964

(23.4) (22.6) (21.6)

Imports149,166 185,749 168,803

(33.8) (24.5) (25.9)

Trade Balance -46,075 -59,388 -57,839

Note: Figures in Brackets relate to percentage variation over the corresponding period of the previous year.

Source: Directorate General of Commercial Intelligence & Statistics

India: Trade with ACU Member Countries(In millions of USDs)

Year 2005/06 2006/07 2007/08

April-March April-October

Export Import Export Import Export Import

Bangladesh 1,664.0 127.0 1,628.0 228.0 1,221.0 148.0

Bhutan 99.0 89.0 58.0 141.0 46.0 117.0

Iran 1,188.0 702.0 1,451.0 7,628.0 1,401.0 5,588.0

Myanmar 111.0 526.0 140.0 783.0 93.0 482.0

Nepal 860.0 380.0 928.0 306.0 668.0 220.0

Pakistan 689.0 180.0 1,350.0 323.0 981.0 149.0

Sri Lanka 2,025.0 578.0 2,256.0 471.0 1,390.0 277.0

ACU 6,636.0 2,582.0 7,811.0 9,880.0 5,800.0 6,981.0

ACU’s share in India’s total trade (%) 6.4 1.7 6.2 5.3 6.7 5.3

India’s total trade 103,091.0 149,166.0 126,361.0 185,749.0 86,117.0 132,735.0

Source: Directorate General of Commercial Intelligence & Statistics

Item

Country


ANNUAL REPORT 2007

India: Export from Special Economic Zone(In Rs. crores)

Year 2005/06 2006/07 Growth(percent)

Export from Special Economic Zone 22,839.5 34,787.5 52.3

India: Export from Central Government SEZs(In Rs. crores)

Year 2005/06 2006/07

Kandla Special Economic Zone 1,101.2 1,482.7SEEPZ Special Economic Zone 9,192.2 11,897.0Noida Special Economic Zone 5,670.8 6,893.0MEPZ Special Economic Zone 1,858.9 2,462.4Cochin Special Economic Zone 696.0 1,037.5Falta Special Economic Zone 525.0 998.0Vishakhapatnam SEZ 612.7 715.0Total 19,656.8 25,485.6

India: Export from State Government/Private Special Economic Zones Established Prior to SEZ Act

(In Rs. crores)Year 2005/06 2006/07

Indore Special Economic Zone 145.9 217.0

Surat Special Economic Zone 2,337.7 5,198.9

Surat Apparel Park SEZ - 1.6

Jaipur Special Economic Zone 16.3 168.5

Jodhpur Special Economic Zone 2.1 6.5Mahindra Industrial Park (IT) Special Economic Zone 75.4 494.9

Manikanchan Special Economic Zone 510.0 1,018.0

Wipro Special Economic Zone 95.5 254.0

Nokia Special Economic Zone - 1,649.7

Flextronics Special Economic Zone - 161.5

ETL Infrastructure Special Economic Zone - 131.3Total 3,182.9 9,301.9

Item

Item

Item


ANNUAL REPORT 2007

India: Trade through SEZs and EOUs(In millions of USDs)

Year 2003/04 2004/05 2005/06 2006/07

SEZs3,015.0

(4.7)4,076.1

(4.9)5,158.7

(5.0)7,687.9

(6.1)

EOUs6,273.5

(9.8)8,343.5(10.0)

10,712.0(10.4)

8,120.01

(8.9)

Total9,288.5(14.5)

12,419.5(14.9)

15,870.8(15.4)

-

1 Provisional data (April-December).

Note: Dollar values are derived by using the monthly average rupee dollar.

Figures in brackets relate to percentage share in total exports.

Source: www.commerce.nic.in

Source: Reserve Bank of India

Item

57Country Performance / Iran

ANNUAL REPORT 2007

IranIntroduction

Iranian economy performed relatively well in 2006/07, the second year of the Fourth Five-Year Development Plan (FFYDP), despite escalation of tensions in the region and international sanctions. Oil price surges in this year strengthened external sector as previous year. Despite exponential rise in import levels, run-up in oil prices and its ensuing effect on oil revenues led the international reserves to soar. This helped to set the external debts in a sustainable position.

Foremost among priorities of the government in the Fourth Plan are to achieve a long-run sustainable growth and realize social justice. To this end, attempts were made to prevent monetary expansion incompatible with liquidity and inflation targets, while providing the liquidity required by productive sectors aiming at strengthening economic growth and ensuring social justice. However, continued withdrawals from the Oil Stabilization Fund (OSF) raised monetary base, pushing liquidity up and increasing inflation above the target set in the Plan.

Following declaration of the general policies of Article 44 of the Constitution

by the Supreme Leader on transferring 80 percent of public enterprises’ shares to non-public sector, it is expected that further participation of non-public sector could result in enhancement of productivity and enforcement of fiscal discipline. These in turn could remove economic bottlenecks, thus accelerating implementation of economic policies stipulated in the Fourth Plan.

National Income

According to preliminary estimates, Iranian economy kept its upward trend in 2006/07. Gross Domestic Product (GDP) grew by 6.2 percent at constant 1997/98 prices, up by 0.5 percentage point. Non-oil GDP, with 0.2 percentage point rise, reached 6.6 percent.

Meanwhile, growth in the value-added of ‘oil’ and ‘manufacturing and mining’ sectors along with some services sectors such as ‘trade’, ‘transport, storage, and communications’, and ‘financial and monetary institutions services’ were the main reasons behind the increase in production in the review year. The shares of the value-added of ‘agriculture’, ‘oil’,

58 Country Performance / Iran

ANNUAL REPORT 2007

(7.1 percent). Moreover, total livestock products (including honey) amounted to 10,643.5 thousand tons, showing 6.3 percent rise compared with the previous year.

In 2006/07, Iran’s average crude oil production, in adherence to the production quotas set by the Organization of Petroleum Exporting Countries (OPEC), amounted to 4.1 million barrels per day (mb/d). Crude oil exports fell by 6.5 percent to 2.4 mb/d; however, exports of oil products surged by 8.6 percent to 266 thousand b/d compared with the previous year. The average spot price of Iran’s crude oil export grew by 12.3 percent to about USD 59.7.

In 2006, besides rising demand, a host of factors such as shortages of refining capacity, political tensions in the Middle East, Nigeria, and Venezuela, Iran’s dispute with the West over its peaceful nuclear program, disruptions in Iraq’s oil industry, and depreciation of US dollar were responsible for run-up in crude oil prices, albeit temporarily. Thus, the average price of each barrel of OPEC crude oil basket1 reached USD 61.1, up by 20.6 percent.

Electricity generation amounted to 192.2 billion kwh, showing 9 percent increase. Of total electricity generated in the

Preliminary estimates indicate that private and public consumption grew by 6.2 and 7.4 percent, respectively (at constant 1997/98 prices). Moreover, the findings reveal that gross fixed capital formation showed a decline of 1.8 percentage points when compared with the growth of the previous year. The decelerating growth pace of gross fixed capital formation in machinery is attributable to a slowdown in growth rate of imported capital goods.

Real Sector

Based on the data drawn by the Ministry of Agriculture Jihad, the total production of farming and horticultural produce was estimated at 88.8 million tons in 2006/07, showing 4.8 percent growth compared with the performance of the previous year

1 Includes eleven types of crude oil: Arab Light (Saudi Arabia), Basra Light (Iraq), BCF 17 (Venezuela), Bonny Light (Nigeria), Es Sider (Libya), Iran Heavy (Islamic Republic of Iran), Kuwait Export (Kuwait), Qatar Marine (Qatar), Minas (Indonesia), Murban (UAE) and Saharan Blend (Algeria).

‘services’, and ‘manufacturing’ groups in GDP were 0.7, 0.3, 3.4 and 1.7 percentage points, respectively.

0

2

4

6

8

2002/03 2003/04 2004/05 2005/06 2006/07

Services

Manufacturing & mining

Oil

Agriculture

Contribution to GDP Growth


ANNUAL REPORT 2007

country, 186.1 billion kwh (96.9 percent) was generated by power plants affiliated to the Ministry of Energy and the private sector and 6 billion kwh (3.1 percent) by other institutions. The consumption rose 9.5 percent. The highest growth of consumption, with 14.1 percent, belonged to agriculture sector. Electricity consumption by public, residential, commercial, and industrial sectors grew by 13.2, 10.1, 8, and 7 percent, respectively.

According to the Ministry of Industries and Mines, the production of certain selected manufacturing and mining goods enjoyed growth in 2006/07. The production of petrochemical products, various types of passenger cars, cement, and steel increased by 16.2, 10.9, 8.2, and 6.2 percent, respectively.

In the review year, 3,194 new manufacturing establishments, with an investment of Rls. 47.3 trillion, came on stream, showing 4.8 and 63.2 percent rise, in terms of number and investment,

respectively, compared with the previous year. ‘Chemical products’ accounted for 33.8 percent of total investment in the establishment of new manufacturing units.

The number of establishment permits amounted to 54.3 thousand in 2006/07, showing 74 percent rise. Investment based on these permits grew by 58 percent to Rls. 1,423.5 trillion. The remarkable growth of number of establishment permits compared with the amount of investment is indicative of the investors’ tendency toward investing in Small and Medium Enterprises (SMEs).

The relatively stagnant condition in the housing sector, started since 2003, continued and ran into 2006, mostly in Tehran and other large, medium-sized and small cities. This trend, however, changed in the second half of 2006 and construction activities started booming. The total number and floor space of building starts rose in Tehran by 31 and 14.3 percent, respectively. The total number and floor space stipulated in the permits issued by municipalities of urban areas grew by 17 and 17.1 percent, respectively. Similarly, the total number and floor space stipulated in permits issued by Tehran municipality recorded rise of 35.7 and 35.2 percent compared with the previous year. These developments were a sign of improvement in construction activities in Tehran and a benign outlook

-20

0

20

40

60

80

2002/03 2003/04 2004/05 2005/06 2006/07

Employment growth rate Investment growth rate

Investment and Employment Growth Rates

Based on Operation Permits Issued for

Manufacturing Establishments


ANNUAL REPORT 2007

Against the backdrop of market conditions and surge in construction costs, private sector investment in new buildings of urban areas grew by 10.1 percent (at current prices) to Rls. 113.6 trillion. Moreover, the mentioned investment in Tehran recorded a 23.5 percent increase (at current prices). However, investment by private sector in new buildings of urban areas plummeted by 7.5 percent at constant prices1.

Population and Employment

Iran’s total population was 70.5 million persons in 2006/07, of whom 48.2 million dwelled in urban and the remainder in rural areas.

Of the key objectives of the Fourth Plan is to reduce unemployment rate to 8.4 percent by the end of the Plan. According to the data drawn by the Statistical 1 Based on the deflator of construction services and materials at constant 1997/98 prices.2 These activities accounted for 49.5 percent of rural employment in the fourth quarter of 2006/07.3 Excludes the figure for transparency in the price of energy bearers.

The lower unemployment rate in rural areas was due to the fact that since agricultural activities are major economic activities in rural areas2 and female participation in these activities is very high, therefore, female unemployment rate in rural areas is less than urban areas. Along with this came the factor of migration of villagers to cities which raised unemployment rate in urban areas.

Government Budget and Finance3

Budget Law for 2006/07, as the second Budget Law during the course of the

Center of Iran (SCI) in the ‘Labor Force Survey’, unemployment rate stood at 12.1 percent in winter 2006/07, roughly at the same level of the respective period of the previous year. This rate was recorded unchanged at 13.8 percent for urban areas and, with 0.1 percentage point reduction, at 8.8 percent for rural areas.

for private sector investment in this sector.

446 463.1402.5

479.2448.2

55.65849.555.653.1

2002/03 2003/04 2004/05 2005/06 2006/07

Number (thousand units)Total floor space of residential buildings (million square meters)

Number and Total Floor Space of Residential Buildings Constructed by Private Sector

in Urban Areas

6

8

10

12

14

2002/03 2003/04 2004/05 2005/06 2006/07

Total Urban areas Rural areas

years, based on the fourth quarter.

Unemployment Rate in Urban


ANNUAL REPORT 2007

Based on the four supplements to the Budget Law for 2006/07, total budget sources and uses increased by Rls. 49,145.6 billion. Moreover, according to the Amended Law and upon the confirmation of the Management and Planning Organization or the relevant province, the government was allowed to increase expenses (current expenditures) up to Rls. 33 trillion, without observing the limitations on budget uses as stipulated

Government expenses increased to Rls. 415,793.1 billion, showing 25.7 percent rise compared with the previous year, and 2 percent excess realization compared with the approved figure. This growth was mainly driven by a surge in national expenses (in Tehran and provinces) and subsidy paid on gasoline and essential goods.

Fourth Plan, was implemented, with four supplements and one amendment added thereto. Government general budget sources with budget supplements at Rls. 97,716.5 billion, including revenues (Rls. 244,455.3 billion), disposal of non-financial assets (Rls. 183,253.2 billion), and disposal of financial assets (Rls. 170,008 billion) were approved. The uses out of these sources included expenses (Rls. 407,512 billion), acquisition of non-financial assets (Rls. 176,120.2 billion), and acquisition of financial assets (Rls. 14,084.4 billion).

in Article 79 of Government Fiscal Regulations Act and Budget Law notes, provided that credits for acquisition of non-financial–provincial assets will not decrease.

Government general revenues grew by 15.3 percent compared with the previous year toRls. 231,125.8 billion, indicating 94.5 percent realization compared with the approved figure. Composition of government revenues changed in a way that the share of tax revenues in total revenues was reduced from 67.2 percent in 2005/06 to 65.6 percent in 2006/07.

-200

-100

0

100

200

300

400

500

2002/03 2003/04 2004/05 2005/06 2006/07

Revenues

Expenses

Disposal of non-financial assets

Acquisition of non-financial assets

Operating and non-financial balance

Government Budget

0

3,000

6,000

9,000

12,000

2002/03 2003/04 2004/05 2005/06 2006/07

Revenues Tax revenues Expenses

Government Per Capita Revenues, Tax

at Constant 1997/98 Prices


ANNUAL REPORT 2007

According to preliminary estimates, total foreign exchange revenues received from exports of goods amounted to USD 75,537 million, up by 17.4 percent compared with last year. This growth was largely driven by oil and gas revenues. The value of export basket (crude oil, natural gas, oil products and gas condensates) hit a record high of USD 62,458 million, holding a roughly 82.7 percent share in total exports of goods. Non-oil exports (customs and non-customs) grew by 24 percent to USD 13,079 million, against USD 10,546 million of the previous year. Preliminary estimates indicate that trade balance posted a surplus of USD 26,245 million, while non-oil trade balance ran a deficit of USD 36,213 million.

Current account balance recorded a USD 20,650 million surplus. This shows 24.1 percent growth, driven mostly by oil and gas revenues and deficit in the services account, with the oil revenues being the

External Sector

Positive developments in the external sector paved the way for the growth and stabilization in the economy. Pickup in Iran’s foreign trade raised international reserves by USD 11 billion. The continued demand for crude oil and its products resulted in an exponential export growth. Moreover, run-up in international oil prices not only raised revenues received from

By and large, the government operating balance in 2006/07 ran a deficit of Rls. 184,667.3 billion, showing 41.5 percent rise compared with the respective figure of the previous year. Net disposal of non-financial assets posted a surplus of Rls. 37,236.1 billion, down by 46.5 percent compared with the respective figure of the previous year. Governmentoperating and non-financial balance ran Rls. 147,431.2 billion deficit, which was ascribable to the excess operating balance deficit compared with the net disposal of non-financial assets. This deficit was mainly financed through withdrawals from the OSF.

export of oil, gas and their products, but promoted non-oil exports, thus increasing foreign exchange revenues.

0

2

4

6

8

10

2002/03 2003/04 2004/05 2005/06 2006/07

Operating balance Operating and non-financial balance

Ratio of Operating and Operating and

Non-financial Balance Deficit to GDP

-14

-7

0

7

14

21

28

2002/03 2003/04 2004/05 2005/06 2006/07

Current account Trade Services

Balance of Payments


ANNUAL REPORT 2007

largest contributor. Without oil revenues, this surplus would be changed into a deficit of USD 41,808 million. This raised the Central Bank of Iran (CBI) foreign assets and the OSF balance by USD 11,335 million, which was USD 3,240 million less than the respective figure of the previous year.

Foreign exchange obligations (including actual and contingent obligations) grew by 8.3 percent to USD 45,338 million at end-2006/07, against USD 41,852 million at end-2005/06. External debt (actual obligations), with 3.1 percentage change, amounted from USD 24,264 million to USD 23,514 million and contingent obligations, with 24.1 percentage change, reached USD 21,825 million in 2006/07, against USD 17,587 million in the previous year. Among the factors contributing to the reduction in the external debt in 2006/07 were: the CBI policies to limit short-term debts, applicants’ willingness to use OSF as foreign exchange facilities due to its lower rate and also reduction in foreign borrowing which was due to the rise in international interest rates.

Money and Banking

In 2006/07, attempts were made to implement monetary policy in line with the policies set in the Fourth Plan for providing liquidity required by productive sectors, aimed at strengthening economic growth and encouraging investment while preventing monetary expansion incompatible with inflation and liquidity targets. According to the FFYDP, inflation rate and liquidity growth were targeted at 11.5 and 22 percent, respectively, for 2006/07, the second year of the Fourth Plan. However, continued withdrawals from the OSF to offset the under-realization of government revenues (in rials) raised the monetary base, thus resulting in growth of liquidity above the target set in the Fourth Plan.

According to the preliminary estimates, liquidity grew by 39.4 percent in 2006/07, against 34.3 percent growth of the previous year. This high liquidity growth was despite the sale of Rls. 22 trillion participation papers by the CBI.

0

10

20

30

40

2002/03 2003/04 2004/05 2005/06 2006/07

Imports Exports

Current account balance Non-oil exports

Ratio of Imports, Exports, Current Account Balance,

and Non-oil Exports to GDP

0

10

20

30

40

2002/03 2003/04 2004/05 2005/06 2006/07

Inflation

Liquidity

GDP

Major Economic Variables


ANNUAL REPORT 2007

Among the factors affecting liquidity growth, net foreign assets of the banking system made up 13.7 percentage points of liquidity growth. Among the constituents of net domestic assets, net claims on non-public sector, with 34.9 percentage points, held the highest share. However, net claims on government and public corporations and organizations and other items (net) had decreasing effect of 3, 0.3, and 5.9 percentage points on liquidity growth.

Monetary base surged by 26.9 percent to Rls. 280 trillion in the review year, mostly owing to the rise in the CBI’s net foreign assets by 51.5 percentage points. This rise was largely due to the CBI purchase of foreign exchange from the government to finance rial resources of budget, while part of it was not sold in the interbank foreign exchange market. Moreover, CBI’s claims on banks reached 8.6 percentage points, mainly due to banks’ overdraft from the Central Bank. CBI’s net claims on the public sector as a major source of monetary base had a decreasing share of 12.3 percentage points in monetary base growth. On the whole, changes in monetary base and money multiplier during 2005-07 led to the expansion of liquidity above the target set in the Fourth Plan.

Monetary and Credit Policies

According to the Money and Credit

Council (MCC) approval and the Usury-Free Banking Law, for contracts such as hire purchase, installment sale, forward transactions, joaleh and debt purchase, the expected rate of return on extended facilities for public banks was determined at 14 percent. Moreover, the expected rate of return on private banks and non-bank credit institutions’ facilities for all economic sectors was determined at 3 percentage points higher than that of public banks. The provisional profit rate of banking deposits with public banks was set within a range of 7 percent for short-term to 16 percent for five-year investment deposits. The provisional rate of return on participation papers was fixed at 15.5 percent and they were tax-exempt.

According to the Law on issuance of Participation Papers and the FFYDP Law, the CBI was authorized to issue participation papers up to Rls. 20 trillion to mop up excess liquidity. Moreover, according to the MCC approval in the second half of 2006/07 and Parliament approval, the CBI was authorized to issue participation papers worth Rls. 10 trillion to substitute the previous papers which would be matured during the last four months of the year.

The MCC approved the increase in the minimum required capital for establishment of private banks and non-bank credit institutions to Rls. 3,500 and 1,500 billion, respectively.


ANNUAL REPORT 2007

Based on the Budget Law for 2006/07, an increase in the outstanding directed banking facilities in 2006/07, observing other objectives stipulated in development plans, was authorized up to Rls. 1,800 billion. The share of public sector out of this increase is 25 percent and that of cooperative and private sectors 75 percent.

According to the Budget Law for 2006/07, and in the implementation of Article 1, Fourth Plan Law, the government was allowed to allocate USD 8 billion out of OSF account for investment and promotion of exports to finance part of the credits needed by non-public sector for the projects whose feasibility study are confirmed by the related specialized ministries. This could be achieved through domestic banking network and Iranian banks abroad in the form of foreign exchange facilities which require necessary guarantee for their repayment.

Payment System

In 2006/07, the financial sector in Iran witnessed great developments in the payment system through launching of a large-value transfer payment system. The CBI developed and adopted a strategy for modernizing the payment system through Real Time Gross Settlement (RTGS). Besides this large-value transfer

system, Retail Funds Transfer System (SAHAB), that handles a large volume of payments of relatively low value, came on stream in this year. Moreover, as the overseer of the RTGS, the CBI designed mechanisms for liquidity management of banks’ settled accounts. During 2006/07, a total of 11,000 transactions valued at Rls. 650,411 billion were settled.

The number of debit cards issued by the banking system in 2006/07 reached 23.5 million, up by 73 percent. The number of Automated Teller Machines (ATMs) grew by 67 percent to 7,468. This shows a moderate growth when compared with 181 percent rise in the number of Points of Sale (POS) in the review year. The total number of POS in 2006/07 reached 192,765. However, the ratio of POS to population in Iran is much less than the rate in other countries1.

In 2006/07, in line with advancement in electronic payment, electronic transactions grew. The number of interbank electronic transactions processed in SHETAB2 through ATMs and POS grew respectively by 107.1 and 345 percent to 230,181 and 7,143 thousand, bringing the total settled transactions to Rls. 10,616 billion in this year. It is projected that payment system will face dramatic developments in the area of security and speed of banking

1 The number of POS per one million persons averaged 12,040 for member countries of the Payment Systems Committee and the Bank for International Settlement (BIS) in 2002/03.2 Interbank Information Transfer Network.


ANNUAL REPORT 2007

transactions in the near future.

Capital Market

Stock Exchange

The relatively recessionary condition in stock market in 2005/06 ran into 2006/07. The Tehran Stock Exchange Price Index (TEPIX) and ‘industrial’, ‘price and dividend’, and ‘cash dividend’ indices rose and the ‘financial’ index and ‘top 50 companies’ index fell in 2006/07. The ‘TEPIX’ and ‘industrial’ index went up by 3.8 and 4.4 percent and ‘financial’ index fell by 0.8 percent. Moreover, turnover ratio of Tehran Stock Exchange (TSE) decreased to 16.9 percent at end-2006/07, against 17.4 percent in the same period previous year. Continued international tensions over Iran’s peaceful nuclear program, implementation of price stabilization policies, as well as restructuring of Stock Exchange and reform of internal mechanisms thereof were among the major factors causing slump in Stock Exchange.

In order to implement the Law Governing the Securities Market, the new organizational structure of Stock Exchange was approved by the Securities and Exchange High Council in March 2006 and ratified by the Cabinet in December 2006. Furthermore, the Securities and Exchange High Council agreed with the establishment of Oil, Gas, and Petrochemical Exchange.

In the first half of 2006/07, the general policies of Article 44 of the Constitution on transferring 80 percent of public enterprises’ shares to non-public sector were declared by the Supreme Leader. For this purpose, a committee was established. The main focus of this committee is reviewing existing ambiguities, determining government’s share in transferring the above-mentioned shares, distributing justice shares, pricing of banks’ shares and determining shareholders’ composition, holding extraordinary session, revaluation of banks’ assets and acceptance of transferred shares in stock market.

Price Trends

The average consumer price index (CPI), wholesale price index (WPI), and producer price index (PPI) grew by 13.6, 12.1, and 12.2 percent, respectively, in 2006/07, compared with the respective figures of the previous year (12.1, 9.5, and 9.5 percent). The growth of these indices has trended upward since July 2006, as year-on-year (YoY) changes indicate.

-40

0

40

80

120

160

2002/03 2003/04 2004/05 2005/06 2006/07

Share price index

Cash dividend index

Annual Changes in Share Price and

Dividend Indices


ANNUAL REPORT 2007

The inflation rate stood at 13.6 percent, in the review year, and advanced to 16.6 percent at end-2006/07 compared with the previous year-end. Growth in the CPI was largely ascribable to increase in the price

index of two groups of ‘housing, water, fuel and power’ and ‘food, beverages and tobacco’, accounting respectively for 37.5 and 33.8 percent of overall changes.

The overall CPI increase was largely due to the structural impediments to the economy such as high dependence of the government budget on oil revenue, inflationary expectations, and increase in liquidity, thus raising costs of factors of production, and lower price elasticity of supply of goods.

0

5

10

15

20

2002/03 2003/04 2004/05 2005/06 2006/07

CPI

WPI

Growth in CPI and WPI


ANNUAL REPORT 2007

GDP Growth by Economic Sectors(at Constant 1997/98 Prices)

(In percent) Year

Item 2005/06 2006/07

Agriculture 9.3 4.7

Manufacturing 6.7 8.5

Oil and gas 0.6 3.0

Services 5.6 6.5

Total 5.7 6.2

Government Per Capita Revenues and Expenses (Current)(at Constant 1997/98 Prices)

(In rials)

Year 2002/03 2003/04 2004/05 2005/06 2006/072002-07 (average

growth, percent)Revenues, of which: 3,462.6 3,858.0 4,249.5 6,459.0 6,037.6 10.1

Tax revenues 2,826.4 3,185.8 3,463.2 4,338.0 3,960.7 6.2

Expenses 8,245.1 8,723.3 9,514.2 10,666.0 10,861.6 8.9

Ratio of Selected Budget Items to GDP(In percent)

Year 2002/03 2003/04 2004/05 2005/06 2006/07

Revenues 6.8 7.2 7.5 11.9 11.3

Expenses (current) 16.1 16.3 16.7 19.6 20.4

Acquisition of non-financial assets 6.0 6.7 5.2 7.0 7.1

Operating balance - 9.3 - 9.1 - 9.3 - 7.7 - 9.1

Operating and non-financial balance - 4.1 - 4.0 - 3.6 - 3.6 - 7.2

Ratio of Imports, Net Exports, Current Account Balanceand Non-Oil Exports to GDP

(In percent) Year 2002/03 2003/04 2004/05 2005/06 2006/07

Imports 19.1 22.4 24.1 23.0 22.2

Exports 24.5 25.7 27.6 34.3 34.1

Current account balance 3.1 0.6 0.9 8.9 9.4

Non-oil exports 4.6 5.0 4.7 5.6 6.0

Item

Item

Item

Item


ANNUAL REPORT 2007

Iran: Main Items of Goods and Services Exportedto the ACU Member Countries in 2007

Sector/Country

Bangladesh

Agriculture Fresh fruit.

Industry

Tar and its by-product, chemical, paper and paper product, petrochemicals (such as petrolatum, paraffin, …), oil products, synthetic and natural waxes, resins, marble and architectural stones, Iron and steel product, floorings such as linoleum, lead, inorganic tanning substances.

India

Agriculture Pistachio, durum (type of wheat).

Industry

Tar and its by-product, oil products, Aluminum, chemical, zinc alloys, iron and steel products, petrochemicals(such as petrolatum, paraffin, …), synthetic and natural waxes, copper product, tanned skin, textile made of natural and synthetic, lead.

Myanmar

Industry Tar and its by-product, resins, synthetic and natural waxes, petrochemicals (such as petrolatum, paraffin, …).

Nepal

Agriculture Pistachio.

Industry Synthetic and natural waxes, PHD type reception.

Pakistan

Agriculture Pistachio, date, fresh and dries fruits, vegetables.

Industry

Chemical, Iron and steel products, tanned skin, tar and its by-product, oil product, zinc alloys, floorings such as linoleum, petrochemicals(such as petrolatum, paraffin, …), dairy, textile of natural and synthetic, glassware, transformer, detergent.

Sri Lanka

Agriculture Dries fruits, date.

Industry

Tar and its by-product, resins, chemical, carbon-black, petrochemicals (such as petrolatum, paraffin, …), marble and architectural stones, plastic product, wooden products, oil products, floorings such as linoleum, synthetic and natural waxes, thread of wool and fleece, iron and steel products, footwear.


ANNUAL REPORT 2007

Iran: Main Items of Goods and Services Importedfrom the ACU Member Countries in 2007

Sector/Country

Bangladesh

IndustryTextiles made of natural and synthetic, derivatives of coal, petrochemicals, machinery (treadmills), iron and steel products, synthetic and natural fibers, carbon black.

India

Agriculture Tea black.

IndustryGas, aluminum, derivatives of coal, chemical, pharmaceutical, Synthetic and natural fibers, Iron and steel products, spare parts of vehicles, oil product, carbon black, C.K.D. for motorcar.

Myanmar

Agriculture Legume.

Nepal

Industry Leather and tanned skin.

Pakistan

Agriculture Rice, vegetables, sesame seeds, fresh and dries fruit, juice fruit, legume, garlic.

IndustrySynthetic and natural fibers, textile of natural and synthetic, paper and paper product, chemical, derivatives of coal, thread of wool and fleece, glues and gelatin, live animal, fishing equipment.

Sri Lanka

Agriculture Black Tea, coconut, fresh and dries fruits, nutmeg, vegetables.

IndustrySynthetic and natural fibers, wooden products, spare parts of vehicles, chemical, machinery, oil products, paper and paper product, cloth, carbon black, lead, textile of natural and synthetic, plastic product, floorings such as linoleum.


ANNUAL REPORT 2007

Iran: Exports to the ACU Member Countries in 2007

Item Weight (kg) Value in Iranian Rial Value in US Dollar

Bangladesh 33,298,899 52,512,539,007 5,668,384

India 2,094,757,778 7,038,087,676,837 757,885,393

Myanmar 11,618,739 24,154,214,789 2,601,075

Nepal 90,050 1,871,479,915 200,219

Pakistan 735,482,919 2,425,131,629,411 261,287,766

Sri Lanka 16,065,116 30,362,078,258 3,275,758

Iran: Imports from the ACU Member Countries in 2007

Item Weight (kg) Value in Iranian Rial Value in US Dollar

Bangladesh 59,716,049 465,444,773,970 50,171,120

India 1,652,640,280 14,040,956,814,029 1,515,014,794

Myanmar 249,850 1,405,242,500 150,696

Nepal 33,900 901,930,972 97,695

Pakistan 391,136,949 1,348,659,305,881 145,583,293

Sri Lanka 30,198,606 342,628,278,242 36,958,729

Source: Central Bank of the Islamic Republic of Iran

Country

Country

72 Country Performance / Myanmar

ANNUAL REPORT 2007

MyanmarEconomic Performance

Since the financial year (FY) 1992/93, Myanmar has been formulating and implementing economic short-term plans aiming to achieve balanced economic development in all the economic sectors. Three economic short-term plans have already been successfully completed with remarkable growth rates.

The achievements made in the three successive short-term plans have provided the impetus to implement policies to further enhance the growth momentum. Based on these achievements, the fourth five year short-term plan, from 2006/07 to 2010/11, has been formulated.

During the first year of the current short-term plan, which is 2006/07, the economy had registered a strong growth rate of 12.7 percent against the targeted growth rate of 12 percent. The agriculture sector, serving as a leverage of the economy in enhancing the economic activities, achieved high growth rate of 9.2 percent. At the same time, the manufacturing sector and trade sector recorded the strong growth rates of 22 percent and 13.9 percent respectively. The services sector has also registered a growth rate of 15.7 percent.

The growth thus far achieved reflected a more diversified and broad based expansion of the economy. It can be said that the country’s economic structure has been gradually changing. The primary sector, which includes agriculture, livestock, fishery and forestry accounted 44 percent of Gross Domestic Product (GDP) in 2006/07 decreasing from 50.7 percent and 47 percent in 2004/05 and in 2005/06 respectively. Accordingly, the shares of manufacturing and services sectors in GDP composition are on rising trends.

GDP Composition in 2005/06

Agricultue,

livestock, fishe

and forestry

47%

Industry

13%

Services

14%

Other

26%

Comparison of Growth Rates:GDP and

Sectorwise

0

5

10

15

20

25

GDP Growth Agriculture,Livestock,

Forestry&Fishery

Industry Services Others

2005/06 2006/07

73Country Performance / Myanmar

ANNUAL REPORT 2007

GDP amounted to Kyat 16,716 billions in the reporting FY 2006/07, contributing to further improvement in per capita GDP which reached Kyat 295,774 compared to Kyat 221,799 in the previous year.

Fiscal Sector

The Government’s fiscal policy continued to emphasize on development of the infrastructure sector ensuring to be supportive of enhancing further economic activities. The Government has also focused its expenditure on the provision of essential services such as education, health and housing. On the revenue side, measures taken to improve the budget position such as broadening tax base and strengthening tax administration and collection as well as enhancing the State Economic Enterprises’ (SEEs’) performance have resulted in a substantial increase in revenue. However, Myanmar has to rely solely on its own domestic resources for its developmental investment, as external developmental assistance is minimal. Therefore, Myanmar’s budget still remains in deficit.

Monetary Sector

Monetary policy continues to support economic growth in 2006/07. However, maintaining accommodative monetary stance became more challenging particularly in light of inflationary pressures. The Central Bank of Myanmar had raised its central bank rate from 10 percent to 12 percent on April 1, 2006. Deposit and lending rates were also raised to 12 percent and 17 percent respectively. The banking system remains the main mobiliser of funds in the economy, supporting the financing needs from the business sector.

The Central Bank of Myanmar has monitored the private banks by issuing instructions and guidelines to take necessary actions and prevent using the banks for money laundering activities and financing of terrorism. In order to establish a sound and efficient banking system, the Central Bank of Myanmar is continuously strengthening its supervisory and regulatory powers.

One of the main responsibilities of the Central Bank of Myanmar is to develop an efficient, fast, safe and reliable national payment system. In line with this purpose, the Central Bank of Myanmar has been implementing payment system upgrading activities since 2007. During this year the new payment instrument of certified cheque has been launched by efforts of the

GDP Composition in 2006/07

Agricultue,

livestock,

fishery and

forestry

44%

Industry

14%

Services

15%

Other

27%


ANNUAL REPORT 2007

Central Bank of Myanmar. To be efficient, fast and safe for National Payment System, payment system committee and banking network committee have been organized by guidances of the Central Bank of Myanmar. All these committee have to implement national payment mechanisms to be smooth and efficient payment settlement.

External Sector

On the external front, the balance of payments (BOP) position remains favourable in 2006/07 registering an overall surplus of USD 997.3 million. Total exports increased by 47.3 percent mainly due to continued increase in gas exports while imports increased by 48.1 percent as a result of increase in imports of intermediate goods and consumer goods. Reflecting the trade surplus and other capital inflows, gross official reserves increased and was adequate to finance 9.1 months of imports at the end of March 2007.

The salaries and wages of the Government’s employees were raised effective April 1, 2006. Accordingly, the Central Bank rate had been raised to 12 percent from 10 percent effective on the same date to curb possible inflation hike. However, inflation had risen to 26.3 percent at the end of March 2007.

Trade with ACU Member Countries

Myanmar’s trade position with ACU member countries has continued to remain strong. Trade with ACU countries expanded significantly in 2006/07 registering growth rates of 46.8 and 86.8 percent in exports and imports respectively. The exports amounted to USD 851.6 million in 2006/07 compared to USD 580.2 million in 2005/06. The imports also increased to USD 169.5 million in 2006/07 compared to USD 90.7 million in 2005/06.

The favourable trade position has been mainly supported by trade with India, followed by Pakistan and Bangladesh. Main export items to ACU countries were beans and pulses, hardwood and fishery products. Main import items vary from basic foodstuff to capital goods, such as milk products, medicine, films, machines, machinery and equipments, etc.

Exports and Imports

0

1,000

2,000

3,000

4,000

5,000

6,000

2004/05 2005/06 2006/07

Imports

75Country Performance / Myanmar

ANNUAL REPORT 2007

Myanmar: Major Economic Indicators(In millions of Kyats)

Year 2006/071

Gross Domestic Product (GDP), of which: 13,853,030.4Agriculture, livestock & fishery and forestry 6,262,529.1

Industry 1,919,888.8

Service & other 5,670,612.5

Growth rate of GDP (percent) 12.7

Inflation rate (percent) 26.3

Balance of Payments (BOP):Goods

Exports 29,599.5

Imports -15,276.0

Trade balance 14,323.5

Services (net) -9,065.3

Transfers (net) 785.5

Current account (net) 6,043.7

Capital account (net) 1,664.4

Errors and omissions 2,023.5

Overall balances 5,684.6

Monetary movements -5,684.61 Provisional data.

Myanmar: Balance of PaymentsGoods and Services Account

(In millions of Kyats) Year 2005/06 2006/07 1

Trade balance 9,975.6 14,323.5Exports 20,500.7 29,599.5

Imports -10,525.1 -15,276.0

Services balance -7,758.4 -9,065.3Receipts 1,846.7 2,293.1

Payments -9,605.1 -11,358.41 Provisional data.

Item

Item


ANNUAL REPORT 2007

Myanmar: Trade with ACU Member Countries in 2006/07(In millions of USDs)

Item Exports 1 Imports 1

Bangladesh 57.6 4.1

Bhutan - -

India 733.9 160.0

Iran 0.2 2.1

Nepal 0.0 0.0

Pakistan 54.7 1.6

Sri Lanka 5.1 1.7

Total 851.5 169.5

Share of trade with ACU countries in total trade (percent) 16.4 6.3

1 Provisional data.

Source: Central Bank of Myanmar

Country

77Country Performance / Nepal

ANNUAL REPORT 2007

NepalReal Sector

In 2006/07, the real Gross Domestic Product (GDP) growth decelerated to 2.5 percent at producers’ prices from 2.8 percent in 2005/06. The agriculture sector grew by 0.7 percent in 2006/07 compared to a growth of 1.1 percent in 2005/06. The industrial sector, on the other hand, grew by 2.2 percent, compared to a growth of 4.3 percent in the previous year. The services sector rose by 4.1 percent compared to a growth of 4.7 percent in the previous year.

Monetary Sector

In 2006/07, broad money (M2) expanded by 14 percent compared to a growth of 15.6 percent a year ago. The lower growth of M2 was on account of a substantial slowdown in the growth of net foreign assets (NFA). Narrow money (M1) also experienced a lower growth of 12.1 percent compared to a growth of 14.2 percent in the previous year. Similarly, the growth in time deposit slowed to 14.9 percent in 2006/07 from 16.4 percent a year ago due to a lower growth of remittances and negative real interest rates. The domestic credit increased by 16.7 percent compared to a growth of

11.7 percent in the previous year. The commencement of operation by two new commercial banks and the significant growth in consumer loans accounted for the expansion in domestic credit.

NFA, after adjusting foreign exchange valuation gain/loss, rose by 4.2 percent (Rs. 5.9 billion) compared to a growth of 23.8 percent (Rs. 25.6 billion) in the previous year.

Stock Market

In 2006/07, stock market activities expanded including the growth in the market capitalization and stock turnover. The year-on-year (YoY) Nepal Stock Exchange (NEPSE) index increased by 76.8 percent to 684 points in mid-July 2007, experiencing a bullish trend throughout the year.

The market capitalization of the listed shares, which stood at Rs. 96.8 billion in mid-July 2006, increased by 92.5 percent to Rs. 186.3 billion in mid-July 2007. The market capitalization to GDP ratio reached 25.9 percent in mid-July 2007 compared to 15 percent a year ago. Similarly, the

78 Country Performance / Nepal

ANNUAL REPORT 2007

ratio of the monthly turnover to market capitalization stood at 0.8 percent in mid-July 2007 compared to 0.3 percent a year ago.

The Nepalese stock market continued to be highly concentrated and dominated by the stocks of commercial banks. Of the total market capitalization, bank and financial institutions recorded the highest share of 85.6 percent.

Inflation

In 2006/07, the annual average consumer inflation rate moderated to 6.4 percent from a level of 8 percent in 2005/06. The lower import prices and the appreciation of currency contributed to the moderation in inflation rate.

The annual average wholesale price surged by 9 percent in 2006/07 compared to an increase of 8.9 percent in the previous year. The higher level of annual average wholesale price inflation was mainly due to the increase in the prices of agriculture commodities as well as domestic manufactured commodities.

Fiscal Developments

Despite the difficult situation of political transition, Nepal maintained the fiscal discipline due to both the containment of overall expenditure and a pick up in revenue mobilization. The growth

rate of government expenditure is also showing an increasing trend. Though the resources showed a growth on account of high growth of revenue mobilization and foreign cash grants, the widening gap between expenditure and resources led to an expansion in fiscal deficit. However, the growth rate of budget deficit was lower in 2006/07 than 2005/06. Recurrent expenditure rose heavily on account of more spending on peace related activities, including the upkeeping of Maoist camps, security arrangements, preparations for Constituent Assembly (CA) elections and the rehabilitation of internally dislocated persons.

In 2006/07, total government expenditures on a cash basis went up by 23.3 percent to Rs. 125.3 billion compared to a rise of 12.5 percent in 2005/06. While recurrent expenditure grew by 14.8 percent to Rs. 74.1 billion in 2006/07 compared to the growth of 9.4 percent a year earlier, capital expenditure went up by 57.7 percent compared to a growth of 24.6 percent in the preceding year.

Total government revenue registered a significant growth of 21.3 percent to Rs. 87.7 billion in 2006/07 compared to a very low rate of increase of 3.1 percent a year ago. Reforms in revenue administration mainly contributed to such a remarkable growth in revenue. Amongst the components of revenue, the Value Added Tax (VAT) collection increased by 21 percent to


ANNUAL REPORT 2007

Rs. 26.2 billion. It had increased by 16.1 percent in 2005/06. Customs revenue increased by 8.8 percent to Rs. 16.7 billion in 2006/07 in contrast to a decline of 2.3 percent in the previous year. Income tax revenue increased by 43.9 percent to Rs. 15.7 billion in 2006/07. It had increased by 5.5 percent in the previous year. Also the non- tax revenue increased by 11.4 percent to Rs. 16.5 billion in 2006/07. In the previous year, non-tax revenue had decreased by 7.3 percent.

VAT remained the largest source of revenue collection with a contribution of 29.9 percent to total revenue in 2006/07, the same position as in the previous year. With the largest share in revenue generation, VAT has remained the backbone of Nepalese revenue administration as envisaged by the Government of Nepal (GON) while introducing this. In terms of contribution, VAT was followed by customs duty with a contribution of 19 percent, income tax with 17.9 percent and excise duty with 10.7 percent in total revenue mobilization. In the previous year, the contribution of customs duty was 21.2 percent, income tax was 15.1 percent and excise duty was 9 percent.

Foreign cash grants recorded a significant increment of 43.5 percent to Rs. 12.8 billion in 2006/07. In the previous year, the government had received Rs. 8.9 billion in foreign cash grants.

In 2006/07, the GON’s budget deficit increased to Rs. 18.8 billion, compared to a deficit of Rs. 16.4 billion in 2005/06. The ratio of budget deficit to GDP stood at 2.6 percent compared to 2.5 percent in 2005/06. The higher growth of government expenditure relative to resources accounted for such an increase in fiscal deficit.

The gross domestic financing (GDF) of the budget stood at Rs. 17.9 billion. Of which, Rs. 12.1 billion was mobilized through treasury bills, Rs. 5.5 billion through development bonds, and Rs. 340.8 million through citizen saving bonds.

The ratio of GDF to GDP stood at 2.5 percent in 2006/07. However, the net domestic financing (NDF) of the budget remained only at Rs. 5.1 billion in the review period. In terms of GDP, the NDF was only 0.7 percent. Total outstanding domestic debt (adjusting the government balance with the Nepal Rastra Bank (NRB)) increased to Rs. 96.1 billion in 2006/07.

The foreign cash (loans) financing of the budget rose by 15 percent to Rs. 4.4 billion in 2006/07. Foreign cash loan of Rs. 3.9 billion was received in the previous year.

The government maintained a cash surplus of Rs. 3.1 billion with the NRB in 2006/07.


ANNUAL REPORT 2007

The outstanding public debt (both internal and external) amounted to Rs. 315.9 billion as at mid-July 2007, which was lower by 2.5 percent compared to that of the previous year. The share of total external debt and internal debt in total outstanding debt remained at 68.6 percent and 31.4 percent respectively in 2006/07. As percent of GDP, such ratios were 30.1 percent and 13.8 percent respectively.

External Sector

In 2006/07, the external sector depicted a deceleration in the exports. The major factors responsible for such deceleration were the problem in peace and security, frequent strikes and bandhs and power shortages.

In 2006/07, total exports rose marginally by 0.9 percent compared to growth of 2.6 percent in the previous year. While exports to India went up by 2.8 percent compared to a higher growth of 4.6 percent a year ago, exports to other countries declined by 3.1 percent compared to a decrease of 1.4 percent in the previous year. As percent of GDP, exports accounted for 10.5 percent in 2006/07 compared to that of 11 percent a year ago.

The growth of exports to India, albeit marginal, was on account of the rise in the exports of thread, zinc sheet, textiles, M.S. pipe and juice. The continuous decline in exports to other countries

was on account of the fall in exports of readymade garments, pashmina, woolen carpets, handicrafts, and Nepalese paper and paper products.

Total imports rose by 10.3 percent compared to a higher growth of 16.3 percent in the previous year. Of the total imports, imports from India increased by 9.9 percent compared to a significant growth of 20.8 percent in the previous year. And imports from other countries rose by 11 percent compared to a growth of 9.6 percent in the previous year.

The rise in imports from India was on account of the increased level of imports of vehicles & spare parts, cold-rolled sheet in coil, thread, hot-rolled sheet in coil, and electrical equipment. Similarly, the rise of imports from other countries was due to the acceleration of imports of gold, crude palm oil, computer parts, telecommunication equipment & parts and betel nut, among others, from other countries.

Balance of Payments (BOP)

The overall BOP recorded a surplus of Rs. 5.9 billion in 2006/07. The BOP surplus was at a higher level of Rs. 25.6 billion in 2005/06.

The current account was at a surplus of Rs. 3.5 billion in 2006/07. The current account had recorded a surplus of Rs.


ANNUAL REPORT 2007

Nepal: Main Items of Goods and Services Exported to ACU Member Countries in 2007

Sector/Country

Bangladesh

Agriculture Chickpeas, lentil (pulses), grouts and meal, seeds, fruit, wheat bran, plants and parts of plants, etc.

IndustrySynthetic organic tanning substances, stoppers lids caps and other closures, carpet, knotted of wool, machine tools for working metal, wooden furniture, new rags, sorted, etc.

Bhutan

IndustryBeer, soaps, sacks and bags of plastic, hand bag, carpet, cotton trousers, woollen and cotton shirts, woollen shawls, scarves, mufflers, tubes, pipes, radiators and parts, bars, rods and profiles of aluminium alloy, etc.

Iran

Industry Wooden furniture, jacket, suits, carpet, tanned, full grains, unspoilt, handmade paper and paperboard, etc.

Pakistan

Agriculture Black tea, plants and parts of plants, etc.

Industry Carpet, shawls, scarves, mufflers, parts of electrical transformers, spectacle lenses, etc.

Sri Lanka

Industry Carpet, Babies cotton garment, buttons, original sculptures, etc.

14.2 billion in 2005/06.

Remittance inflows recorded an increase of 2.5 percent in 2006/07 compared to a

significant upsurge of 49 percent in the previous year. However, the increase in remittance inflow was mainly responsible for current account surplus.


ANNUAL REPORT 2007

Nepal: Main Items of Goods and Services Imported from ACU Member Countries in 2007

Sector/Country

Bangladesh

Agriculture Rice, coconut oil, sugar, chocolate, sweet biscuits, water, non alcoholic beverages, etc.

Industry Medicine, gelatine sheets, plates, sheets, films, plastic apparel & gloves, printed book, garneted stock, cotton waste jute, fabrics, etc.

Iran

Industry Pitch, paraffin wax, petroleum bitumen, prepared driers, alkyd, resins, zinc, etc.

Myanmar

Agriculture Chickpeas, dried leguminous vegetables, etc.

Industry Wooden furniture, wood marquetry & inlaid wood, etc.

Pakistan

Agriculture Betel nuts, dates, figs, seeds of earaway, seeds of forage plants, etc.

IndustryMarble, medicines, floor covering of plastics, pet bottle, leather apparels, paper board, cotton yarn waste, fabric of cotton, carpet, glasses items, colour T.V., etc.

Sri Lanka

Industry Copra, chocolate, whiskies.


ANNUAL REPORT 2007

Nepal: Exports to ACU Member Countries in 2007

Item Value in NPR Value in USD

Bangladesh 521,498,584 7,398,192.4

Bhutan 310,958,124 4,411,379.3

Iran 15,469,327 219,454.2

Myanmar 197,074 2,795.8

Pakistan 126,943,506 1,800,873.6

Sri Lanka 3,123,003 44,304.2

Total 978,189,618 13,876,999.5

Nepal: Imports from ACU Member Countries in 2007

Item Value in NPR Value in USD

Bangladesh 286,476,995 4,064,079.9

Bhutan 119,478,210 1,694,966.8

Iran 841,239,649 11,934,170.1

Myanmar 50,113,670 710,933.0

Pakistan 171,455,208 2,432,333.8

Sri Lanka 46,192,488 655,305.6

Total 1,514,956,220 21,491,789.2

Source: Nepal Rastra Bank

Country

Country

84 Country Performance / Pakistan

ANNUAL REPORT 2007

PakistanPakistan is strategically located at the meeting point of South Asia and Middle East. On its south lies the Arabian Sea that connects it to the Indian Ocean and restive Gulf and the Strait of Hormuz. India lies on its East, while the western borders are shared with Iran and Afghanistan. The Wakhan corridor in Afghanistan separates it from Central Asian State of Tajikistan. China lies to its north. The country has a total area of 796,095 sq Km and has diversities of climate enabling agricultural activity the year round.

The Islamic Republic of Pakistan emerged as an independent state after the exit of British colonialists from South Asia on August 14, 1947. Building from a scratch, the country has been able to make a name for itself in the economic sphere. Now the agriculture sector accounts for 20.9 percent, the industrial sector 25.8 percent and the rest 53 percent is contributed by the services sector to the Gross Domestic Product (GDP).

Agriculture Sector

In the economic sectors, agriculture sector employs on average 44 percent of the active work force in the economy. As per the available information, the

total irrigated area covered by major food crops like wheat, rice maize, pulses etc. as well as the major fruits covers about 28 percent of the total available area. The major crops include food crops like wheat, rice, sugarcane, major pulses, and cash crop like cotton; fruits like mango and citrus varieties and a number of seasonal fruits. Lately major fruit categories have been able to find receptive markets in the Middle East as well as European Union (EU).

Manufacturing Sector

The manufacturing sector accounts for approximately 19 percent of the GDP. The major area of activity remains the textile sector that accounts for a major portion of the activity generating over 60 percent of the country exports destined for the North American and EU markets. The textile sector has also been the major employer in the manufacturing sector. The other major areas of activity include the cement, pharmaceutical, sugar, steel, chemical, petro chemical, and automobile industries. In particular, expansion in cement industry is paying dividends in terms of robust exports to neighboring countries. Moreover, electronics industry is also expanding in recent years on the

85Country Performance / Pakistan

ANNUAL REPORT 2007

bank of sustained domestic demand.

Services

The services sector in Pakistan has invariably shown phenomenal growth during the last five years. The principal impetus to growth in the services sector came from impressive growth by the telecom, transport, electronic media and finance & insurance services. This remarkable performance in all these sub-sectors is a result of effective implementation of economic reforms of deregulation and privatization. All these sectors also fetched the major share in foreign direct investment (FDI) inflows in recent years. As a result of a strong growth in the services sector in recent years, its contribution in GDP rose from 51.3 percent in Financial Year (FY) 2004/05 to 53.3 percent by 2006/07.

Energy Resources

The country has extensive energy resources, including fairly sizeable natural gas reserves, some proven oil reserves, one of the world’s largest coal reserves and large hydropower potential. However, the exploitation of energy resources has been sow due to a shortage of capital. For example, domestic petroleum production totals only about half the country’s oil needs. Pakistan’s dependence on imported oil coupled with rising international oil prices

also contributes to the persistence of trade deficit.

Given an excess demand for energy in the country, a number of measures have been taken by the government including (1) reduction in tariff on import of power generation machinery, (2) one of the public utility company privatized, (3) negotiations of gas pipeline project from Iran is in final stages, as well as (4) plans of extraction of Thar coal reserves are underway.

Foreign Trade

Historically, Pakistan has been experiencing persistent deficit in foreign trade. Pakistan’s exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Major imports include petroleum & petroleum products, edible oil, chemicals, fertilizer, capital goods (including machinery & vehicles), industrial raw material and consumer products. The resulting external balance has left Pakistan with a growing foreign debt burden.

In terms of geographical distribution, the major destinations of country’s exports are United States of America (USA) and EU. This suggests that country does not only require product diversification of exports, market diversification is also needed. In particular, expansion of trade with the regional countries could help increase exports.


ANNUAL REPORT 2007

Fiscal and Public Debt

Pakistan is committed to fiscal prudence and demonstrated a sharp decline in fiscal deficit from 7.7 percent of GDP in 1997/98 to as low as 2.4 percent of GDP by 2003/04. The Fiscal Responsibility Act 2004/05 provides a pre-determined path of improvement in key fiscal and debt indicators.

Fiscal deficit however increased in 2005/06 due to massive reconstruction and rehabilitation activities in the earthquake hit Northern areas as well a sharp jump in development spending on infrastructure projects and social sector. Despite this increase, debt to GDP ratio witnessed a continued improvement in recent years.

Recent Economic Developments

The country’s economy continues to show resilience to domestic and international shocks. Although these have taken their toll, the economy is nonetheless expected to turn in a reasonably good growth performance during 2007/08. So far, the principal drag on growth prospects has been from the relatively disappointing Kharif (April-September) harvests, and the decline in large-scale manufacturing (LSM) growth (particularly in December 2007). The impact of the first is expected to be mitigated by a better agri-sector outcome in the second half of 2007/08,

but the weakness in LSM growth is expected to continue. On the other hand, the services sectors has not suffered a significant setback, and seems set to turn in a stellar performance for the sixth consecutive year.

Information available by mid-February 2008 suggests that agriculture sector is likely to record reasonable growth during the fiscal year. This said, the prospects of achieving the targeted 4.8 percent growth for the year remain dim. The record sugarcane and maize harvests, anticipated good wheat harvest, and above-target growth in minor crops, are unlikely to completely overcome the drag from the disappointing performance of some major Kharif crops (cotton and rice). Similarly, growth in livestock sub-sector though likely to remain strong, a part of it may partially offset due to recent bird flu virus.

Similarly, Pakistan’s LSM has been encountering headwinds since the start of 2007/08. Domestic as well as external factors are responsible for the relatively slower growth in this sector compared to the stellar performance of preceding years. These factors include: the continued strong increases in the international commodity prices, domestic energy woes and dampened demand (particularly for textile exports). Economic losses in the aftermath of December 27, 2007 have further weakened the chances


ANNUAL REPORT 2007

of meeting the annual target. Overall, the slowdown in LSM during the first half of 2007/08 was broad based and was seen in 10 out of 15 industrial groups. Of these, paper & board, metals, fertilizer and electronics industries registered a decline in production. In contrast to these under-performers, pharmaceuticals, petroleum, oil and lubricants (POL), cement, engineering and wood producing industries depict a reasonably strong growth.

Similar to most of the countries, the impact of rising international commodity prices is also evident in Pakistan. Inflationary pressures in the domestic economy have continued to mount throughout July-January 2008, with particularly sharp increases in the later months of the period, despite the central bank’s efforts to contain the growth in aggregate demand. The headline consumer price index (CPI) inflation rose to 11.9 percent during January 2008-the highest level registered since July 1997. This reflects not only the stimulus from the expansionary fiscal policy but also the unanticipated strength of international commodity prices. The impact for food commodity prices was probably also aggravated by anti-competitive market structures and practices in the domestic market, as well as supply disruptions.

Given evidence that these cost push inflationary pressures could generate

second round inflationary cycle, continued monetary tightening was essential and guided the SBP decision to accentuate its monetary tightening. Thus, monetary policy has been tightened further by raising benchmark 3-day Repo rate (discount rate) by 50 basis points to 10.5 percent effective from February 1, 2007. The central bank is also using tools for an efficient liquidity management. Not only reserve requirements on scheduled banks revised upward, more frequent Open Market Operations (OMOs) are being conducted. However, the monetary measures aimed at siphoning out the excess demand in the economy need to be supplemented by greater fiscal discipline, as well as administrative and policy measures to correct market distortions.

The deterioration in fiscal performance indicators deepened in the first half of 2007/08. Stagnation in revenue growth combined with strong increase in total expenditures led to a sharp surge in fiscal deficit during the first half of 2007/08. Additionally, as a percent of GDP, both the revenue deficit and primary deficit increased in the first half of 2007/08. This was an outcome of a number of factors; expenditures rose mainly due to general elections, intensified war against terrorism in Northern areas and work in progress on development projects with full swing. On the other hand, weakness in revenues is a result of relative slowdown in industrial sector, extended holidays, political noise


ANNUAL REPORT 2007

and law & order situation.

In particular, all indicators hint at FBR having troubles in meeting its revenue targets since December 2007. Net tax collection till January 2008 lags behind the 2007/08 annual target by a wide margin; nearly 55.4 percent of the 2006/07 annual target had been achieved by January 2007 while in 2007/08 July-January tax collections amount to about 49.5 percent of 2007/08 annual target. To still achieve 2007/08 target of Rs. 1,025 billion would require FBR to amass 51.5 percent of the target amount in remaining five months; indicating that the revenue target of Rs. 1,025 billion for 2007/08 will be difficult to achieve.

Rising international commodity prices coupled with domestic supply constraints of some key commodities resulted in 18.9 percent year-on-year (YoY) rise in imports growth during July-January 2008 that outpaced 5.9 percent growth in exports during this period. Resultantly, the trade deficit recorded a sharp USD 2.7 billion YoY increase during the period.

Almost half of the total increase in the import bill during July-January 2008 was contributed by rising international commodity prices: oil, fertilizers, palm oil, etc.1 In addition, imports of wheat and

cotton was necessitated due to domestic shortages. The import bill was further inflated due to a large one-off import in the category of aircrafts, ships and boats. In the absence of all these factors import growth and thus the trade deficit would have been significantly lower than the current level.2 The significant slowdown in the imports after adjusting for these factors represents a deceleration of the real demand for imports, which can in part be attributed to the tight monetary policy being pursued by the SBP.

The growth in exports during July-January 2008 was entirely due to rise in the non-textile exports – mainly other manufactures and petroleum group; whereas textile exports recorded 3.4 percent YoY fall during this period. The decline in the textile exports was broad based with only the exports of synthetic textiles, ready-made garments and textile made-ups registering positive growth.

The cumulative July-January 2008 current account deficit rose by 47.1 percent YoY, on top of 52.2 percent YoY increase seen in the same period of 2006/07. The dominant contribution to the post first quarter of 2007/08 deterioration in the current account was from an abrupt rise in the country’s oil bill, aviation equipment import, the impact of political disturbance

1 The price impact for the 50.2 percent imports for which price and quantum data was available was around 49 percent of the total rise in the import bill during July-January 2008.

2 In the absence of these two factors, the import growth for July-January 2008 would have been mere 4.6 percent, which implies a trade deficit of USD 7.9 billion for this period.


ANNUAL REPORT 2007

in December 2007 as well as delays in the receipt of coalition support funds, all of which overshadowed the sustained increase in remittances.

The impact of the widening current account deficit on the country’s overall balance was compounded by a decline in the financial & capital account balance in the same period. In particular, while FDI flows

improved slightly, there was a precipitous USD 1.4 billion drop in foreign portfolio investment flows. The decline reflected partly the outflows from the equity markets due to perceptions of increased political risk, and partly due to the delays in the planned floatation of Global Depository Receipts (GDRs) in the face of global financial turmoil and perceived increase in country risk.


ANNUAL REPORT 2007

Pakistan: Selected Economic Indicators

Year 2005/06 2006/07 2007/08

Period Growth Rate(percent)

Large scale manufacturing Jul-Dec 8.7 8.3 4.5

Exports (fob)1 Jul-Jan 20.9 3.4 5.9

Imports (fob) Jul-Jan 50.0 9.0 18.9

Tax revenue (FBR)2 Jul-Dec 23.4 26.7 6.0

CPI (12 months moving average) Jul-Jan 9.1 7.7 8.0

Private sector credit Jul-Feb 18.1 10.7 11.0

Money supply (M2) Jul-Feb 8.6 7.6 6.6

In millions of USDs

Total liquid reserves3 end-Feb 11,509.0 13,316.0 14,081.0

Home remittances Jul-Jan 2,444.0 2,959.0 3,619.0

Foreign private investment Jul-Jan 1,536.0 3,417.0 2,226.0

In percent of GDP4

Fiscal deficit Jul-Dec 1.8 1.9 3.6

Trade deficit Jul-Jan 5.1 5.3 6.6

Current account deficit Jul-Jan 2.7 3.6 4.81 It stands for Free on Board.

2 It refers to Federal Board of Revenue.

3 With State Bank of Pakistan (SBP) and commercial banks.

4 Based on full-year GDP in the denominator. For 2007/08 estimated full-year GDP has been used.

Item


ANNUAL REPORT 2007

Pakistan: Main Items of Goods and Services Tradedwith ACU Member Countries in 2007

(In thousands of USDs)

Item Export Receipts

Import Payments

India

Live animals and animals products 1,446 13,323

Vegetable products 45,614 81,205

Animal or vegetable fats, oils and waxes 16 3,186

Prepared foodstuffs; beverages, spirits, vinegar and tobacco 5,327 79,666

Mineral products 159,965 57,670

Products of chemical or allied industries 7,018 418,782

Plastics and articles thereof; rubber and articles thereof 1,612 115,645

Raw hide and skins, leather, fur skins and articles thereof 10,675 16

Wood and articles of wood 41 34

Pulp of wood or of other fibrous cellulosic material 219 3,216

Textiles and textile articles 73,888 247,982

Footwear, headgear, umbrellas, walking sticks, etc. 62 -

Articles of stone, plaster, cement, asbestos, mica or similar materials 2,648 1,290

Natural or cultured pearls, precious or semi precious stones, metals 1,144 -

Base metals and articles or base metal 8,916 62,482

Machinery and mechanical appliances 2,860 27,067

Vehicles, aircraft, vessels and associated transport equipment 1,401 380

Optical, photographic, cinematographer, measuring, checking, precision apparatus 2,202 691

Miscellaneous manufactured articles 840 1,018

Works of arts, collectors, pieces, antiques and special transactions not elsewhere specified (NES) 6 228

Total 325,900 1,113,882

Note: Data is based on reporting by the banking channel only.

Commodity


ANNUAL REPORT 2007




Import Payments

Bangladesh

Live animals and animals products 112 40


Animal or vegetable fats, oils and waxes 6 -


Mineral products 903 -

Products of chemical or allied industries 4,160 432

Plastics and articles thereof; rubber and articles thereof 1,283 71

Raw hide and skins, leather, fur skins and articles thereof 2,964 18

Wood and articles of wood 20 -

Pulp of wood or of other fibrous cellulosic material 1,334 8


Footwear, headgear, umbrellas, walking sticks, etc. 91 23

Articles of stone, plaster, cement, asbestos, mica or similar materials 520 -

Natural or cultured pearls, precious or semi precious stones, metals 1 -

Base metals and articles or base metal 686 85

Machinery and mechanical appliances 10,208 1,216

Vehicles, aircraft, vessels and associated transport equipment 3,093 -

Optical, photographic, cinematographer, measuring, checking, precision apparatus 878 51

Arms and ammunition, parts and accessories thereof 402 -

Miscellaneous manufactured articles 397 122

Total 257,799 58,247


Commodity


ANNUAL REPORT 2007




Import Payments

Iran


Vegetable products 89,581 229

Animal or vegetable fats, oils and waxes - 18


Mineral products 49 208,163



Raw hide and skins, leather, fur skins and articles thereof 711 3,007

Pulp of wood or of other fibrous cellulosic material 1,254 -


Footwear, headgear, umbrellas, walking sticks, etc. 108 -

Articles of stone, plaster, cement, asbestos, mica or similar materials 61 213


Base metals and articles or base metal 285 24,184

Machinery and mechanical appliances 531 21,136

Vehicles, aircraft, vessels and associated transport equipment 998 665



Works of arts, collectors, pieces, antiques and special transactions NES - 8,632

Total 117,817 323,569


Commodity


ANNUAL REPORT 2007




Import Payments

Myanmar


Vegetable products 924 3,752 Prepared foodstuffs; beverages, spirits, vinegar and tobacco 7 -


Products of chemical or allied industries 760 16

Wood and articles of wood - 236

Textiles and textile articles 520 -

Machinery and mechanical appliances 93 - Optical, photographic, cinematographer, measuring, checking, precision apparatus 74 -

Total 2,576 4,045

Nepal

Vegetable products 301 721Prepared foodstuffs; beverages, spirits, vinegar and tobacco 66 -


Products of chemical or allied industries 16 46

Plastics and articles thereof; rubber and articles thereof 437 -

Raw hide and skins, leather, fur skins and articles thereof - 7

Textiles and textile articles 690 -Natural or cultured pearls, precious or semi precious stones, metals 4 -

Machinery and mechanical appliances 220 -Optical, photographic, cinematographer, measuring, checking, precision apparatus 258 16

Arms and ammunition, parts and accessories thereof 23 -

Miscellaneous manufactured articles 2 -

Total 2,123 790

Commodity


ANNUAL REPORT 2007




Import Payments

Sri Lanka

Live animals and animals products 6,896 61


Animal or vegetable fats, oils and waxes 92 271

Prepared foodstuffs; beverages, spirits, vinegar and tobacco 4,252 231

Mineral products 1,090 57



Raw hide and skins, leather, fur skins and articles thereof 698 19

Wood and articles of wood 5 1,729

Pulp of wood or of other fibrous cellulosic material 18 441


Footwear, headgear, umbrellas, walking sticks, etc. 171 32

Articles of stone, plaster, cement, asbestos, mica or similar materials 1,297 222


Base metals and articles or base metal 13,172 393

Machinery and mechanical appliances 5,532 572

Vehicles, aircraft, vessels and associated transport equipment 1,054 -


Arms and ammunition, parts and accessories thereof 2,082 -


Works of arts, collectors, pieces, antiques and special transactions NES 745 35

Total 206,691 53,616


Commodity


ANNUAL REPORT 2007

Pakistan: Trade with ACU Member Countries in 2007(In thousands of USDs)


Import Payments

Live animals and animals products 8,577 14,292


Animal or vegetable fats, oils and waxes 113 3,475 Prepared foodstuffs; beverages, spirits, vinegar and tobacco 15,057 83,434

Mineral products 162,286 265,890



Raw hide and skins, leather, fur skins and articles thereof 15,047 3,069

Wood and articles of wood 66 1,998

Pulp of wood or of other fibrous cellulosic material 2,825 3,665


Footwear, headgear, umbrellas, walking sticks, etc. 432 54 Articles of stone, plaster, cement, asbestos, mica or similar materials 4,526 1,725

Natural or cultured pearls, precious or semi precious stones, metals 1,153 -

Base metals and articles or base metal 23,058 87,145

Machinery and mechanical appliances 19,444 49,991 Vehicles, aircraft, vessels and associated transport equipment 6,546 1,045

Optical, photographic, cinematographer, measuring, checking, precision apparatus 4,594 863

Arms and ammunition, parts and accessories thereof 2,507 -

Miscellaneous manufactured articles 2,136 1,198 Works of arts, collectors, pieces, antiques and apecial transactions NES 751 8,895

Total 912,905 1,554,148


Commodity


ANNUAL REPORT 2007

Pakistan: Trade with ACU Member Countriesduring 2006-2007(In thousands of USDs)

Item Export Receipts Import Payments2006 2007 2006 2007

Bangladesh 252,463 257,799 47,027 58,247

India 256,003 325,900 1,104,175 1,113,882

Iran 198,587 117,817 337,624 323,569

Myanmar 1,513 2,576 6,808 4,045

Nepal 2,150 2,123 1,843 790

Sri Lanka 153,276 206,691 68,142 53,616

Total 863,992 912,905 1,565,618 1,554,148

Pakistan: Import Payments/Export Receipts from ACU Member Countries during January-December, 2007

(In millions of USDs)Item Export Receipts Import Payments

January 77 145

February 82 139

March 73 117

April 83 143

May 129 121

June 74 118

July 68 147

August 64 147

September 56 121

October 61 109

November 88 133

December 57 113

Total 913 1,554Note: Data is based on reporting by the banking channel only.

Source: State Bank of Pakistan

Country

Month

98 Country Performance / Sri Lanka

ANNUAL REPORT 2007

Sri LankaOverview

The Sri Lankan economy expanded by 6.8 percent in 2007, led by growth in transportation and communication, financial services, international and domestic trade, and manufacturing, despite the high international oil prices and the uncertain security situation in the country. In spite of strong growth in five consecutive years including strong external sector performance, the inflation rate that remained above its long-term average raised some concerns. To reduce the future inflationary pressures arising from excess demand, the Central Bank of Sri Lanka (CBSL) announced tighter monetary targets for 2007 and the tight monetary policy stance was continued during the year in order to achieve those targets. The external sector continued to sustain its strong performance in 2007 largely supported by the favourable global economic environment during much of 2007. The Balance of Payments (BOP) recorded a surplus for the third consecutive year. The exchange rate, which depreciated at a relatively higher rate against the US dollar in the first nine months, appreciated in the final quarter with the inflow of the proceeds from the debut sovereign bond

issue, and stabilised by end of the year. Gross official reserves of the country improved to a comfortable level, which is sufficient to finance 3.3 months of imports.

Gross Domestic Product (GDP) Growth and Inflation

In 2007, GDP grew by 6.8 percent, in real terms, compared with 7.7 percent growth in 2006. This was the third consecutive year that the economy grew over 6 percent. In the first half of the year, the economic growth was 6.2 percent, however, during the second half, the economy grew at a faster pace, by 7.2 percent, indicating further consolidation of progress towards a higher growth path. The growth of 6.8 percent was remarkable since it was achieved amidst a number of unfavourable developments namely oil price shock, deteriorating security situation and rising inflationary pressures owing to removal of subsidies and higher global prices of imported goods. The economic performance in 2007 indicates the intrinsic resilience of the Sri Lankan economy to face challenges arising from domestic as well as international fronts.

99Country Performance / Sri Lanka

ANNUAL REPORT 2007

The economic growth in 2007 was broad based. Industry and services sectors grew by 7.6 percent and 7.1 percent respectively while the agriculture sector grew moderately by 3.3 percent. The services sector contributed the highest to the overall growth, 62 percent. Of the industry sector, construction, export manufacturing, and mining and quarrying activities performed well and contributed for the highest growth reported in the industry sector. Post and telecommunication, cargo handling, transport, and financial services were the key performing sectors of the services sector. Most of the agricultural activities achieved high growth rates but the drop in the production of two major crops, tea and paddy, partly mitigated the growth performance of the agriculture sector. The expansion of the economy generated more employment opportunities, leading to a drop in the unemployment rate from 6.5 percent in 2006 to 6 percent in the third quarter of 2007.

Inflation was higher than expected in 2007, primarily due to supply side factors led by high international commodity prices including oil prices. The tight monetary policy measures curtailed inflation emanating from demand pressures and in fact, inflation was on a clear downward trend during the first half of 2007. However, inflation increased thereafter due to several other factors including the substantial increase in worldwide oil prices

and commodity prices in the international markets that required significant upward adjustments in prices of many domestic goods and services.

The official consumer price index (CPI) in Sri Lanka, the Colombo consumers’ price index (CCPI), had several weaknesses, including outdated weights, non-addition of new items, being based on the consumption patterns of 1948, etc. Recognising the vital need for a more representative and accurate price index, the Department Census and Statistics introduced a new CPI in November 2007, named the new CCPI (CCPI (N)). This is based on a more recent 2002 household expenditure survey. In this index the weighting pattern is based on the expenditure of a sample of 1,300 urban households of Colombo District irrespective of their level of income. This new index, which is now recognised as the official measure of inflation in Sri Lanka, is expected to record less volatility than the old CCPI.

Monetary Sector

The Central Bank raised its policy interest rates by 50 basis points in February 2007. This increase was on the back of a 300 basis point increase during 2004-2006. Further, the Central Bank continued to conduct aggressive open market operations on overnight and on a permanent basis to siphon off excess


ANNUAL REPORT 2007

liquidity and maintain market liquidity at a level consistent with the reserve money targets.

The Central Bank also continued its policy of restricting the provision of liquidity through the reverse repurchase window to when the market has an overall liquidity deficit, so as to reduce the risk of future inflationary pressure due to excessive demand. At the same time, the Bank restricted the number of times that commercial banks could have access to this reverse repo window. Towards the latter part of the year, the policy was modified to allow greater flexibility in obtaining liquidity for commercial banks at a higher rate to smooth out volatilities in market interest rates. Accordingly, a penal rate of 19 percent was imposed with effect from December 2007, for banks, which borrow more than 4 times per month.

Compared to the higher growth observed in the previous year, growth in reserve money decelerated during 2007. Responding to the tight monetary policy, reserve money growth decelerated to 10.2 percent by end 2007, from the 21.2 percent at end of the previous year.

Broad money growth, though decelerated towards the last quarter, remained above the desired level. Broad money, which was at a higher rate of around 22.2 percent in August due to high expansion in domestic credit, decelerated to 16.6

percent by end 2007 with the contraction in domestic credit. Within domestic credit, credit to the public sector, which comprises of net credit to the government and credit to public corporations, grew at a higher rate during the year. However, responding to the tight monetary policy stance, growth in credit to the private sector decelerated from the range of 24–26 percent to around 19 percent by end year.

A new development during the year 2007 was the establishment of a Monetary Policy Consultative Committee (MPCC) with a view to enhancing the policy effectiveness by increasing transparency of monetary policy decision making. The Central Bank was able to benefit from the expertise outside the Bank, including the representatives of the private sector and academicians, through the MPCC.

Financial system stability continued to be underpinned by the robust growth in the domestic economy. The banking sector remained profitable during the period while also enhancing their capital to meet the new regulatory standards under BASEL II from 2008. Increased provisioning and improved asset quality also demonstrate greater resilience of the banking sector. However, the inflationary pressures emanating from higher monetary expansion in the past and high international commodity prices and the resulting increases in domestic interest rates pose the key challenge to financial


ANNUAL REPORT 2007

system stability.

Fiscal Sector

The fiscal strategy of the government continued to be in the direction enunciated in the ‘Mahinda Chintana’ policy document, which was the forerunner to the Government’s ‘Ten-year Vision’ Framework. The gradual reduction of the overall budget deficit to a sustainable level is the center-piece of the fiscal policy framework. The government debt to GDP ratio continued to decline, to 85.8 percent by end 2007. The revenue to GDP ratio has continued in its favourable trend for the third consecutive year in 2007, thereby confirming the success of the strenuous efforts taken by the government. Strengthening tax administration further, streamlining tax incentives and exemptions, enhancing tax compliance and strengthening enforcement would be among the major policy actions that need to be pursued with commitment over the next few years as well.

External Sector

Export earnings in 2007 totalled USD 7,740 million, which is an impressive increase of 12.5 percent, year-on-year (YoY), compared to last year. Expenditure on imports recorded an increase of 10.2 percent, YoY, due to significant increases in expenditure on imports of petroleum,

notably, as well as investment and intermediate goods. As a result, trade deficit widened to USD 3,560 million, which was largely offset by increased private remittances. Earnings from the export of services such as transportation, travel, Information Technology (IT) continued to increase, though there was a decline in earnings from tourism. The current account deficit improved as a percent of GDP to 4.2 percent although it widened marginally in US dollars terms.

The services account surplus together with the increased worker remittances helped contain the current account deficit. The surplus in the capital and financial account was more than sufficient to offset the deficit in the current account leading to an overall surplus of USD 531 million in the BOP. The government successfully launched its debut international bond issue in October 2007 and on December 1, 2007 enhanced the maximum limit that the foreigners could invest in treasury bonds. The gross official reserves excluding Asian Clearing Union (ACU) receipts increased to USD 3,063 million in 2007. This was sufficient to finance 3.3 months of imports. Meanwhile, total external reserves of the country, excluding ACU receipts increased to USD 4,511 million, due to commercial banks building up their foreign assets with a substantial increase in foreign currency deposits.

Total external debt of the country, as a


ANNUAL REPORT 2007

percent of GDP marginally increased to 44.1 percent in 2007, from 43.2 percent in 2006. In absolute terms, the total external debt increased by 17 percent to USD 14,252 million in 2007, partly owing to weakening of US dollar against other major currencies. Of the total medium and long-term debt, the government debt accounts for as much as 91 percent, with the remaining 9 percent representing borrowings of both the private sector and public corporations and debt obligations to the International Monetary Fund (IMF). Of the government’s external debt stock, concessional debt accounts for about 86 percent.

Sri Lanka continued to follow an independently floating exchange rate

regime during 2007 allowing market forces to determine the exchange rate with limited intervention to mitigate excessive volatility in the exchange rate. The rupee, which depreciated at a relatively higher rate against the US dollar during the first three quarters of the year, appreciated in the final quarter with the inflow of the proceeds from the debut sovereign bond issue and recorded a marginal depreciation of 0.9 percent by end 2007 and stabilised thereafter. A further liberalisation of the capital account in 2007 in the form of permitting foreign investors to subscribe up to 10 percent of the outstanding rupee denominated Treasury bonds also contributed to the appreciation of the rupee with increased foreign fund inflows to the country.


ANNUAL REPORT 2007

Sri Lanka: Major Economic Indicators

Year 2006 20071

Output and Inflation (percent change)

GDP (Real) 7.7 6.8

Inflation (annual average, CCPI 1952=100) 13.7 17.5

Inflation (annual average, CCPIN 2002=100) 10.0 15.8

Unemployment 6.5 6.0 2

Government Finance (percent of GDP)

Total revenue 16.3 15.8

Expenditure and net lending 24.3 23.5

Budget deficit (with tsunami funds) 8.0 7.7

External Sector (percent change)

Exports 8.4 12.5

Imports 15.7 10.2

Trade balance (USD million) -3,371.0 -3,560.0

Overall balance (USD million) 204.0 531.0

Total external assets (USD million) 4,005.0 4,956.0

Months of imports coverage 4.7 5.3

Monetary Aggregates (percent change)

Broad money (M2b) 17.8 16.6

Reserve money 21.2 10.2

Narrow money 12.6 2.7

Private sector credit 24.0 19.3

Interest RatesRepurchase rate (overnight) 10.0 10.5

Reverse repurchase rate (overnight) 11.5 12.0

Weighted-average prime lending rate 15.2 18.0

Treasury bill rate (91 days) 12.8 21.3

Treasury bill rate (364 days) 13.0 20.01 Provisional data.

2 Data excluding both Northern and Eastern Provinces.

Source: Central Bank of Sri Lanka

Item


ANNUAL REPORT 2007

Sri Lanka: Major Indicators(In percent)

Year 2006 20071

Licensed Commercial Banks

Non-performing loans to gross loans 5.5 4.9

Non-performing loans net of provisions to capital 13.0 11.1

Regulatory capital to risk-weighted assets 12.7 12.7

Return on assets 1.8 1.9

Return on equity 15.4 16.0

Interest margin to gross income 37.8 33.2

Non interest expense to gross income 32.0 25.2

1 Provisional data.

Source: Bank Supervision Department, CBSL

Item


ANNUAL REPORT 2007

Sri Lanka: Main Items of Goods and Services Exportedto ACU Member Countries in 2007


Agriculture Frozen fish, vegetables, coconuts, desiccated and fresh, fruits, cocoa powder, copra, smoked rubber – RSS 3, new pneumatic tyres.

IndustryCoral and similar, Lactose and lactose syrup, insecticides, essential oils, mosquito coils, petroleum gases, paints, yarn, machinery, paper or paperboard, textile materials.

India

Agriculture

Black tea, cloves, coconut milk powder, coconuts desiccated, sugar confectionery, vegetable, pepper, crude palm oil, new pneumatic tyres, smoked rubber, pale crepe and brown crept, fruits, fresh arecanuts, nutmeg, mace, flowers, fresh fruits, cocoa nuts, oil cake, cuttle fish and squid cinnamon, turmeric, copra, margarine.

Industry

Billets of refined copper, aluminium alloys, single or multi-cored wire and cable, stranded wire, cables of copper, unbleached kraft paper or paperboard, waste and scrap of stainless steel, wire of aluminium not alloyed, antibiotics, anodized wire or lacqueres enameled, electric conductors, electrical discharge or filament lamps, fibreboard of a density, zinc not alloyed, magnetic or optical readers, marble, travertine and alabaster, refined copper unwrought, pains and varnishes, fats and oils, coral and similar balsams, lead oxides, tetrahydrofuran, organic compounds, connectors, apparel and clothing accessories, glycerol, ash and residues, stearic acid, fatty acids and acidoils, surgical gloves, trunks and suitcases, lorries, soap, yarn, woven fabric, air-conditioning machines.

Iran

Agriculture Black tea, coconuts – in shall, fresh, desiccated, coir fiber, rubber products, copra.

Industry Fiberboard of a density, textile materials.

MyanmarAgriculture Tyres of rubber, nutmeg. Industry Paints, garments, accessories.

NepalAgriculture Black tea, desiccated coconuts, copra.Industry Labels, articles of apparels clothing accessories, copper waste and scrap.

Pakistan

AgricultureBlack tea and green tea & other, betal leaves, copra, coconuts in shell (fresh), desiccated coconut, smoked rubber, pale brown scrap crepe, fruits, nutmeg, rice, rubber, pepper, mace, cloves, coir yarn.

Industry Fibreboard of a density, paper and paperboard, balls, activated carbon.


ANNUAL REPORT 2007

Sri Lanka: Main Items of Goods and Services Importedfrom ACU Member Countries in 2007

Sector/Country

Bangladesh

AgriculturePotatoes, seeds of coriander, rice, multiple (folded) or cabled yarn of jute, unbleached woven fabrics of jute or other textile, medicaments of fixed or unmixed products.

Industry Measuring equipments, hydrocarbons, perfumes, plastics, clothing accessories, paper or paperboard.

India

Agriculture

Fruits of genus capsicum – chilies, rice, turmeric, maize, millet, masoor dhal, medicaments, oil cake and other solid residues of soya bean, onions and shallots fresh or chilled, wheat grain, palm oil, dried vegetables, semi milled or wholly milled rice, white crystalline cane sugar, cigarettes, beedi leaves, potatoes, crude palm oil, milk and milk products, natural rubber.

Industry

Stainless steel tanks, aluminium, auto trishaws, carbon, chassis, crude oil, diesel, petrol and other petroleum, kerosene typeset fuel, crude palm oil, flat rolled iron or non alloy steel, buses and lorries, trankers and bowsers, measuring, motor cars and motor vehicles, motor cycles, cement, knitted or crocheted fabrics, paper and paperboard, polyethylene, printed: plain weave, thread, tractors, wire of refined copper, wire of brass, books machinery and equipments, motor accessories, denim, fish frozen or dried, sodium hydroxide, sulphuric acids, inorganic acids, sulphates, yeasts, diamonds, pharmaceutical goods, tyres, tubes and pipes.

IranAgriculture Dried grapes and dates, synthetic rubber products, medicaments.

Industry Petroleum oils and oil products, urea, urea resins, strip, carbon, copper waste and scrap.

MyanmarAgriculture Seeds of coriander, maize seed, black gram, vegetables. Industry Blow moulding machines for working rubber or plastics, precious stones, wood.

Nepal

Industry Ash and residues containing mainly copper, scoops of base metal, buttons of base metal, books.

Pakistan

AgricultureBeans of the species, rice, cotton sewing thread, fruits, onions, potatoes, denim, seeds of cumin, fruits, semi-milled wholly milled rice, dried vegetables, medicaments.

Industry

Unbleached: plain weave, woven fabrics, agricultural tractors, carbon, carboys, bottles, flasks and similar articles of plastics, crosstwill, gloves, mittens and mitts of other textiles, knitted or crocheted, measuring equipments, fabrics, zinc not alloyed.


ANNUAL REPORT 2007

Sri Lanka: Trade with ACU Member Countriesduring 2006-2007

(In millions of Sri Lanka Rupees)

Item Export Import

2006 2007 2006 2007

Bangladesh 1,942.1 2,517.0 830.4 1,208.3

India 50,888.5 57,098.0 225,895.0 307,936.8

Iran 8,669.3 12,960.1 78,900.0 83,062.8

Myanmar 11.9 56.5 294.9 607.6

Nepal 370.9 20.2 7.5 8.3

Pakistan 6,066.2 6,132.8 15,238.4 19,841.3

Total trade with ACU countries 67,948.8 78,784.7 321,166.2 412,665.0

Total trade with the World 716,579.0 856,808.0 1,066,689.0 1,251,135.0

Sources: Central Bank of Sri Lanka, Sri Lanka Customs

Sri Lanka: Trade through FTZ in 2007

ItemExport Import

Total Value (CIF)(Rs. Million)

As a percentage of total exports of the

relevant countryTotal value (CIF)

(Rs. Million)

As a percentage of total imports of the

relevant country

Bangladesh 1,432.2 56.9 271.4 22.5

Bhutan - - - -

India 41,643.8 72.9 39,466.0 12.8

Iran 757.9 5.9 38.9 0.1

Myanmar 6.6 11.7 15.9 2.6

Nepal 2.6 12.9 4.6 55.4

Pakistan 505.2 8.2 11,227.3 56.6

Total 44,348.3 - 51,024.1 -

Sources: Central Bank of Sri Lanka, Sri Lanka Customs

Source: Central Bank of Sri Lanka

Country

Country

109ACU Operations

ANNUAL REPORT 2007

Clearing Operations

Volume of transactions (one way plus accrued interest) booked at the Secretariat of the Asian Clearing Union in the financial year 2007 amounted to USD 15,830.5 million showing an increase of 31.4 percent over the corresponding figure of the last year. The total transactions including receipts, payments, and accrued interest among the ACU member countries through the ACU mechanism reached to USD 31,661 million. The volume of business through the Union was the highest, since the inception of the ACU. (Tables 1 and 2)

The average monthly total transactions credited/debited to the member central banks was USD 1,319.2 million compared with USD 1,004.2 million in the preceding year. The level of total annual trade (including exports, imports, and accrued interest) of member countries in the year under review shows that India was at the top with USD 14,105.2 million, depicting USD 3,585.2 million increase over the previous year, followed by I.R. of Iran, Sri Lanka, Bangladesh, Pakistan, Nepal, and Bhutan with USD 9,931.9,

3,054.7, 2,767.9, 1,759, 28.8, and 12 million, representing annual increase of USD 2,914.0, 475.1, 490.8, 83.3, 13.2, and 1.4 million, respectively. (Table 2)

The total annual trade of Myanmar decreased to USD 1.5 million or 54.5 percent less than the figure of the last year. In percentage terms, Nepal with 84.6 percent increase registered the highest annual growth rate, followed by Iran, India, Bangladesh, Sri Lanka, Bhutan, and Pakistan with 41.5, 34.1, 21.6, 18.4, 13.2, and 5 percent, respectively. (Table 2)

In the year under review, 44.1 percent of total trade amounting to USD 6,977.3 million was cleared through the ACU mechanism and the remaining amount of USD 8,853.2 million was settled in hard currency. Payments in hard currency improved by USD 2,667.6 million or 43.1 percent over the year. Nepal and India with 76.4 and 68.5 percent clearing in the system stood at the top, followed by Pakistan, Sri Lanka, Iran, Bangladesh, Bhutan, and Myanmar with 24.2, 6.9, 5.8,

ACU Operations

110 ACU Operations

ANNUAL REPORT 2007

During 2007, the Secretariat has issued a number of accounting vouchers, monthly statements, monthly Newsletters, Annual Report, SWIFT messages, faxes, letters, and e-mails. (Table 4)

Credit positions

In the year 2007, Iran, India, and Pakistan were the main creditors of the ACU member countries. Iran with USD 9,384 million stood at the top. India and Pakistan with USD 5,736.6 and 342.6 million, respectively remained the next. (Table 5)

The share of India in total credit transactions reached 36.2 percent which is 3.9 percent less than the previous year. Over the last year, Iran’s share increased by 4.6 percent, reaching 59.3 percent. (Table 6)

In percentage terms, transactions credited to Nepal grew by 172 percent. Iran, Sri Lanka, India, Pakistan, and Bhutan followed Nepal with growth rate of 42.3, 29, 18.6, 13.4, and 12.8 percent, respectively. (Table 7)

Debit positions

In 2007, India with USD 8,368.6 million was the main debtor, followed by Sri Lanka, Bangladesh, Pakistan, Iran, Nepal, and Bhutan with USD 2,857.1, 2,627.9, 1,416.4, 547.9, 12.5, and 0.1 million, respectively. (Table 8)

In percentage terms, India, Sri Lanka, and Bangladesh recorded the highest share in total debit transactions of 52.9, 18, and 16.6 percent, respectively. Pakistan, Iran, and Nepal totally registered

5.3, 0.9 and 0.2 percent, respectively. (Tables 1 and 3)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Inm

illi

on

so

fU

SD

s

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Transactions Credited to the Member

Central Banks in 2007

Nepal

Iran

Bhutan

Bangladesh

Sri LankaPakistan

MyanmarIndia

Transactions Debited to the Member

Central Banks in 2007

IndiaIran

Pakistan

Sri Lanka Bangladesh

Bhutan

NepalMyanmar

111ACU Operations

ANNUAL REPORT 2007

the remaining share of 12.5 percent.(Table 9)

Myanmar experienced negative annual payment growth of 59 percent, while Bhutan, India, Nepal, Iran, Bangladesh, Sri Lanka, and Pakistan posted rise in their payments. Bhutan recorded the highest annual payment growth of 950.8 percent, India and Nepal with 47.2 and 30.2 percent, respectively stood the next. (Table 10)

Net credit/debit positions

In the year 2007, Iran was the main net creditor of the ACU member countries with the amount of USD 8,836.1 million, representing 43.2 percent increase over the previous year. The second net creditor was Bhutan with USD 11.8 million, followed by Nepal. In contrast, the main net debtor was Sri Lanka with the amount of USD 2,659.5 million followed by India, Bangladesh, and Pakistan.(Tables 3 and 17)

The average interest rate applied in the ACU mechanism in the year 2007 was 4.9, representing 2.1 percent increase compared with the preceding year. In 2007, the monthly interest rates applied in the ACU settlement mechanism experienced a downward trend. (Table 13)

Swap facility

In accordance with the Article (VIIA) of Agreement Establishing the Asian Clearing Union, the Currency Swap Arrangement became available to all debtor participants during a settlement period, to avail two-

Interest received/paid

In 2007, the accrued interest credited/debited to the member central banks amounted to USD 40.9 million which was 0.5 percent of central banks’ net positions and 0.3 percent of the total transactions channeled through the ACU mechanism. In the year under review, total interest received/paid was USD 11.3 million more than the last year’s corresponding figure.(Tables 11 and 12)

The Average Interest Rates Applied in the ACU

Mechanism during 1977-2007

1

3

5

7

9

11

13

15

17

19

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

112 ACU Operations

ANNUAL REPORT 2007

month facility for settling imbalances in clearing.

Every eligible participant shall be entitled to the facility from every other participant up to 20 percent of the average gross payment made by it through the ACU mechanism to other participants during the three previous calendar years.

In the year 2007, the total entitlement of each member country to avail Swap facility of other members were allocated as India stood at the top with USD 777.8 million, followed by Bangladesh, Sri Lanka, Pakistan, Iran, and Nepal. (Table 14)

In 2007, none of the ACU member countries applied Swap facility, similar to the last 5 years. The total amount of Swap facility used by the ACU member central banks since the inception of this arrangement (September 1989-December 2007) was USD 630.8 million. (Table 15)

Thirty-second years of ACU operations

The year 2007 was the thirty-second year of the ACU operations. During this long period, the ACU has displayed a sense of true commitment, consolidated and nurtured throughout its operations. The ACU was established in December 1974

when the countries in the region were facing settlement difficulties mainly due to resource constraints. With regards to economic developments in recent years, it is necessary to review the current ACU procedures with a view to strengthen, smoothen and streamline them to facilitate trade and settlements.

In 2007, the ACU transactions (one way plus accrued interest) booked in the ACU Secretariat reached to USD 15,830.5 million, representing an increase of USD 3,780.6 million or 31.4 percent over the previous year. In the year under review, the total transactions (including exports, imports, and accrued interest) reached to unprecedented amount of USD 31,661 million.

During 1975-2007, the ACU transactions (one way plus accrued interest) channeled through the ACU mechanism amounted to USD 86,467.9 million, of which 49.8 percent cleared in the system and 50.2 percent settled in hard currency.

Total Transactions Channeled through

the ACU Mechanism during 1975-2007

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1975 1979 1983 1987 1991 1995 1999 2003 2007

In

millio

ns

of

US

Ds

113ACU Operations / Tables

ANNUAL REPORT 2007

Asian Clearing UnionTotal Transactions Channeled through the ACU Mechanism during 1975-2007

(In millions of USDs)Table (1)

Year

Yearly Transactions Cleared in the System Settled in Hard Currency

Amount 1 Growth(percent) Amount

Share in yearly transactions

(percent)Amount

Share in yearly transactions

(percent)1975 0.5 - 0.1 20.0 0.4 80.01976 25.7 5,040.0 4.1 16.0 21.6 84.01977 79.4 208.9 16.7 21.0 62.7 79.01978 137.6 73.3 39.9 29.0 97.7 71.01979 161.3 17.2 83.9 52.0 77.4 48.01980 183.0 13.5 98.8 54.0 84.2 46.01981 269.4 47.2 166.9 62.0 102.5 38.01982 300.4 11.5 196.6 65.4 103.8 34.61983 498.6 66.0 192.3 38.6 306.3 61.41984 662.8 32.9 322.2 48.6 340.6 51.41985 605.2 -8.7 373.5 61.7 231.7 38.31986 690.6 14.1 581.1 84.1 109.5 15.91987 625.4 -9.4 397.0 63.5 228.4 36.51988 940.8 50.4 698.5 74.2 242.3 25.81989 1,041.8 10.7 832.4 79.9 209.4 20.11990 1,366.6 31.2 947.8 69.4 418.8 30.61991 1,851.5 35.5 1,424.4 76.9 427.1 23.11992 1,928.4 4.2 1,172.5 60.8 755.9 39.21993 1,448.9 -24.9 1,018.0 70.3 430.9 29.71994 1,965.4 35.6 1,110.7 56.5 854.7 43.51995 2,702.9 37.5 1,353.4 50.1 1,349.5 49.91996 3,161.1 17.0 1,448.3 45.8 1,712.8 54.21997 2,655.0 -16.0 1,251.6 47.1 1,403.4 52.91998 2,842.8 7.1 1,130.6 39.8 1,712.2 60.21999 2,630.8 -7.5 1,057.4 40.2 1,573.4 59.82000 3,383.6 28.6 1,634.7 48.3 1,748.9 51.72001 3,553.7 5.0 1,643.6 46.3 1,910.1 53.72002 3,448.4 -3.0 1,446.4 41.9 2,002.0 58.12003 4,546.4 31.8 1,878.0 41.3 2,668.4 58.72004 6,679.8 46.9 3,163.3 47.4 3,516.5 52.62005 8,199.7 22.8 4,512.2 55.0 3,687.5 45.02006 12,049.9 47.0 5,864.3 48.7 6,185.6 51.32007 15,830.5 31.4 6,977.3 44.1 8,853.2 55.9Total 86,467.9 - 43,038.5 49.8 43,429.4 50.2

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

114 ACU Operations / Tables

ANNUAL REPORT 2007

Asian Clearing UnionTotal Transactions1 Routed through ACU during 2006-2007


Table (2)

Item 2006 2007

Change Growth(percent)Amount

Share in total transactions

(percent)Amount

Share in total transactions

(percent)

Bangladesh 2,277.1 9.4 2,767.9 8.7 490.8 21.6

Bhutan 10.6 0.0 12.0 0.0 1.4 13.2

India 10,520.0 43.7 14,105.2 44.6 3,585.2 34.1

Iran 7,017.9 29.1 9,931.9 31.4 2,914.0 41.5

Myanmar 3.3 0.0 1.5 0.0 -1.8 -54.5

Nepal 15.6 0.1 28.8 0.1 13.2 84.6

Pakistan 1,675.7 7.0 1,759.0 5.6 83.3 5.0

Sri Lanka 2,579.6 10.7 3,054.7 9.6 475.1 18.4

Total 24,099.8 100.0 31,661.0 100.0 7,561.2 31.4

1 Figure includes exports, imports, and accrued interest.

Country


ANNUAL REPORT 2007

Asian Clearing UnionTransactions1 Cleared/Settled in the ACU Mechanism in 2007


Table (3)

Item Total Credit Total Debit Net Balance

Cleared in the System

(percent)

Settled inHard Currency

(percent)

Bangladesh 140.0 2,627.9 -2,487.9 5.3 94.7

Bhutan 11.9 0.1 11.8 0.9 99.1

India 5,736.6 8,368.6 -2,632.0 68.5 31.5

Iran 9,384.0 547.9 8,836.1 5.8 94.2

Myanmar 1.5 0.0 1.5 0.2 99.8

Nepal 16.3 12.5 3.8 76.4 23.6

Pakistan 342.6 1,416.4 -1,073.8 24.2 75.8

Sri Lanka 197.6 2,857.1 -2,659.5 6.9 93.1

Total 15,830.5 15,830.5 ± 8,853.22 44.1 55.91 Including interest.

2 Figure indicates net credit/net debit position.

Country


ANNUAL REPORT 2007

Asian Clearing UnionNumber of Paper Works and Communications of the Secretariat in 2007

Table (4)

Item Number

Incoming SWIFT messages 3,421

Outgoing SWIFT messages 944

Outgoing union messages 231

Incoming letters and Faxes 518

Outgoing letters and Faxes 489

Incoming E-mails 391

Outgoing E-mails 384

Accounting vouchers 8,840

Monthly statements 741

Newsletters 1,488

Annual report 300


ANNUAL REPORT 2007

Asian Clearing UnionTransactions1 Credited to the Member Central Banks during 2003-2007


Table (5)

Year 2003 2004 2005 2006 2007

Bangladesh 99.4 104.3 127.9 144.7 140.0

Bhutan 4.2 7.6 11.4 10.6 11.9

India 2,487.7 3,328.1 3,677.5 4,835.2 5,736.6

Iran 1,745.8 2,929.1 3,991.7 6,594.8 9,384.0

Myanmar 2.4 2.1 2.7 3.3 1.5

Nepal 7.3 5.4 4.7 6.0 16.3

Pakistan 144.6 216.0 242.9 302.1 342.6

Sri Lanka 55.0 87.2 140.9 153.2 197.6

Total 4,546.4 6,679.8 8,199.7 12,049.9 15,830.51 Including interest.

Country


ANNUAL REPORT 2007

Asian Clearing UnionShare of the Member Central Banks

in Total Credit Transactions1 during 2003-2007(In percent)

Table (6)

Year 2003 2004 2005 2006 2007

Bangladesh 2.2 1.6 1.6 1.2 0.9

Bhutan 0.1 0.1 0.1 0.1 0.1

India 54.6 49.8 44.8 40.1 36.2

Iran 38.4 43.9 48.7 54.7 59.3

Myanmar 0.1 0.0 0.0 0.0 0.0

Nepal 0.2 0.1 0.1 0.1 0.1

Pakistan 3.2 3.2 3.0 2.5 2.2

Sri Lanka 1.2 1.3 1.7 1.3 1.2

Total 100.0 100.0 100.0 100.0 100.01 Including interest.

Country


ANNUAL REPORT 2007

Asian Clearing UnionAnnual Growth of Transactions1

Credited to the Member Central Banks during 2003-2007(In percent)

Table (7)

Year 2003 2004 2005 2006 2007

Bangladesh 3.0 4.9 22.6 13.1 -3.2

Bhutan 28.1 81.7 48.9 -6.5 12.8

India 30.9 33.8 10.5 31.5 18.6

Iran 38.0 67.8 36.3 65.2 42.3

Myanmar 18.8 -13.0 30.7 24.2 -55.7

Nepal 10.7 -25.2 -13.6 27.6 172.0

Pakistan 15.7 49.4 12.5 24.4 13.4

Sri Lanka 10.7 58.6 61.6 8.7 29.0


Country


ANNUAL REPORT 2007

Asian Clearing UnionTransactions1 Debited to the Member Central Banks during 2003-2007


Table (8)

Year 2003 2004 2005 2006 2007

Bangladesh 1,521.3 1,773.1 1,981.8 2,132.4 2,627.9

Bhutan 0.5 0.0 0.1 0.0 0.1

India 1,292.3 2,415.1 3,572.0 5,684.8 8,368.6

Iran 277.4 335.2 423.6 423.1 547.9

Myanmar 2.6 0.0 0.0 0.0 0.0

Nepal 6.5 11.1 8.4 9.6 12.5

Pakistan 453.9 649.7 695.2 1,373.6 1,416.4

Sri Lanka 991.9 1,495.6 1,518.6 2,426.4 2,857.1

Total 4,546.4 6,679.8 8,199.7 12,049.9 15,830.51 Including interest.

Country


ANNUAL REPORT 2007

Asian Clearing UnionShare of the Member Central Banks in

Total Debit Transactions1 during 2003-2007(In percent)

Table (9)

Year 2003 2004 2005 2006 2007

Bangladesh 33.5 26.5 24.2 17.7 16.6

Bhutan 0.0 0.0 0.0 0.0 0.0

India 28.4 36.2 43.5 47.2 52.9

Iran 6.1 5.0 5.2 3.5 3.5

Myanmar 0.1 0.0 0.0 0.0 0.0

Nepal 0.1 0.2 0.1 0.1 0.1

Pakistan 10.0 9.7 8.5 11.4 8.9

Sri Lanka 21.8 22.4 18.5 20.1 18.0


Country


ANNUAL REPORT 2007

Asian Clearing UnionAnnual Growth of Transactions1

Debited to the Member Central Banks during 2003-2007(In percent)

Table (10)

Year 2003 2004 2005 2006 2007

Bangladesh 26.9 16.6 11.8 7.6 23.2

Bhutan 74.6 -96.0 436.9 -90.9 950.8

India 35.7 86.9 47.9 59.2 47.2

Iran 29.1 20.8 26.4 -0.1 29.5

Myanmar 150.1 -99.4 -2.6 -43.4 -59.0

Nepal -16.4 71.4 -24.5 14.3 30.2

Pakistan 42.8 43.2 7.0 97.6 3.1

Sri Lanka 31.3 50.8 1.5 59.8 17.8


Country


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onM

onth

ly D

istr

ibut

ion

of A

ccru

ed In

tere

st C

redi

ted

to th

e M

embe

r Cen

tral

Ban

ks in

200

7(In

USD

s)

Tab

le (1

1)

Cou

ntry

B

angl

ades

hB

huta

nIn

dia

Iran

Mya

nmar

Nep

alPa

kist

anSr

i Lan

kaTo

tal

Janu

ary

0.0

4,82

6.2

0.0

1,66

0,66

8.4

647.

20.

00.

00.

01,

666,

141.

8

Febr

uary

0.0

9,15

9.0

338,

661.

52,

219,

968.

371

1.5

0.0

0.0

0.0

2,56

8,50

0.3

Mar

ch0.

06,

427.

10.

01,

751,

175.

661

3.3

0.0

0.0

0.0

1,75

8,21

6.0

Apr

il0.

015

,044

.30.

03,

891,

779.

51,

168.

90.

00.

00.

03,

907,

992.

7

May

0.0

5,62

9.8

0.0

2,95

9,08

5.1

1,07

4.7

0.0

0.0

0.0

2,96

5,78

9.6

June

0.0

5,23

7.0

0.0

5,61

0,86

5.5

887.

00.

00.

00.

05,

616,

989.

5

July

0.0

1,90

7.8

0.0

2,91

8,44

3.2

1,56

1.6

0.0

0.0

0.0

2,92

1,91

2.6

Aug

ust

0.0

2,49

4.2

0.0

5,44

0,80

7.1

1,96

0.2

97.5

0.0

0.0

5,44

5,35

9.0

Sept

embe

r0.

01,

504.

90.

01,

848,

942.

829

9.7

1,06

2.7

0.0

0.0

1,85

1,81

0.1

Oct

ober

0.0

3,57

2.6

0.0

3,72

0,43

0.8

0.0

1,49

5.4

0.0

0.0

3,72

5,49

8.8

Nov

embe

r0.

01,

629.

30.

03,

179,

827.

20.

23,

703.

10.

00.

03,

185,

159.

8

Dec

embe

r0.

03,

259.

70.

05,

302,

727.

90.

013

,172

.80.

00.

05,

319,

160.

4

Tota

l0.

060

,691

.933

8,66

1.5

40,5

04,7

21.4

8,92

4.3

19,5

31.5

0.0

0.0

40,9

32,5

30.6

Mon

th


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onM

onth

ly D

istr

ibut

ion

of A

ccru

ed In

tere

st D

ebite

d to

the

Mem

ber C

entr

al B

anks

in 2

007

(In U

SDs)

Tabl

e (1

2)

C

ount

ryB

angl

ades

hB

huta

nIn

dia

Iran

Mya

nmar

Nep

alPa

kist

anSr

i Lan

kaTo

tal

Janu

ary

694,

675.

40.

012

5,83

0.7

0.0

0.0

426.

937

7,25

5.2

467,

953.

61,

666,

141.

8

Febr

uary

1,10

3,78

5.2

0.0

0.0

0.0

0.0

3,70

5.8

557,

231.

390

3,77

8.0

2,56

8,50

0.3

Mar

ch64

8,53

1.0

0.0

104,

356.

30.

00.

01,

918.

431

4,95

5.6

688,

454.

71,

758,

216.

0

Apr

il1,

304,

083.

10.

090

8,23

9.9

0.0

0.0

2,54

7.1

504,

528.

31,

188,

594.

33,

907,

992.

7

May

551,

746.

70.

01,

346,

326.

50.

00.

02,

547.

126

3,57

0.2

801,

599.

12,

965,

789.

6

June

1,24

2,19

2.5

0.0

2,20

7,35

9.9

0.0

0.0

2,80

9.5

493,

175.

11,

671,

452.

55,

616,

989.

5

July

536,

515.

00.

01,

225,

262.

30.

00.

02,

609.

234

4,40

5.6

813,

120.

52,

921,

912.

6

Aug

ust

1,26

3,74

9.9

0.0

1,87

7,77

9.3

0.0

0.0

0.0

675,

136.

31,

628,

693.

55,

445,

359.

0

Sept

embe

r67

9,06

4.7

0.0

19,1

90.1

0.0

0.0

0.0

388,

394.

076

5,16

1.3

1,85

1,81

0.1

Oct

ober

1,28

8,67

1.9

0.0

450,

597.

00.

00.

00.

050

7,80

1.7

1,47

8,42

8.2

3,72

5,49

8.8

Nov

embe

r96

9,18

8.8

0.0

1,10

5,16

5.7

0.0

0.0

0.0

283,

303.

382

7,50

2.0

3,18

5,15

9.8

Dec

embe

r1,

248,

139.

10.

02,

371,

417.

90.

00.

00.

044

1,10

1.8

1,25

8,50

1.6

5,31

9,16

0.4

Tota

l11

,530

,343

.30.

011

,741

,525

.60.

00.

016

,564

.05,

150,

858.

412

,493

,239

.340

,932

,530

.6

Mon

th


ANNUAL REPORT 2007

Asian Clearing UnionInterest Rates1 Applied in the ACU Settlement Mechanism in 2007

(In percent)

Table (13)

Month Rate

January 5.1

February 5.1

March 5.2

April 5.1

May 5.1

June 5.1

July 5.1

August 5.1

September 4.8

October 4.5

November 4.3

December 4.11 The interest rate applicable for a settlement period is the closing rate on the first working day of the last week

of the previous calendar month offered by the Bank for International Settlements (BIS) for one month Euro-dollar

deposits.


ANNUAL REPORT 2007

Asian Clearing UnionTotal Entitlement of the Member Central Banks to Swap Facility in 2007


Table (14)

Country Amount

Bangladesh 391.3

Bhutan 0.0

India 777.8

Iran 78.8

Myanmar 0.0

Nepal 1.9

Pakistan 180.8

Sri Lanka 361.6

Total 1,792.2


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onSw

ap R

ecei

pts/

Paym

ents

by

the

AC

U M

embe

r Cen

tral

Ban

ks d

urin

g 19

89-2

007

(In m

illio

ns o

f USD

s)

Tabl

e (1

5)

Item

1989

-199

719

9819

9920

0020

0120

02-2

007

1

Rec

eipt

sPa

ymen

tsR

ecei

pts

Paym

ents

Rec

eipt

sPa

ymen

tsR

ecei

pts

Paym

ents

Rec

eipt

sPa

ymen

tsR

ecei

pts

Paym

ents

Ban

glad

esh

27.2

19.2

0.0

0.4

0.0

0.0

0.0

3.2

150.

04.

60.

00.

0

Bhu

tan

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Indi

a17

2.1

65.2

0.0

2.3

0.0

0.0

0.0

11.2

0.0

151.

00.

00.

0

Iran

0.0

206.

80.

03.

40.

00.

00.

011

.00.

016

.40.

00.

0

Mya

nmar

0.0

18.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Nep

al0.

00.

00.

00.

00.

00.

00.

00.

00.

01.

50.

00.

0

Paki

stan

172.

123

.57.

10.

00.

00.

028

.90.

042

.112

.00.

00.

0

Sri L

anka

31.3

70.0

0.0

1.0

0.0

0.0

0.0

3.5

0.0

6.6

0.0

0.0

Tota

l40

2.7

402.

77.

17.

10.

00.

028

.928

.919

2.1

192.

10.

00.

0

1 Non

e of

the

AC

U m

embe

r cen

tral b

anks

app

lied

Sw

ap fa

cilit

y du

ring

2002

-200

7.

Cou

ntry


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onTr

ansa

ctio

ns M

atrix

in 2

007

(In m

illio

ns o

f USD

s)

Tabl

e (1

6)

C

redi

tor

Ban

glad

esh

Bhu

tan

Indi

aIra

nM

yanm

arN

epal

Paki

stan

Sri L

anka

Tota

l

Ban

glad

esh

0.0

11.9

2,37

2.4

3.7

1.1

14.4

198.

114

.82,

616.

4

Bhu

tan

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.1

Indi

a33

.90.

00.

08,

192.

70.

00.

018

.811

1.5

8,35

6.9

Iran

43.5

0.0

417.

50.

00.

00.

060

.926

.054

7.9

Mya

nmar

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Nep

al7.

70.

00.

01.

00.

00.

03.

20.

612

.5

Paki

stan

47.0

0.0

951.

136

6.2

0.4

1.8

0.0

44.7

1,41

1.2

Sri L

anka

7.8

0.0

1,99

5.3

779.

80.

00.

161

.60.

02,

844.

6

Tota

l14

0.0

11.9

5,73

6.3

9,34

3.4

1.5

16.3

342.

619

7.6

15,7

89.6

Deb

tor


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onTo

tal T

rans

actio

ns1 R

oute

d C

umul

ativ

ely

thro

ugh

the

AC

U d

urin

g 20

06-2

007

(In m

illio

ns o

f USD

s)

Tabl

e (1

7)

Ite

mC

redi

tD

ebit

Tota

l Tra

nsac

tions

2006

2007

Gro

wth

(per

cent

)20

0620

07G

row

th(p

erce

nt)

2006

2007

Gro

wth

(per

cent

)

Ban

glad

esh

144.

714

0.0

-3.2

2,13

2.4

2,62

7.9

23.2

2,27

7.1

2,76

7.9

21.6

Bhu

tan

10.6

11.9

12.8

0.0

0.1

950.

810

.612

.013

.2

Indi

a4,

835.

25,

736.

618

.65,

684.

88,

368.

647

.210

,520

.014

,105

.234

.1

Iran

6,59

4.8

9,38

4.0

42.3

423.

154

7.9

29.5

7,01

7.9

9,93

1.9

41.5

Mya

nmar

3.3

1.5

-55.

70.

00.

0-5

9.0

3.3

1.5

-54.

5

Nep

al6.

016

.317

2.0

9.6

12.5

30.2

15.6

28.8

84.6

Paki

stan

302.

134

2.6

13.4

1,37

3.6

1,41

6.4

3.1

1,67

5.7

1,75

9.0

5.0

Sri L

anka

153.

219

7.6

29.0

2,42

6.4

2,85

7.1

17.8

2,57

9.6

3,05

4.7

18.4

Tota

l12

,049

.915

,830

.531

.412

,049

.915

,830

.531

.424

,099

.831

,661

.031

.4

1 Incl

udin

g in

tere

st.

Cou

ntry


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onM

onth

ly D

istr

ibut

ion

of T

otal

Tra

nsac

tions

1 Cre

dite

d to

the

Mem

ber C

entr

al B

anks

in 2

007

(In m

illio

ns o

f USD

s)

Tabl

e (1

8)

Cou

ntry

B

angl

ades

hB

huta

nIn

dia

Iran

Mya

nmar

Nep

alPa

kist

anSr

i Lan

kaTo

tal

Jan

uary

10.3

1.7

446.

049

2.4

0.1

0.6

26.3

17.8

995.

2

Feb

ruar

y13

.91.

251

5.0

414.

60.

20.

828

.612

.398

6.6

Mar

ch12

.22.

951

9.1

528.

30.

10.

326

.512

.01,

101.

4

Apr

il15

.01.

448

8.5

831.

80.

40.

826

.319

.81,

384.

0

May

7.8

0.9

488.

391

8.3

0.2

0.4

29.9

16.0

1,46

1.8

Jun

e9.

50.

645

6.8

775.

80.

01.

025

.719

.01,

288.

4

Jul

y11

.90.

344

4.9

862.

30.

51.

129

.318

.21,

368.

5

Aug

ust

10.7

0.3

427.

892

9.0

0.0

1.7

23.5

10.1

1,40

3.1

Sep

tem

ber

16.1

0.7

507.

062

9.2

0.0

1.2

23.5

16.0

1,19

3.7

Oct

ober

8.9

0.7

517.

990

8.1

0.0

2.2

41.6

19.5

1,49

8.9

Nov

embe

r10

.10.

548

9.9

1,16

1.2

0.0

2.8

36.7

20.2

1,72

1.4

Dec

embe

r13

.60.

743

5.4

933.

00.

03.

424

.716

.71,

427.

5

Tot

al14

0.0

11.9

5,73

6.6

9,38

4.0

1.5

16.3

342.

619

7.6

15,8

30.5

1 Inc

ludi

ng in

tere

st.

Mon

th


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onM

onth

ly D

istr

ibut

ion

of T

otal

Tra

nsac

tions

1 Deb

ited

to th

e M

embe

r Cen

tral

Ban

ks in

200

7(In

mill

ions

of U

SDs)

Tab

le (1

9)

C

ount

ryB

angl

ades

hB

huta

nIn

dia

Iran

Mya

nmar

Nep

alPa

kist

anSr

i Lan

kaTo

tal

Jan

uary

193.

60.

043

8.5

73.1

0.0

0.8

115.

917

3.3

995.

2

Feb

ruar

y20

9.3

0.0

420.

740

.00.

01.

912

9.9

184.

898

6.6

Mar

ch20

1.9

0.0

526.

841

.10.

00.

693

.123

7.9

1,10

1.4

Apr

il24

9.0

0.0

742.

234

.20.

01.

214

2.5

214.

91,

384.

0

May

217.

00.

085

4.5

39.0

0.0

1.3

98.0

252.

01,

461.

8

Jun

e18

0.8

0.0

684.

631

.30.

00.

810

6.2

284.

71,

288.

4

Jul

y18

8.2

0.0

734.

252

.10.

01.

415

1.5

241.

11,

368.

5

Aug

ust

225.

00.

074

1.5

34.4

0.0

1.1

122.

227

8.9

1,40

3.1

Sep

tem

ber

246.

50.

049

9.8

57.4

0.0

0.8

131.

225

8.0

1,19

3.7

Oct

ober

240.

90.

083

1.5

72.9

0.0

1.0

105.

624

7.0

1,49

8.9

Nov

embe

r23

0.4

0.0

1,05

5.9

35.5

0.0

0.9

122.

327

6.4

1,72

1.4

Dec

embe

r24

5.3

0.1

838.

436

.90.

00.

798

.020

8.1

1,42

7.5

Tot

al2,

627.

90.

18,

368.

654

7.9

0.0

12.5

1,41

6.4

2,85

7.1

15,8

30.5

1 Inc

ludi

ng in

tere

st.

Mon

th


ANNUAL REPORT 2007

Asi

an C

lear

ing

Uni

onN

et C

redi

tor/N

et D

ebto

r Pos

ition

s1 at t

he E

nd o

f eac

h Se

ttlem

ent P

erio

d in

200

7(In

mill

ions

of U

SDs)

Tabl

e (2

0)

Cou

ntry

B

angl

ades

hB

huta

nIn

dia

Iran

Mya

nmar

Nep

alPa

kist

anSr

i Lan

kaTo

tal

Feb

ruar

y0.

02.

910

1.8

793.

90.

30.

00.

00.

089

8.9

Apr

il0.

04.

30.

01,

284.

80.

50.

00.

00.

01,

289.

6

Jun

e0.

01.

50.

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Acronyms and Abbreviations 133

ANNUAL REPORT 2007

ACU Asian Clearing UnionADB Asian Development BankADP Annual Development ProgramATMs Automated Teller MachinesBE Budget EstimateBEPZA Bangladesh Export Processing Zones AuthorityBIS Bank for International SettlementBOP Balance of PaymentsCA Constituent AssemblyCAD Current Account DeficitCAR Capital Adequacy RatioCBI Central Bank of IranCBSL Central Bank of Sri LankaCCPI Colombo Consumers’ Price IndexCCPI (N) New Colombo Consumers’ Price IndexCIS Commonwealth of Independent StatesCOTI Countries other than IndiaCPI Consumer Price IndexCRR Cash Reserve RatioCRR Cash Reserve Requirement (Bangladesh)CSO Central Statistical OrganizationDCS Department Census and StatisticsECB European Central BankECBs External Commercial BorrowingsEPZ Export Processing ZoneEU European UnionFBR Federal Board of RevenueFD Federal ReserveFDI Foreign Direct InvestmentFFYDP Fourth Five-Year Development Plan

Acronyms and Abbreviations

Acronyms and Abbreviations134

ANNUAL REPORT 2007

FIs Financial InstitutionsFOB Free on BoardFRBM Fiscal Responsibility and Budget ManagementFRL Fiscal Responsibility LegislationFTZ Free Trade ZoneFY Financial yearGCC Golf Cooperation CouncilGDCF Gross Domestic Capital FormationGDF Gross Domestic FinancingGDP Gross Domestic ProductGDRs Global Depository ReceiptsGDS Gross Domestic SavingsGFD Gross Fiscal DeficitGON Government of NepalIIP Index of Industrial ProductionIMF International Monetary FundIT Information TechnologyIT-ITES Information Technology - Information Technology Enabled ServicesLAC Latin America and the CaribbeanLAF Liquidity Adjustment FacilityLPA Long Period AverageLPG Liquefied Petroleum GasLSM Large-Scale ManufacturingM1 Narrow MoneyM2 Broad MoneyMCC Money and Credit CouncilMFA Multi-Fibre ArrangementMLHR Ministry of Labour and Human ResourcesMPCC Monetary Policy Consultative CommitteeMSS Market Stabilization SchemeNASSCOM National Association of Software and Services CompaniesNDF Net Domestic FinancingNDTL Net Demand and Time LiabilityNEPSE Nepal Stock ExchangeNES Not Elsewhere SpecifiedNFA Net Foreign AssetsNPL Non-Performing Loans

Acronyms and Abbreviations 135

ANNUAL REPORT 2007

NRB Nepal Rastra BankNRI Non Resident IndianOMO Open Market OperationsOPEC Organization of Petroleum Exporting CountriesOSF Oil Stabilization FundPDS Public Distribution SystemPOL Petroleum, Oil and LubricantPOS Points of SalePPI Producer Price IndexPSU Public Sector UndertakingRD Revenue DeficitRE Revised EstimatesRM Reserve MoneyRMA Royal Monetary Authority of BhutanRMG Ready-Made GarmentsRTGS Real Time Gross SettlementSAHAB Retail Funds Transfer SystemSBP State Bank of PakistanSCBs Scheduled Commercial BanksSCI Statistical Center of IranSDRs Special Drawing RightsSEEs State Economic EnterprisesSEZ Special Economic ZoneSLR Statutory Liquidity RatioSMEs Small and Medium EnterprisesTDL Total Debt and LiabilitiesTEPIX Tehran Stock Exchange Price IndexTFC Twelfth Finance CommissionTSE Tehran Stock ExchangeUK United KingdomUS United StatesUSA United States of AmericaVAT Value Added TaxWPI Wholesale Price IndexYoY Year-on-Year

Documents

Asian Clearing Union ANNUAL REPORT 2007 · PDF fileV ANNUAL REPORT 2007 Alternate Directors Ziaul Hasan Siddiqui* Deputy Governor, Bangladesh Bank * From 31.05.2007 Dechen Tshering