The World Factbook. 2008.
Economy—overview
| Country | Economy—overview |
| Afghanistan | Afghanistan’s economy is recovering from decades of conflict. The economy has improved significantly since the fall of the Taliban regime in 2001 largely because of the infusion of international assistance, the recovery of the agricultural sector, and service sector growth. Real GDP growth exceeded 7% in 2007. Despite the progress of the past few years, Afghanistan is extremely poor, landlocked, and highly dependent on foreign aid, agriculture, and trade with neighboring countries. Much of the population continues to suffer from shortages of housing, clean water, electricity, medical care, and jobs. Criminality, insecurity, and the Afghan Government’s inability to extend rule of law to all parts of the country pose challenges to future economic growth. It will probably take the remainder of the decade and continuing donor aid and attention to significantly raise Afghanistan’s living standards from its current level, among the lowest in the world. While the international community remains committed to Afghanistan’s development, pledging over $24 billion at three donors’ conferences since 2002, Kabul will need to overcome a number of challenges. Expanding poppy cultivation and a growing opium trade generate roughly $4 billion in illicit economic activity and looms as one of Kabul’s most serious policy concerns. Other long-term challenges include: budget sustainability, job creation, corruption, government capacity, and rebuilding war torn infrastructure. |
| Akrotiri | Economic activity is limited to providing services to the military and their families located in Akrotiri. All food and manufactured goods must be imported. |
| Albania | Lagging behind its Balkan neighbors, Albania is making the difficult transition to a more modern open-market economy. The government has taken measures to curb violent crime, and recently adopted a fiscal reform package aimed at reducing the large gray economy and attracting foreign investment. The economy is bolstered by annual remittances from abroad of $600-$800 million, mostly from Albanians residing in Greece and Italy; this helps offset the towering trade deficit. Agriculture, which accounts for more than one-fifth of GDP, is held back because of lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land. Energy shortages and antiquated and inadequate infrastructure contribute to Albania’s poor business environment, which make it difficult to attract and sustain foreign investment. The completion of a new thermal power plant near Vlore and improved transmission line between Albania and Montenegro will help relieve the energy shortages. Also, the government is moving slowly to improve the poor national road and rail network, a long-standing barrier to sustained economic growth. On the positive side, macroeconomic growth was strong in 2003-07 and inflation is low and stable. |
| Algeria | The hydrocarbons sector is the backbone of the economy, accounting for roughly 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria has the eighth-largest reserves of natural gas in the world and is the fourth-largest gas exporter; it ranks 14th in oil reserves. Sustained high oil prices in recent years have helped improve Algeria’s financial and macroeconomic indicators. Algeria is running substantial trade surpluses and building up record foreign exchange reserves. Algeria has decreased its external debt to less than 10% of GDP after repaying its Paris Club and London Club debt in 2006. Real GDP has risen due to higher oil output and increased government spending. The government’s continued efforts to diversify the economy by attracting foreign and domestic investment outside the energy sector, however, has had little success in reducing high unemployment and improving living standards. Structural reform within the economy, such as development of the banking sector and the construction of infrastructure, moves ahead slowly hampered by corruption and bureaucratic resistance. |
| American Samoa | American Samoa has a traditional Polynesian economy in which more than 90% of the land is communally owned. Economic activity is strongly linked to the US with which American Samoa conducts most of its commerce. Tuna fishing and tuna processing plants are the backbone of the private sector, with canned tuna the primary export. Transfers from the US Government add substantially to American Samoa’s economic well being. Attempts by the government to develop a larger and broader economy are restrained by Samoa’s remote location, its limited transportation, and its devastating hurricanes. Tourism is a promising developing sector. |
| Andorra | Tourism, the mainstay of Andorra’s tiny, well-to-do economy, accounts for more than 80% of GDP. An estimated 11.6 million tourists visit annually, attracted by Andorra’s duty-free status and by its summer and winter resorts. Andorra’s comparative advantage has recently eroded as the economies of neighboring France and Spain have been opened up, providing broader availability of goods and lower tariffs. The banking sector, with its partial “tax haven” status, also contributes substantially to the economy. Agricultural production is limited – only 2% of the land is arable – and most food has to be imported. The principal livestock activity is sheep raising. Manufacturing output consists mainly of cigarettes, cigars, and furniture. Andorra is a member of the EU Customs Union and is treated as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products. |
| Angola | Angola’s high growth rate is driven by its oil sector, with record oil prices and rising petroleum production. Oil production and its supporting activities contribute about 85% of GDP. Increased oil production supported growth averaging more than 15% per year from 2004 to 2007. A postwar reconstruction boom and resettlement of displaced persons has led to high rates of growth in construction and agriculture as well. Much of the country’s infrastructure is still damaged or undeveloped from the 27-year-long civil war. Remnants of the conflict such as widespread land mines still mar the countryside even though an apparently durable peace was established after the death of rebel leader Jonas SAVIMBI in February 2002. Subsistence agriculture provides the main livelihood for most of the people, but half of the country’s food must still be imported. In 2005, the government started using a $2 billion line of credit, since increased to $7 billion, from China to rebuild Angola’s public infrastructure, and several large-scale projects were completed in 2006. Angola also has large credit lines from Brazil, Portugal, Germany, Spain, and the EU. The central bank in 2003 implemented an exchange rate stabilization program using foreign exchange reserves to buy kwanzas out of circulation. This policy became more sustainable in 2005 because of strong oil export earnings; it has significantly reduced inflation. Although consumer inflation declined from 325% in 2000 to under 13% in 2007, the stabilization policy has put pressure on international net liquidity. Angola became a member of OPEC in late 2006 and in late 2007 was assigned a production quota of 1.9 million barrels a day, somewhat less than the 2-2.5 million bbl Angola’s government had wanted. To fully take advantage of its rich national resources – gold, diamonds, extensive forests, Atlantic fisheries, and large oil deposits – Angola will need to implement government reforms, increase transparency, and reduce corruption. The government has rejected a formal IMF monitored program, although it continues Article IV consultations and ad hoc cooperation. Corruption, especially in the extractive sectors, and the negative effects of “Dutch disease” produced by large inflows of foreign exchange, are major challenges facing Angola. |
| Anguilla | Anguilla has few natural resources, and the economy depends heavily on luxury tourism, offshore banking, lobster fishing, and remittances from emigrants. Increased activity in the tourism industry, which has spurred the growth of the construction sector, has contributed to economic growth. Anguillan officials have put substantial effort into developing the offshore financial sector, which is small, but growing. In the medium term, prospects for the economy will depend largely on the tourism sector and, therefore, on revived income growth in the industrialized nations as well as on favorable weather conditions. |
| Antarctica | Fishing off the coast and tourism, both based abroad, account for Antarctica’s limited economic activity. Antarctic fisheries in 2004-05 (1 July-30 June) reported landing 147,000 metric tons (estimated fishing from the area covered by the Convention on the Conservation of Antarctic Marine Living Resources (CCAMLR), which extends slightly beyond the Antarctic Treaty area). Unregulated fishing, particularly of Patagonian toothfish, is a serious problem. The CCAMLR determines the recommended catch limits for marine species. A total of 26,245 tourists visited in the 2005-06 Antarctic summer, up from the 22,712 visitors the previous year. Nearly all of them were passengers on commercial (nongovernmental) ships and several yachts that make trips during the summer. Most tourist trips last approximately two weeks. |
| Antigua and Barbuda | Antigua has a relatively high GDP per capita in comparison to most other Caribbean nations. It has experienced solid growth since 2003, driven by a construction boom in hotels and housing that which should wind down in 2008. Tourism continues to dominate the economy, accounting for more than half of GDP. The dual-island nation’s agricultural production is focused on the domestic market and constrained by a limited water supply and a labor shortage stemming from the lure of higher wages in tourism and construction. Manufacturing comprises enclave-type assembly for export with major products being bedding, handicrafts, and electronic components. Prospects for economic growth in the medium term will continue to depend on income growth in the industrialized world, especially in the US, which accounts for slightly more than one-third of tourist arrivals. Since taking office in 2004, the SPENCER government has adopted an ambitious fiscal reform program, but will continue to be saddled by its debt burden with a debt-to-GDP ratio exceeding 100%. |
| Arctic Ocean | Economic activity is limited to the exploitation of natural resources, including petroleum, natural gas, fish, and seals. |
| Argentina | Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. Although one of the world’s wealthiest countries 100 years ago, Argentina suffered during most of the 20th century from recurring economic crises, persistent fiscal and current account deficits, high inflation, mounting external debt, and capital flight. A severe depression, growing public and external indebtedness, and a bank run culminated in 2001 in the most serious economic, social, and political crisis in the country’s turbulent history. Interim President Adolfo RODRIGUEZ SAA declared a default – the largest in history – on the government’s foreign debt in December of that year, and abruptly resigned only a few days after taking office. His successor, Eduardo DUHALDE, announced an end to the peso’s decade-long 1-to-1 peg to the US dollar in early 2002. The economy bottomed out that year, with real GDP 18% smaller than in 1998 and almost 60% of Argentines under the poverty line. Real GDP rebounded to grow by an average 9% annually over the subsequent five years, taking advantage of previously idled industrial capacity and labor, an audacious debt restructuring and reduced debt burden, excellent international financial conditions, and expansionary monetary and fiscal policies. Inflation, however, reached double-digit levels in 2006 and the government of President Nestor KIRCHNER responded with “voluntary” price agreements with businesses, as well as export taxes and restraints. Multi-year price freezes on electricity and natural gas rates for residential users stoked consumption and kept private investment away, leading to restrictions on industrial use and blackouts in 2007. |
| Armenia | Since the breakup of the Soviet Union in 1991, Armenia has made progress in implementing many economic reforms including privatization, price reforms, and prudent fiscal policies. The conflict with Azerbaijan over the ethnic Armenian-dominated region of Nagorno-Karabakh contributed to a severe economic decline in the early 1990s. By 1994, however, the Armenian Government launched an ambitious IMF-sponsored economic liberalization program that resulted in positive growth rates. Economic growth has averaged over 13% in recent years. Armenia has managed to reduce poverty, slash inflation, stabilize its currency, and privatize most small- and medium-sized enterprises. Under the old Soviet central planning system, Armenia developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics, in exchange for raw materials and energy. Armenia has since switched to small-scale agriculture and away from the large agroindustrial complexes of the Soviet era. Nuclear power plants built at Metsamor in the 1970s were closed following the 1988 Spitak Earthquake, though they sustained no damage. One of the two reactors was re-opened in 1995, but the Armenian government is under international pressure to close it due to concerns that the Soviet era design lacks important safeguards. Metsamor provides 40 percent of the country’s electricity – hydropower accounts for about one-fourth. Economic ties with Russia remain close, especially in the energy sector. The electricity distribution system was privatized in 2002 and bought by Russia’s RAO-UES in 2005. Construction of a pipeline to deliver natural gas from Iran to Armenia is halfway completed and is scheduled to be commissioned by January 2009. Armenia has some mineral deposits (copper, gold, bauxite). Pig iron, unwrought copper, and other nonferrous metals are Armenia’s highest valued exports. Armenia’s severe trade imbalance has been offset somewhat by international aid, remittances from Armenians working abroad, and foreign direct investment. Armenia joined the WTO in January 2003. The government made some improvements in tax and customs administration in recent years, but anti-corruption measures will be more difficult to implement. Despite strong economic growth, Armenia’s unemployment rate remains high. Armenia will need to pursue additional economic reforms in order to improve its economic competitiveness and to build on recent improvements in poverty and unemployment, especially given its economic isolation from two of its nearest neighbors, Turkey and Azerbaijan. |
| Aruba | Tourism is the mainstay of the small, open Aruban economy, with offshore banking and oil refining and storage also important. The rapid growth of the tourism sector over the last decade has resulted in a substantial expansion of other activities. Over 1.5 million tourists per year visit Aruba, with 75% of those from the US. Construction continues to boom, with hotel capacity five times the 1985 level. In addition, the country’s oil refinery reopened in 1993, providing a major source of employment, foreign exchange earnings, and growth. Tourist arrivals have rebounded strongly following a dip after the 11 September 2001 attacks. The island experiences only a brief low season, and hotel occupancy in 2004 averaged 80%, compared to 68% throughout the rest of the Caribbean. The government has made cutting the budget and trade deficits a high priority. |
| Ashmore and Cartier Islands | no economic activity |
| Atlantic Ocean | The Atlantic Ocean provides some of the world’s most heavily trafficked sea routes, between and within the Eastern and Western Hemispheres. Other economic activity includes the exploitation of natural resources, e.g., fishing, dredging of aragonite sands (The Bahamas), and production of crude oil and natural gas (Caribbean Sea, Gulf of Mexico, and North Sea). |
| Australia | Australia has an enviable, strong economy with a per capita GDP on par with the four dominant West European economies. Robust business and consumer confidence and high export prices for raw materials and agricultural products are fueling the economy, particularly in mining states. Australia’s emphasis on reforms, low inflation, a housing market boom, and growing ties with China have been key factors behind the economy’s 16 solid years of expansion. Drought, robust import demand, and a strong currency have pushed the trade deficit up in recent years, while infrastructure bottlenecks and a tight labor market are constraining growth in export volumes and stoking inflation. Australia’s budget has been in surplus since 2002 due to strong revenue growth. |
| Austria | Austria, with its well-developed market economy and high standard of living, is closely tied to other EU economies, especially Germany’s. The Austrian economy also benefits greatly from strong commercial relations, especially in the banking and insurance sectors, with central, eastern, and southeastern Europe. The economy features a large service sector, a sound industrial sector, and a small, but highly developed agricultural sector. Membership in the EU has drawn an influx of foreign investors attracted by Austria’s access to the single European market and proximity to the new EU economies. The outgoing government has successfully pursued a comprehensive economic reform program, aimed at streamlining government and creating a more competitive business environment, further strengthening Austria’s attractiveness as an investment location. It has implemented effective pension reforms; however, lower taxes in 2005-06 led to a small budget deficit in 2006 and 2007. Boosted by strong exports, growth nevertheless reached 3.3% in both 2006 and 2007, although the economy may slow in 2008 because of the strong euro, high oil prices, and problems in international financial markets. To meet increased competition – especially from new EU members and Central European countries – Austria will need to continue restructuring, emphasizing knowledge-based sectors of the economy, and encouraging greater labor flexibility and greater labor participation by its aging population. |
| Azerbaijan | Azerbaijan’s high economic growth in 2006 and 2007 is attributable to large and growing oil exports. Azerbaijan’s oil production declined through 1997, but has registered an increase every year since. Negotiation of production-sharing arrangements (PSAs) with foreign firms, which have committed $60 billion to long-term oilfield development, should generate the funds needed to spur future industrial development. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997. A consortium of Western oil companies began pumping 1 million barrels a day from a large offshore field in early 2006, through a $4 billion pipeline it built from Baku to Turkey’s Mediterranean port of Ceyhan. By 2010 revenues from this project will double the country’s current GDP. Azerbaijan shares all the formidable problems of the former Soviet republics in making the transition from a command to a market economy, but its considerable energy resources brighten its long-term prospects. Baku has only recently begun making progress on economic reform, and old economic ties and structures are slowly being replaced. Several other obstacles impede Azerbaijan’s economic progress: the need for stepped up foreign investment in the non-energy sector, the continuing conflict with Armenia over the Nagorno-Karabakh region, pervasive corruption, and elevated inflation. Trade with Russia and the other former Soviet republics is declining in importance, while trade is building with Turkey and the nations of Europe. Long-term prospects will depend on world oil prices, the location of new oil and gas pipelines in the region, and Azerbaijan’s ability to manage its energy wealth. |
| Bahamas, The | The Bahamas is one of the wealthiest Caribbean countries with an economy heavily dependent on tourism and offshore banking. Tourism together with tourism-driven construction and manufacturing accounts for approximately 60% of GDP and directly or indirectly employs half of the archipelago’s labor force. Steady growth in tourism receipts and a boom in construction of new hotels, resorts, and residences had led to solid GDP growth in recent years, but tourist arrivals have been on the decline since 2006. Financial services constitute the second-most important sector of the Bahamian economy and, when combined with business services, account for about 36% of GDP. However, since December 2000, when the government enacted new regulations on the financial sector, many international businesses have left The Bahamas. Manufacturing and agriculture combined contribute approximately a tenth of GDP and show little growth, despite government incentives aimed at those sectors. Overall growth prospects in the short run rest heavily on the fortunes of the tourism sector. Tourism, in turn, depends on growth in the US, the source of more than 80% of the visitors. |
| Bahrain | With its highly developed communication and transport facilities, Bahrain is home to numerous multinational firms with business in the Gulf. Petroleum production and refining account for over 60% of Bahrain’s export receipts, over 70% of government revenues, and 11% of GDP (exclusive of allied industries), underpinning Bahrain’s strong economic growth in recent years. Aluminum is Bahrain’s second major export after oil. Other major segments of Bahrain’s economy are the financial and construction sectors. Bahrain is focused on Islamic banking and is competing on an international scale with Malaysia as a worldwide banking center. Bahrain is actively pursuing the diversification and privatization of its economy to reduce the country’s dependence on oil. As part of this effort, in August 2006 Bahrain and the US implemented a Free Trade Agreement (FTA), the first FTA between the US and a Gulf state. Continued strong growth hinges on Bahrain’s ability to acquire new natural gas supplies as feedstock to support its expanding petrochemical and aluminum industries. Unemployment, especially among the young, and the depletion of oil and underground water resources are long-term economic problems. |
| Bangladesh | The economy has grown 5-6% over the past few years despite inefficient state-owned enterprises, delays in exploiting natural gas resources, insufficient power supplies, and slow implementation of economic reforms. Bangladesh remains a poor, overpopulated, and inefficiently-governed nation. Although more than half of GDP is generated through the service sector, nearly two-thirds of Bangladeshis are employed in the agriculture sector, with rice as the single-most-important product. Garment exports and remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, fuel economic growth. |
| Barbados | Historically, the Barbadian economy was dependent on sugarcane cultivation and related activities. However, production in recent years has diversified into light industry and tourism, with nearly three-quarters of GDP and 80% of exports being attributed to services. Growth has rebounded since 2003, bolstered by increases in construction projects and tourism revenues – reflecting its success in the higher-end segment. The country enjoys one of the highest per capita incomes in the region and an investment grade rating which benefits from its political stability and stable institutions. Offshore finance and information services are important foreign exchange earners and thrive from having the same time zone as eastern US financial centers and a relatively highly educated workforce. The government continues its efforts to reduce unemployment, to encourage direct foreign investment, and to privatize remaining state-owned enterprises. |
| Belarus | Belarus has seen little structural reform since 1995, when President LUKASHENKO launched the country on the path of “market socialism.” In keeping with this policy, LUKASHENKO reimposed administrative controls over prices and currency exchange rates and expanded the state’s right to intervene in the management of private enterprises. Since 2005, the government has re-nationalized a number of private companies. In addition, businesses have been subject to pressure by central and local governments, e.g., arbitrary changes in regulations, numerous rigorous inspections, retroactive application of new business regulations, and arrests of “disruptive” businessmen and factory owners. A wide range of redistributive policies has helped those at the bottom of the ladder; the Gini coefficient is among the lowest in the world. Because of these restrictive economic policies, Belarus has had trouble attracting foreign investment. Nevertheless, GDP growth has been strong in recent years, reaching nearly 8% in 2007, despite the roadblocks of a tough, centrally directed economy with a high, but decreasing, rate of inflation. Belarus receives heavily discounted oil and natural gas from Russia and much of Belarus’ growth can be attributed to the re-export of Russian oil at market prices. Trade with Russia – by far its largest single trade partner – decreased in 2007, largely as a result of a change in the way the Value Added Tax (VAT) on trade was collected. Russia has introduced an export duty on oil shipped to Belarus, which will increase gradually through 2009, and a requirement that Belarusian duties on re-exported Russian oil be shared with Russia – 80% will go to Russia in 2008, and 85% in 2009. Russia also increased Belarusian natural gas prices from $47 per thousand cubic meters (tcm) to $100 per tcm in 2007, and plans to increase prices gradually to world levels by 2011. Russia’s recent policy of bringing energy prices for Belarus to world market levels may result in a slowdown in economic growth in Belarus over the next few years. Some policy measures, including tightening of fiscal and monetary policies, improving energy efficiency, and diversifying exports, have been introduced, but external borrowing has been the main mechanism used to manage the growing pressures on the economy. |
| Belgium | This modern, private-enterprise economy has capitalized on its central geographic location, highly developed transport network, and diversified industrial and commercial base. Industry is concentrated mainly in the populous Flemish area in the north. With few natural resources, Belgium must import substantial quantities of raw materials and export a large volume of manufactures, making its economy unusually dependent on the state of world markets. Roughly three-quarters of its trade is with other EU countries. Public debt is more than 85% of GDP. On the positive side, the government has succeeded in balancing its budget, and income distribution is relatively equal. Belgium began circulating the euro currency in January 2002. Economic growth in 2001-03 dropped sharply because of the global economic slowdown, with moderate recovery in 2004-07. Economic growth and foreign direct investment are expected to slow down in 2008, due to credit tightening, falling consumer and business confidence, and above average inflation. However, with the successful negotiation of the 2008 budget and devolution of power within the government, political tensions seem to be easing and could lead to an improvement in the economic outlook for 2008. |
| Belize | In this small, essentially private-enterprise economy, tourism is the number one foreign exchange earner followed by exports of marine products, citrus, cane sugar, bananas, and garments. The government’s expansionary monetary and fiscal policies, initiated in September 1998, led to sturdy GDP growth averaging nearly 4% in 1999-2007. Oil discoveries in 2006 bolstered the economic growth in 2006 and 2007. Major concerns continue to be the sizable trade deficit and unsustainable foreign debt. In February 2007, the government restructured nearly all of its public external commercial debt, which will reduce interest payments and create the liquidity relief needed for an increase in public spending in the run-up to the March 2008 elections. A key short-term objective remains the reduction of poverty with the help of international donors. |
| Benin | The economy of Benin remains underdeveloped and dependent on subsistence agriculture, cotton production, and regional trade. Growth in real output has averaged around 5% in the past seven years, but rapid population growth has offset much of this increase. Inflation has subsided over the past several years. In order to raise growth still further, Benin plans to attract more foreign investment, place more emphasis on tourism, facilitate the development of new food processing systems and agricultural products, and encourage new information and communication technology. Specific projects to improve the business climate by reforms to the land tenure system, the commercial justice system, and the financial sector were included in Benin’s $307 million Millennium Challenge Account grant signed in February 2006. The 2001 privatization policy continues in telecommunications, water, electricity, and agriculture though the government annulled the privatization of Benin’s state cotton company in November 2007 after the discovery of irregularities in the bidding process. The Paris Club and bilateral creditors have eased the external debt situation, with Benin benefiting from a G8 debt reduction announced in July 2005, while pressing for more rapid structural reforms. An insufficient electrical supply continues to adversely affect Benin’s economic growth though the government recently has taken steps to increase domestic power production. |
| Bermuda | Bermuda enjoys the highest per capita income in the world, more than 50% higher than that of the US. Its economy is primarily based on providing financial services for international business and luxury facilities for tourists. A number of reinsurance companies relocated to the island following the 11 September 2001 attacks and again after Hurricane Katrina in August 2005, contributing to the expansion of an already robust international business sector. Bermuda’s tourism industry – which derives over 80% of its visitors from the US – continues to struggle but remains the island’s number two industry. Most capital equipment and food must be imported. Bermuda’s industrial sector is small, although construction continues to be important; the average cost of a house in June 2003 had risen to $976,000. Agriculture is limited with only 20% of the land being arable. |
| Bhutan | The economy, one of the world’s smallest and least developed, is based on agriculture and forestry, which provide the main livelihood for more than 60% of the population. Agriculture consists largely of subsistence farming and animal husbandry. Rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult and expensive. The economy is closely aligned with India’s through strong trade and monetary links and dependence on India’s financial assistance. The industrial sector is technologically backward, with most production of the cottage industry type. Most development projects, such as road construction, rely on Indian migrant labor. Model education, social, and environment programs are underway with support from multilateral development organizations. Each economic program takes into account the government’s desire to protect the country’s environment and cultural traditions. For example, the government, in its cautious expansion of the tourist sector, encourages visits by upscale, environmentally conscientious tourists. Detailed controls and uncertain policies in areas such as industrial licensing, trade, labor, and finance continue to hamper foreign investment. Hydropower exports to India drove GDP growth to over 20% in 2007 |
| Bolivia | Bolivia is one of the poorest and least developed countries in Latin America. Following a disastrous economic crisis during the early 1980s, reforms spurred private investment, stimulated economic growth, and cut poverty rates in the 1990s. The period 2003-05 was characterized by political instability, racial tensions, and violent protests against plans – subsequently abandoned – to export Bolivia’s newly discovered natural gas reserves to large northern hemisphere markets. In 2005, the government passed a controversial hydrocarbons law that imposed significantly higher royalties and required foreign firms then operating under risk-sharing contracts to surrender all production to the state energy company, which was made the sole exporter of natural gas. The law also required that the state energy company regain control over the five companies that were privatized during the 1990s – a process that is still underway. In 2006, higher earnings for mining and hydrocarbons exports pushed the current account surplus to about 12% of GDP and the government’s higher tax take produced a fiscal surplus after years of large deficits. Debt relief from the G8 – announced in 2005 – also has significantly reduced Bolivia’s public sector debt burden. Private investment as a share of GDP, however, remains among the lowest in Latin America, and inflation reached double-digit levels in 2007. |
| Bosnia and Herzegovina | Bosnia and Herzegovina ranked next to Macedonia as the poorest republic in the old Yugoslav federation. Although agriculture is almost all in private hands, farms are small and inefficient, and the republic traditionally is a net importer of food. The private sector is growing and foreign investment is slowly increasing, but government spending, at nearly 40% of adjusted GDP, remains unreasonably high. The interethnic warfare in Bosnia caused production to plummet by 80% from 1992 to 1995 and unemployment to soar. With an uneasy peace in place, output recovered in 1996-99 at high percentage rates from a low base; but output growth slowed in 2000-02. Part of the lag in output was made up in 2003-07 when GDP growth exceeded 5% per year. National-level statistics are limited and do not capture the large share of black market activity. The konvertibilna marka (convertible mark or BAM)- the national currency introduced in 1998 – is pegged to the euro, and confidence in the currency and the banking sector has increased. Implementing privatization, however, has been slow, particularly in the Federation, although more successful in the Republika Srpska. Banking reform accelerated in 2001 as all the Communist-era payments bureaus were shut down; foreign banks, primarily from Western Europe, now control most of the banking sector. A sizeable current account deficit and high unemployment rate remain the two most serious macroeconomic problems. On 1 January 2006 a new value-added tax (VAT) went into effect. The VAT has been successful in capturing much of the gray market economy and has developed into a significant and predictable source of revenues for all layers of government. Bosnia and Herzegovina became a full member of the Central European Free Trade Agreement in September 2007. The country receives substantial reconstruction assistance and humanitarian aid from the international community but will have to prepare for an era of declining assistance. |
| Botswana | Botswana has maintained one of the world’s highest economic growth rates since independence in 1966, though growth slowed to 4.7% annually in 2006-07. Through fiscal discipline and sound management, Botswana has transformed itself from one of the poorest countries in the world to a middle-income country with a per capita GDP of more than $11,000 in 2006. Two major investment services rank Botswana as the best credit risk in Africa. Diamond mining has fueled much of the expansion and currently accounts for more than one-third of GDP and for 70-80% of export earnings. Tourism, financial services, subsistence farming, and cattle raising are other key sectors. On the downside, the government must deal with high rates of unemployment and poverty. Unemployment officially was 23.8% in 2004, but unofficial estimates place it closer to 40%. HIV/AIDS infection rates are the second highest in the world and threaten Botswana’s impressive economic gains. An expected leveling off in diamond mining production overshadows long-term prospects. |
| Bouvet Island | no economic activity; declared a nature reserve |
| Brazil | Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil’s economy outweighs that of all other South American countries and is expanding its presence in world markets. Having weathered 2001-03 financial turmoil, capital inflows are regaining strength and the currency has resumed appreciating. The appreciation has slowed export volume growth, but since 2004, Brazil’s growth has yielded increases in employment and real wages. The resilience in the economy stems from commodity-driven current account surpluses, and sound macroeconomic policies that have bolstered international reserves to historically high levels, reduced public debt, and allowed a significant decline in real interest rates. A floating exchange rate, an inflation-targeting regime, and a tight fiscal policy are the three pillars of the economic program. From 2003 to 2007, Brazil ran record trade surpluses and recorded its first current account surpluses since 1992. Productivity gains coupled with high commodity prices contributed to the surge in exports. Brazil improved its debt profile in 2006 by shifting its debt burden toward real denominated and domestically held instruments. LULA DA SILVA restated his commitment to fiscal responsibility by maintaining the country’s primary surplus during the 2006 election. Following his second inauguration, LULA DA SILVA announced a package of further economic reforms to reduce taxes and increase investment in infrastructure. The government’s goal of achieving strong growth while reducing the debt burden is likely to create inflationary pressures. |
| British Indian Ocean Territory | All economic activity is concentrated on the largest island of Diego Garcia, where a joint UK-US military facility is located. Construction projects and various services needed to support the military installation are performed by military and contract employees from the UK, Mauritius, the Philippines, and the US. There are no industrial or agricultural activities on the islands. When the native Ilois return, they plan to reestablish sugarcane production and fishing. The territory makes money by selling fishing licenses and postage stamps. |
| British Virgin Islands | The economy, one of the most stable and prosperous in the Caribbean, is highly dependent on tourism, generating an estimated 45% of the national income. An estimated 820,000 tourists, mainly from the US, visited the islands in 2005. In the mid-1980s, the government began offering offshore registration to companies wishing to incorporate in the islands, and incorporation fees now generate substantial revenues. Roughly 400,000 companies were on the offshore registry by yearend 2000. The adoption of a comprehensive insurance law in late 1994, which provides a blanket of confidentiality with regulated statutory gateways for investigation of criminal offenses, made the British Virgin Islands even more attractive to international business. Livestock raising is the most important agricultural activity; poor soils limit the islands’ ability to meet domestic food requirements. Because of traditionally close links with the US Virgin Islands, the British Virgin Islands has used the US dollar as its currency since 1959. |
| Brunei | Brunei has a small well-to-do economy that encompasses a mixture of foreign and domestic entrepreneurship, government regulation, welfare measures, and village tradition. Crude oil and natural gas production account for just over half of GDP and more than 90% of exports. Per capita GDP is among the highest in Asia, and substantial income from overseas investment supplements income from domestic production. The government provides for all medical services and free education through the university level and subsidizes rice and housing. Brunei’s leaders are concerned that steadily increased integration in the world economy will undermine internal social cohesion. Plans for the future include upgrading the labor force, reducing unemployment, strengthening the banking and tourist sectors, and, in general, further widening the economic base beyond oil and gas. |
| Bulgaria | Bulgaria, a former communist country that entered the EU on 1 January 2007, has experienced strong growth since a major economic downturn in 1996. Successive governments have demonstrated commitment to economic reforms and responsible fiscal planning, but have failed so far to rein in rising inflation and large current account deficits. Bulgaria has averaged more than 6% growth since 2004, attracting significant amounts of foreign direct investment, but corruption in the public administration, a weak judiciary, and the presence of organized crime remain significant challenges. |
| Burkina Faso | One of the poorest countries in the world, landlocked Burkina Faso has few natural resources and a weak industrial base. About 90% of the population is engaged in subsistence agriculture, which is vulnerable to periodic drought. Cotton is the main cash crop and the government has joined with three other cotton producing countries in the region – Mali, Niger, and Chad – to lobby in the World Trade Organization for fewer subsidies to producers in other competing countries. Since 1998, Burkina Faso has embarked upon a gradual but successful privatization of state-owned enterprises. Having revised its investment code in 2004, Burkina Faso hopes to attract foreign investors. Thanks to this new code and other legislation favoring the mining sector, the country has seen an upswing in gold exploration and production. While the bitter internal crisis in neighboring Cote d’Ivoire is beginning to be resolved, it is still having a negative effect on Burkina Faso’s trade and employment. In 2007 higher costs for energy and imported foodstuffs, as well as low cotton prices, dampened a GDP growth rate that had averaged 6% in the last 10 years. Burkina Faso received a Millennium Challenge Account threshold grant to improve girls’ education at the primary school level, and appears likely to receive a grant in the areas of infrastructure, agriculture, and land reform. |
| Burma | Burma, a resource-rich country, suffers from pervasive government controls, inefficient economic policies, and rural poverty. The junta took steps in the early 1990s to liberalize the economy after decades of failure under the “Burmese Way to Socialism,” but those efforts stalled, and some of the liberalization measures were rescinded. Despite Burma’s increasing oil and gas revenue, socio-economic conditions have deteriorated due to the regime’s mismanagement of the economy. Lacking monetary or fiscal stability, the economy suffers from serious macroeconomic imbalances – including rising inflation, fiscal deficits, multiple official exchange rates that overvalue the Burmese kyat, a distorted interest rate regime, unreliable statistics, and an inability to reconcile national accounts to determine a realistic GDP figure. Most overseas development assistance ceased after the junta began to suppress the democracy movement in 1988 and subsequently refused to honor the results of the 1990 legislative elections. In response to the government of Burma’s attack in May 2003 on AUNG SAN SUU KYI and her convoy, the US imposed new economic sanctions in August 2003 including a ban on imports of Burmese products and a ban on provision of financial services by US persons. Further, a poor investment climate hampers attracting outside investment slowing the inflow of foreign exchange. The most productive sectors will continue to be in extractive industries, especially oil and gas, mining, and timber with the latter especially causing environmental degradation. Other areas, such as manufacturing and services, are struggling with inadequate infrastructure, unpredictable import/export policies, deteriorating health and education systems, and endemic corruption. A major banking crisis in 2003 shuttered the country’s 20 private banks and disrupted the economy. As of 2007, the largest private banks operated under tight restrictions limiting the private sector’s access to formal credit. Moreover, the September 2007 crackdown on prodemocracy demonstrators, including thousands of monks, further strained the economy as the tourism industry, which directly employs about 500,000 people, suffered dramatic declines in foreign visitor levels. In November 2007, the European Union announced new sanctions banning investment and trade in Burmese gems, timber and precious stones, while the United States expanded its sanctions list to include more Burmese government and military officials and their family members, as well as prominent regime business cronies, their family members, and associated companies. Official statistics are inaccurate. Published statistics on foreign trade are greatly understated because of the size of the black market and unofficial border trade – often estimated to be as large as the official economy. Though the Burmese government has good economic relations with its neighbors, better investment and business climates and an improved political situation are needed to promote serious foreign investment, exports, and tourism. |
| Burundi | Burundi is a landlocked, resource-poor country with an underdeveloped manufacturing sector. The economy is predominantly agricultural with more than 90% of the population dependent on subsistence agriculture. Economic growth depends on coffee and tea exports, which account for 90% of foreign exchange earnings. The ability to pay for imports, therefore, rests primarily on weather conditions and international coffee and tea prices. The Tutsi minority, 14% of the population, dominates the government and the coffee trade at the expense of the Hutu majority, 85% of the population. An ethnic-based war that lasted for over a decade resulted in more than 200,000 deaths, forced more than 48,000 refugees into Tanzania, and displaced 140,000 others internally. Only one in two children go to school, and approximately one in 15 adults has HIV/AIDS. Food, medicine, and electricity remain in short supply. Burundi grew about 5% annually in 2006, but GDP growth probably fell to under 4% in 2007. Political stability and the end of the civil war have improved aid flows and economic activity has increased, but underlying weaknesses – a high poverty rate, poor education rates, a weak legal system, and low administrative capacity – risk undermining planned economic reforms. Burundi will continue to remain heavily dependent on aid from bilateral and multilateral donors; the delay of funds after a corruption scandal cut off bilateral aid in 2007 reduced government’s revenues and its ability to pay salaries. |
| Cambodia | From 2001 to 2004, the economy grew at an average rate of 6.4%, driven largely by an expansion in the garment sector and tourism. The US and Cambodia signed a Bilateral Textile Agreement, which gave Cambodia a guaranteed quota of US textile imports and established a bonus for improving working conditions and enforcing Cambodian labor laws and international labor standards in the industry. With the January 2005 expiration of a WTO Agreement on Textiles and Clothing, Cambodia-based textile producers were forced to compete directly with lower-priced producing countries such as China and India. Better-than-expected garment sector performance led to more than 8% growth in 2007. Its vibrant garment industry employs more than 350,000 people and contributes more than 70% of Cambodia’s exports. The Cambodian government has committed itself to a policy supporting high labor standards in an attempt to maintain buyer interest. In 2005, exploitable oil and natural gas deposits were found beneath Cambodia’s territorial waters, representing a new revenue stream for the government if commercial extraction begins. Mining also is attracting significant investor interest, particularly in the northeastern parts of the country, and the government has said opportunities exist for mining bauxite, gold, iron and gems. In 2006, a US-Cambodia bilateral Trade and Investment Framework Agreement (TIFA) was signed and the first round of discussions took place in early 2007. The tourism industry continues to grow rapidly, with foreign arrivals reaching 2 million in 2007. In 2007 the government signed a joint venture agreement with two companies to form a new national airline. The long-term development of the economy remains a daunting challenge. The Cambodian government is working with bilateral and multilateral donors, including the World Bank and IMF, to address the country’s many pressing needs. The major economic challenge for Cambodia over the next decade will be fashioning an economic environment in which the private sector can create enough jobs to handle Cambodia’s demographic imbalance. More than 50% of the population is less than 21 years old. The population lacks education and productive skills, particularly in the poverty-ridden countryside, which suffers from an almost total lack of basic infrastructure. |
| Cameroon | Because of its modest oil resources and favorable agricultural conditions, Cameroon has one of the best-endowed primary commodity economies in sub-Saharan Africa. Still, it faces many of the serious problems facing other underdeveloped countries, such as a top-heavy civil service and a generally unfavorable climate for business enterprise. Since 1990, the government has embarked on various IMF and World Bank programs designed to spur business investment, increase efficiency in agriculture, improve trade, and recapitalize the nation’s banks. In June 2000, the government completed an IMF-sponsored, three-year structural adjustment program; however, the IMF is pressing for more reforms, including increased budget transparency, privatization, and poverty reduction programs. International oil and cocoa prices have a significant impact on the economy. |
| Canada | As an affluent, high-tech industrial society in the trillion-dollar class, Canada resembles the US in its market-oriented economic system, pattern of production, and affluent living standards. Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes Mexico) touched off a dramatic increase in trade and economic integration with the US. Given its great natural resources, skilled labor force, and modern capital plant, Canada enjoys solid economic prospects. Top-notch fiscal management has produced consecutive balanced budgets since 1997, although public debate continues over the equitable distribution of federal funds to the Canadian provinces. Exports account for roughly a third of GDP. Canada enjoys a substantial trade surplus with its principal trading partner, the US, which absorbs 80% of Canadian exports each year. Canada is the US’s largest foreign supplier of energy, including oil, gas, uranium, and electric power. During 2007, Canada enjoyed good economic growth, moderate inflation, and the lowest unemployment rate in more than three decades. |
| Cape Verde | This island economy suffers from a poor natural resource base, including serious water shortages exacerbated by cycles of long-term drought. The economy is service-oriented, with commerce, transport, tourism, and public services accounting for 66% of GDP. Although nearly 70% of the population lives in rural areas, the share of food production in GDP is low. About 82% of food must be imported. The fishing potential, mostly lobster and tuna, is not fully exploited. Cape Verde annually runs a high trade deficit, financed by foreign aid and remittances from emigrants; remittances supplement GDP by more than 20%. Economic reforms are aimed at developing the private sector and attracting foreign investment to diversify the economy. Future prospects depend heavily on the maintenance of aid flows, the encouragement of tourism, remittances, and the momentum of the government’s development program. |
| Cayman Islands | With no direct taxation, the islands are a thriving offshore financial center. More than 68,000 companies were registered in the Cayman Islands as of 2003, including almost 500 banks, 800 insurers, and 5,000 mutual funds. A stock exchange was opened in 1997. Tourism is also a mainstay, accounting for about 70% of GDP and 75% of foreign currency earnings. The tourist industry is aimed at the luxury market and caters mainly to visitors from North America. Total tourist arrivals exceeded 2.1 million in 2003, with about half from the US. About 90% of the islands’ food and consumer goods must be imported. The Caymanians enjoy one of the highest outputs per capita and one of the highest standards of living in the world. |
| Central African Republic | Subsistence agriculture, together with forestry, remains the backbone of the economy of the Central African Republic (CAR), with more than 70% of the population living in outlying areas. The agricultural sector generates more than half of GDP. Timber has accounted for about 16% of export earnings and the diamond industry, for 40%. Important constraints to economic development include the CAR’s landlocked position, a poor transportation system, a largely unskilled work force, and a legacy of misdirected macroeconomic policies. Factional fighting between the government and its opponents remains a drag on economic revitalization. Distribution of income is extraordinarily unequal. Grants from France and the international community can only partially meet humanitarian needs. |
| Chad | Chad’s primarily agricultural economy will continue to be boosted by major foreign direct investment projects in the oil sector that began in 2000. Over 80% of Chad’s population relies on subsistence farming and livestock raising for its livelihood. Chad’s economy has long been handicapped by its landlocked position, high energy costs, and a history of instability. Chad relies on foreign assistance and foreign capital for most public and private sector investment projects. A consortium led by two US companies has been investing $3.7 billion to develop oil reserves – estimated at 1 billion barrels – in southern Chad. Chinese companies are also expanding exploration efforts and plan to build a refinery. The nation’s total oil reserves have been estimated to be 1.5 billion barrels. Oil production came on stream in late 2003. Chad began to export oil in 2004. Cotton, cattle, and gum arabic provide the bulk of Chad’s non-oil export earnings. |
| Chile | Chile has a market-oriented economy characterized by a high level of foreign trade. During the early 1990s, Chile’s reputation as a role model for economic reform was strengthened when the democratic government of Patricio AYLWIN – which took over from the military in 1990 – deepened the economic reform initiated by the military government. Growth in real GDP averaged 8% during 1991-97, but fell to half that level in 1998 because of tight monetary policies implemented to keep the current account deficit in check and because of lower export earnings – the latter a product of the global financial crisis. A severe drought exacerbated the recession in 1999, reducing crop yields and causing hydroelectric shortfalls and electricity rationing, and Chile experienced negative economic growth for the first time in more than 15 years. Despite the effects of the recession, Chile maintained its reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America. Between 2000 and 2007 growth ranged between 2%-6%. Throughout these years Chile maintained a low rate of inflation with GDP growth coming from high copper prices, solid export earnings (particularly forestry, fishing, and mining), and growing domestic consumption. President BACHELET in 2006 established an Economic and Social Stabilization Fund to hold excess copper revenues so that social spending can be maintained during periods of copper shortfalls. This fund will surpass $20 billion by the end of 2007. Chile continues to attract foreign direct investment, but most foreign investment goes into gas, water, electricity and mining. Unemployment has exhibited a downward trend over the past two years, dropping to 7.8% and 6.7% at the end of 2006 and 2007, respectively. Chile deepened its longstanding commitment to trade liberalization with the signing of a free trade agreement with the US, which took effect on 1 January 2004. Chile claims to have more bilateral or regional trade agreements than any other country. It has 57 such agreements (not all of them full free trade agreements), including with the European Union, Mercosur, China, India, South Korea, and Mexico. |
| China | China’s economy during the last quarter century has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy. Reforms started in the late 1970s with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment. China has generally implemented reforms in a gradualist or piecemeal fashion, including the sale of minority shares in four of China’s largest state banks to foreign investors and refinements in foreign exchange and bond markets in 2005. After keeping its currency tightly linked to the US dollar for years, China in July 2005 revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. Cumulative appreciation of the renminbi against the US dollar since the end of the dollar peg reached 15% in January 2008. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis, China in 2007 stood as the second-largest economy in the world after the US, although in per capita terms the country is still lower middle-income. Annual inflows of foreign direct investment in 2007 rose to $75 billion. By the end of 2007, more than 5,000 domestic Chinese enterprises had established direct investments in 172 countries and regions around the world. The Chinese government faces several economic development challenges: (a) to sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; (b) to reduce corruption and other economic crimes; and (c) to contain environmental damage and social strife related to the economy’s rapid transformation. Economic development has been more rapid in coastal provinces than in the interior, and approximately 200 million rural laborers have relocated to urban areas to find work. One demographic consequence of the “one child” policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment – notably air pollution, soil erosion, and the steady fall of the water table, especially in the north – is another long-term problem. China continues to lose arable land because of erosion and economic development. In 2007 China intensified government efforts to improve environmental conditions, tying the evaluation of local officials to environmental targets, publishing a national climate change policy, and establishing a high level leading group on climate change, headed by Premier WEN Jiabao. The Chinese government seeks to add energy production capacity from sources other than coal and oil as its double-digit economic growth increases demand. Chinese energy officials in 2007 agreed to purchase five third generation nuclear reactors from Western companies. More power generating capacity came on line in 2006 as large scale investments – including the Three Gorges Dam across the Yangtze River – were completed. |
| Christmas Island | Phosphate mining had been the only significant economic activity, but in December 1987 the Australian Government closed the mine. In 1991, the mine was reopened. With the support of the government, a $34 million casino opened in 1993, but closed in 1998. The Australian Government in 2001 agreed to support the creation of a commercial space-launching site on the island, expected to begin operations in the near future. |
| Clipperton Island | Although 115 species of fish have been identified in the territorial waters of Clipperton Island, the only economic activity is tuna fishing. |
| Cocos (Keeling) Islands | Grown throughout the islands, coconuts are the sole cash crop. Small local gardens and fishing contribute to the food supply, but additional food and most other necessities must be imported from Australia. There is a small tourist industry. |
| Colombia | Colombia’s economy has experienced positive growth over the past five years despite a serious armed conflict. In fact, 2007 is regarded by policy makers and the private sector as one of the best economic years in recent history, after 2005. The economy continues to improve in part because of austere government budgets, focused efforts to reduce public debt levels, an export-oriented growth strategy, improved domestic security, and high commodity prices. Ongoing economic problems facing President URIBE include reforming the pension system, reducing high unemployment, and funding new exploration to offset declining oil production. The government’s economic reforms and democratic security strategy, coupled with increased investment, have engendered a growing sense of confidence in the economy. However, the business sector continues to be concerned about failure of the US Congress to approve the signed FTA. |
| Comoros | One of the world’s poorest countries, Comoros is made up of three islands that have inadequate transportation links, a young and rapidly increasing population, and few natural resources. The low educational level of the labor force contributes to a subsistence level of economic activity, high unemployment, and a heavy dependence on foreign grants and technical assistance. Agriculture, including fishing, hunting, and forestry, contributes 40% to GDP, employs 80% of the labor force, and provides most of the exports. The country is not self-sufficient in food production; rice, the main staple, accounts for the bulk of imports. The government – which is hampered by internal political disputes – is struggling to upgrade education and technical training, privatize commercial and industrial enterprises, improve health services, diversify exports, promote tourism, and reduce the high population growth rate. The political problems caused the economy to contract in 2007. Remittances from 150,000 Comorans abroad help supplement GDP. |
| Congo, Democratic Republic of the | The economy of the Democratic Republic of the Congo – a nation endowed with vast potential wealth – is slowly recovering from two decades of decline. Conflict, which began in August 1998, dramatically reduced national output and government revenue, increased external debt, and resulted in the deaths of more than 3.5 million people from violence, famine, and disease. Foreign businesses curtailed operations due to uncertainty about the outcome of the conflict, lack of infrastructure, and the difficult operating environment. Conditions began to improve in late 2002 with the withdrawal of a large portion of the invading foreign troops. The transitional government reopened relations with international financial institutions and international donors, and President KABILA has begun implementing reforms, although progress is slow and the International Monetary Fund curtailed their program for the DRC at the end of March 2006 because of fiscal overruns. Much economic activity still occurs in the informal sector, and is not reflected in GDP data. Renewed activity in the mining sector, the source of most export income, boosted Kinshasa’s fiscal position and GDP growth. Government reforms and improved security may lead to increased government revenues, outside budget assistance, and foreign direct investment, although an uncertain legal framework, corruption, and a lack of transparency in government policy are continuing long-term problems. |
| Congo, Republic of the | The economy is a mixture of subsistance agriculture, an industrial sector based largely on oil, and support services, and a government characterized by budget problems and overstaffing. Oil has supplanted forestry as the mainstay of the economy, providing a major share of government revenues and exports. In the early 1980s, rapidly rising oil revenues enabled the government to finance large-scale development projects with GDP growth averaging 5% annually, one of the highest rates in Africa. The government has mortgaged a substantial portion of its oil earnings through oil-backed loans that have contributed to a growing debt burden and chronic revenue shortfalls. Economic reform efforts have been undertaken with the support of international organizations, notably the World Bank and the IMF. However, the reform program came to a halt in June 1997 when civil war erupted. Denis SASSOU-NGUESSO, who returned to power when the war ended in October 1997, publicly expressed interest in moving forward on economic reforms and privatization and in renewing cooperation with international financial institutions. Economic progress was badly hurt by slumping oil prices and the resumption of armed conflict in December 1998, which worsened the republic’s budget deficit. The current administration presides over an uneasy internal peace and faces difficult economic challenges of stimulating recovery and reducing poverty. Recovery of oil prices has boosted the economy’s GDP and near-term prospects. In March 2006, the World Bank and the International Monetary Fund (IMF) approved Heavily Indebted Poor Countries (HIPC) treatment for Congo. |
| Cook Islands | Like many other South Pacific island nations, the Cook Islands’ economic development is hindered by the isolation of the country from foreign markets, the limited size of domestic markets, lack of natural resources, periodic devastation from natural disasters, and inadequate infrastructure. Agriculture, employing about one-third of the working population, provides the economic base with major exports made up of copra and citrus fruit. Black pearls are the Cook Islands’ leading export. Manufacturing activities are limited to fruit processing, clothing, and handicrafts. Trade deficits are offset by remittances from emigrants and by foreign aid, overwhelmingly from New Zealand. In the 1980s and 1990s, the country lived beyond its means, maintaining a bloated public service and accumulating a large foreign debt. Subsequent reforms, including the sale of state assets, the strengthening of economic management, the encouragement of tourism, and a debt restructuring agreement, have rekindled investment and growth. |
| Coral Sea Islands | no economic activity |
| Costa Rica | Costa Rica’s basically stable economy depends on tourism, agriculture, and electronics exports. Poverty has remained at roughly 20% for nearly 20 years, and the strong social safety net that had been put into place by the government has eroded due to increased financial constraints on government expenditures. Immigration from Nicaragua has increasingly become a concern for the government. The estimated 300,000-500,000 Nicaraguans estimated to be in Costa Rica legally and illegally are an important source of (mostly unskilled) labor, but also place heavy demands on the social welfare system. Foreign investors remain attracted by the country’s political stability and high education levels, as well as the fiscal incentives offered in the free-trade zones. Exports have become more diversified in the past 10 years due to the growth of the high-tech manufacturing sector, which is dominated by the microprocessor industry. Tourism continues to bring in foreign exchange, as Costa Rica’s impressive biodiversity makes it a key destination for ecotourism. The government continues to grapple with its large internal and external deficits and sizable internal debt. Reducing inflation remains a difficult problem because of rising import prices, labor market rigidities, and fiscal deficits. Tax and public expenditure reforms will be necessary to close the budget gap. In October 2007, a national referendum voted in favor of the US-Central American Free Trade Agreement (CAFTA). CAFTA implementation needs to be completed by March 1, 2008 and would result in an improved investment climate. |
| Cote d’Ivoire | Cote d’Ivoire is the world’s largest producer and exporter of cocoa beans and a significant producer and exporter of coffee and palm oil. Consequently, the economy is highly sensitive fluctuations in international prices for these products, and, to a lesser extent, in climatic conditions. Despite government attempts to diversify the economy, it is still heavily dependent on agriculture and related activities, engaging roughly 68% of the population. Since 2006, oil and gas production have become more important engines of economic activity than cocoa. According to IMF statistics, earnings from oil and refined products were $1.3 billion in 2006, while cocoa-related revenues were $1 billion during the same period. Cote d’Ivoire’s offshore oil and gas production has resulted in substantial crude oil exports and provides sufficient natural gas to fuel electricity exports to Ghana, Togo, Benin, Mali and Burkina Faso. Oil exploration by a number of consortiums of private companies continues offshore, and President GBAGBO has expressed hope that daily crude output could reach 200,000 barrels per day (b/d) by the end of the decade. Since the end of the civil war in 2003, political turmoil has continued to damage the economy, resulting in the loss of foreign investment and slow economic growth. GDP grew by 1.8% in 2006 and 1.7% in 2007. Per capita income has declined by 15% since 1999. |
| Croatia | Once one of the wealthiest of the Yugoslav republics, Croatia’s economy suffered badly during the 1991-95 war as output collapsed and the country missed the early waves of investment in Central and Eastern Europe that followed the fall of the Berlin Wall. Since 2000, however, Croatia’s economic fortunes have begun to improve slowly, with moderate but steady GDP growth between 4% and 6% led by a rebound in tourism and credit-driven consumer spending. Inflation over the same period has remained tame and the currency, the kuna, stable. Nevertheless, difficult problems still remain, including a stubbornly high unemployment rate, a growing trade deficit and uneven regional development. The state retains a large role in the economy, as privatization efforts often meet stiff public and political resistance. While macroeconomic stabilization has largely been achieved, structural reforms lag because of deep resistance on the part of the public and lack of strong support from politicians. The EU accession process should accelerate fiscal and structural reform. |
| Cuba | The government continues to balance the need for economic loosening against a desire for firm political control. It has rolled back limited reforms undertaken in the 1990s to increase enterprise efficiency and alleviate serious shortages of food, consumer goods, and services. The average Cuban’s standard of living remains at a lower level than before the downturn of the 1990s, which was caused by the loss of Soviet aid and domestic inefficiencies. Since late 2000, Venezuela has been providing oil on preferential terms, and it currently supplies about 100,000 barrels per day of petroleum products. Cuba has been paying for the oil, in part, with the services of Cuban personnel in Venezuela, including some 20,000 medical professionals. In 2007, high metals prices continued to boost Cuban earnings from nickel and cobalt production. Havana continued to invest in the country’s energy sector to mitigate electrical blackouts that had plagued the country since 2004. |
| Cyprus | The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for 78% of GDP. Tourism and financial services are the most important sectors; erratic growth rates over the past decade reflect the economy’s reliance on tourism, which often fluctuates with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control grew a healthy 3.7% to 3.8% per year in 2004, 2005 and 2006, well above the EU average. Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the euro as its national currency on 1 January 2008. The government initiated an aggressive austerity program, which cut the budget deficit to well below 3% of GDP. As in the area administered by Turkish Cypriots, water shortages are a perennial problem; a few desalination plants are now on line. After 10 years of drought, the country received substantial rainfall from 2001-04 alleviating immediate concerns. Rainfall in 2005 and 2006, however, was well below average, making water rationing a necessity in 2007. The Turkish Cypriot economy has roughly 30% of the per capita GDP of the south, and economic growth tends to be volatile, given the north’s relative isolation, bloated public sector, reliance on the Turkish lira, and small market size. The Turkish Cypriot economy grew around 10.6% in 2006-07, fueled by growth in the construction and education sectors, as well as increased employment of Turkish Cypriots in the area under government control. Agriculture and services, together, employ more than half of the work force. The Turkish Cypriots are heavily dependent on transfers from the Turkish Government. Ankara directly finances around one-third of the “TRNC’s” budget. Aid from Turkey has reached over $400 million annually in recent years. |
| Czech Republic | The Czech Republic is one of the most stable and prosperous of the post-Communist states of Central and Eastern Europe. Growth in 2000-07 was supported by exports to the EU, primarily to Germany, and a strong recovery of foreign and domestic investment. Domestic demand is playing an ever more important role in underpinning growth as the availability of credit cards and mortgages increases. The current account deficit has declined to around 3.3% of GDP as demand for automotive and other products from the Czech Republic remains strong in the European Union. Rising inflation from higher food and energy prices are a risk to balanced economic growth. Significant increases in social spending in the run-up to June 2006 elections prevented, the government from meeting its goal of reducing its budget deficit to 3% of GDP in 2007. Negotiations on pension and additional healthcare reforms are continuing without clear prospects for agreement and implementation. Intensified restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds should strengthen output growth. The pro-business Civic Democratic Party-led government approved reforms in 2007 designed to cut spending on some social welfare benefits and reform the tax system with the aim of eventually reducing the budget deficit to 2.3% of GDP by 2010. Parliamentary approval for any additional reforms could prove difficult, however, because of the parliament’s even split. The government withdrew a 2010 target date for euro adoption and instead aims to meet the eurozone criteria around 2012. |
| Denmark | The Danish economy has in recent years undergone strong expansion fueled primarily by private consumption growth, but also supported by exports and investments. This thoroughly modern market economy features high-tech agriculture, up-to-date small-scale and corporate industry, extensive government welfare measures, comfortable living standards, a stable currency, and high dependence on foreign trade. Unemployment is low and capacity constraints are limiting growth potential. Denmark is a net exporter of food and energy and enjoys a comfortable balance of payments surplus. Government objectives include streamlining the bureaucracy and further privatization of state assets. The government has been successful in meeting, and even exceeding, the economic convergence criteria for participating in the third phase (a common European currency) of the European Economic and Monetary Union (EMU), but so far Denmark has decided not to join 15 other EU members in the euro. Nonetheless, the Danish krone remains pegged to the euro. Economic growth gained momentum in 2004 and the upturn continued through 2007. The controversy over caricatures of the Prophet Muhammad printed in a Danish newspaper in September 2005 led to boycotts of some Danish exports to the Muslim world, especially exports of dairy products, but the boycotts did not have a significant impact on the overall Danish economy. Because of high GDP per capita, welfare benefits, a low Gini index, and political stability, the Danish living standards are among the highest in the world. A major long-term issue will be the sharp decline in the ratio of workers to retirees. |
| Dhekelia | Economic activity is limited to providing services to the military and their families located in Dhekelia. All food and manufactured goods must be imported. |
| Djibouti | The economy is based on service activities connected with the country’s strategic location and status as a free trade zone in the Horn of Africa. Two-thirds of Djibouti’s inhabitants live in the capital city; the remainder are mostly nomadic herders. Scanty rainfall limits crop production to fruits and vegetables, and most food must be imported. Djibouti provides services as both a transit port for the region and an international transshipment and refueling center. Imports and exports from landlocked neighbor Ethiopia represent 85% of port activity at Djibouti’s container terminal. Djibouti has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to help support its balance of payments and to finance development projects. An unemployment rate of nearly 60% continues to be a major problem. While inflation is not a concern, due to the fixed tie of the Djiboutian franc to the US dollar, the artificially high value of the Djiboutian franc adversely affects Djibouti’s balance of payments. Per capita consumption dropped an estimated 35% between 1999 and 2006 because of recession, civil war, and a high population growth rate (including immigrants and refugees). Faced with a multitude of economic difficulties, the government has fallen in arrears on long-term external debt and has been struggling to meet the stipulations of foreign aid donors. |
| Dominica | The Dominican economy depends on agriculture, primarily bananas, and remains highly vulnerable to climatic conditions and international economic developments. Tourism has increased as the government seeks to promote Dominica as an “ecotourism” destination. Development of the tourism industry remains difficult, however, because of the rugged coastline, lack of beaches, and the absence of an international airport. In 2003, the government began a comprehensive restructuring of the economy – including elimination of price controls, privatization of the state banana company, and tax increases – to address Dominica’s economic and financial crisis of 2001-02 and to meet IMF targets. This restructuring paved the way for the current economic recovery – real growth for 2006 reached a two-decade high – and will help to reduce the debt burden, which remains at about 100% of GDP. In order to diversify the island’s production base, the government is attempting to develop an offshore financial sector and is planning to construct an oil refinery on the eastern part of the island. |
| Dominican Republic | The Dominican Republic has enjoyed strong GDP growth since 2005, with double digit growth in 2006. In 2007, exports were bolstered by the nearly 50% increase in nickel prices; however, prices are expected to fall in 2008, contributing to a slowdown in GDP growth for the year. Although the country has long been viewed primarily as an exporter of sugar, coffee, and tobacco, in recent years the service sector has overtaken agriculture as the economy’s largest employer due to growth in tourism and free trade zones. The economy is highly dependent upon the US, the source of nearly 80% of exports, and remittances represent about a tenth of GDP, equivalent to almost half of exports and three-quarters of tourism receipts. With the help of strict fiscal targets agreed to in the 2004 renegotiation of an IMF standby loan, President FERNANDEZ has stabilized the country’s financial situation, lowereing inflation to less than 6%. A fiscal expansion is expected for 2008 prior to the elections in May and for Tropical Storm Noel reconstruction. Although the economy is growing at a respectable rate, high unemployment and underemployment remains an important challenge. The country suffers from marked income inequality; the poorest half of the population receives less than one-fifth of GNP, while the richest 10% enjoys nearly 40% of national income. The Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) came into force in March 2007, which should boost investment and exports and diminishes losses to the Asian garment industry. |
| Ecuador | Ecuador is substantially dependent on its petroleum resources, which have accounted for more than half of the country’s export earnings and one-fourth of public sector revenues in recent years. In 1999/2000, Ecuador suffered a severe economic crisis, with GDP contracted by more than 6%, with a significant increase in poverty. The banking system also collapsed, and Ecuador defaulted on its external debt later that year. In March 2000, Congress approved a series of structural reforms that also provided for the adoption of the US dollar as legal tender. Dollarization stabilized the economy, and positive growth returned in the years that followed, helped by high oil prices, remittances, and increased non-traditional exports. From 2002-2006 the economy grew 5.5%, the highest five-year average in 25 years. The poverty rate declined but remained high at 38% in 2006. In 2006 the government of Alfredo PALACIO (2005-07) seized the assets of Occidental Petroleum for alleged contract violations and imposed a windfall revenue tax on foreign oil companies, leading to the suspension of free trade negotiations with the US. These measures, combined with chronic underinvestment in the state oil company, Petroecuador, led to a drop in petroleum production in 2007. PALACIO’s successor, Rafael CORREA, raised the specter of debt default – but Ecuador has paid its debt on time. He also decreed a higher windfall revenue tax on private oil companies, then sought to renegotiate their contracts to overcome the debilitating effect of the tax. This generated economic uncertainty; private investment has dropped and economic growth has slowed significantly. |
| Egypt | Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley, where most economic activity takes place. In the last 30 years, the government has reformed the highly centralized economy it inherited from President Gamel Abdel NASSER. In 2005, Prime Minister Ahmed NAZIF’s government reduced personal and corporate tax rates, reduced energy subsidies, and privatized several enterprises. The stock market boomed, and GDP grew about 5% per year in 2005-06, and topped 7% in 2007. Despite these achievements, the government has failed to raise living standards for the average Egyptian, and has had to continue providing subsidies for basic necessities. The subsidies have contributed to a sizeable budget deficit – roughly 7.5% of GDP in 2007 – and represent a significant drain on the economy. Foreign direct investment has increased significantly in the past two years, but the NAZIF government will need to continue its aggressive pursuit of reforms in order to sustain the spike in investment and growth and begin to improve economic conditions for the broader population. Egypt’s export sectors – particularly natural gas – have bright prospects. |
| El Salvador | The smallest country in Central America, El Salvador has the third largest economy, but growth has been modest in recent years. Robust growth in non-traditional exports have offset declines in the maquila exports, while remittances and external aid offset the trade deficit from high oil prices and strong import demand for consumer and intermediate goods. El Salvador leads the region in remittances per capita with inflows equivalent to nearly all export income. Implementation in 2006 of the Central America-Dominican Republic Free Trade Agreement (CAFTA), which El Salvador was the first to ratify, has strengthened an already positive export trend. With the adoption of the US dollar as its currency in 2001, El Salvador lost control over monetary policy and must concentrate on maintaining a disciplined fiscal policy. The current government has pursued economic diversification, with some success in promoting textile production, international port services, and tourism through tax incentives. It is committed to opening the economy to trade and investment, and has embarked on a wave of privatizations extending to telecom, electricity distribution, banking, and pension funds. In late 2006, the government and the Millennium Challenge Corporation signed a five-year, $461 million compact to stimulate economic growth and reduce poverty in the country’s northern region through investments in education, public services, enterprise development, and transportation infrastructure. |
| Equatorial Guinea | The discovery and exploitation of large oil reserves have contributed to dramatic economic growth in recent years. Forestry, farming, and fishing are also major components of GDP. Subsistence farming predominates. Although pre-independence Equatorial Guinea counted on cocoa production for hard currency earnings, the neglect of the rural economy under successive regimes has diminished potential for agriculture-led growth (the government has stated its intention to reinvest some oil revenue into agriculture). A number of aid programs sponsored by the World Bank and the IMF have been cut off since 1993, because of corruption and mismanagement. No longer eligible for concessional financing because of large oil revenues, the government has been trying to agree on a “shadow” fiscal management program with the World Bank and IMF. Government officials and their family members own most businesses. Undeveloped natural resources include titanium, iron ore, manganese, uranium, and alluvial gold. Growth remained strong in 2007, led by oil. Equatorial Guinea now has the fourth highest per capita income in the world, after Luxembourg, Bermuda, and Jersey. |
| Eritrea | Since independence from Ethiopia in 1993, Eritrea has faced the economic problems of a small, desperately poor country, accentuated by the recent implementation of restrictive economic policies. Eritrea has a command economy under the control of the sole political party, the People’s Front for Democracy and Justice (PFDJ). Like the economies of many African nations, the economy is largely based on subsistence agriculture, with 80% of the population involved in farming and herding. The Ethiopian-Eritrea war in 1998-2000 severely hurt Eritrea’s economy. GDP growth fell to zero in 1999 and to -12.1% in 2000. The May 2000 Ethiopian offensive into northern Eritrea caused some $600 million in property damage and loss, including losses of $225 million in livestock and 55,000 homes. The attack prevented planting of crops in Eritrea’s most productive region, causing food production to drop by 62%. Even during the war, Eritrea developed its transportation infrastructure, asphalting new roads, improving its ports, and repairing war-damaged roads and bridges. Since the war ended, the government has maintained a firm grip on the economy, expanding the use of the military and party-owned businesses to complete Eritrea’s development agenda. The government strictly controls the use of foreign currency, limiting access and availability. Few private enterprises remain in Eritrea. Eritrea’s economy is heavily dependent on taxes paid by members of the diaspora. Erratic rainfall and the delayed demobilization of agriculturalists from the military continue to interfere with agricultural production, and Eritrea’s recent harvests have not been able to meet the food needs of the country. The government continues to place its hope for additional revenue on the development of several international mining projects. Despite difficulties for international companies in working with the Eritrean government, a Canadian mining company signed a contract with the GSE in 2007 and plans to begin mineral extraction in 2010. Eritrea also anticipates opening a free trade zone at the port of Massawa in 2008. Eritrea’s economic future depends upon its ability to master social problems such as illiteracy, unemployment, and low skills, and more importantly, on the government’s willingness to support a true market economy. |
| Estonia | Estonia, a 2004 European Union entrant, has a modern market-based economy and one of the highest per capita income levels in Central Europe. The economy benefits from strong electronics and telecommunications sectors and strong trade ties with Finland, Sweden, and Germany. The current government has pursued relatively sound fiscal policies, resulting in balanced budgets and low public debt. In 2007, however, a large current account deficit and rising inflation put pressure on Estonia’s currency, which is pegged to the euro, highlighting the need for growth in export-generating industries. |
| Ethiopia | Ethiopia’s poverty-stricken economy is based on agriculture, accounting for almost half of GDP, 60% of exports, and 80% of total employment. The agricultural sector suffers from frequent drought and poor cultivation practices. Coffee is critical to the Ethiopian economy with exports of some $350 million in 2006, but historically low prices have seen many farmers switching to qat to supplement income. The war with Eritrea in 1998-2000 and recurrent drought have buffeted the economy, in particular coffee production. In November 2001, Ethiopia qualified for debt relief from the Highly Indebted Poor Countries (HIPC) initiative, and in December 2005 the IMF voted to forgive Ethiopia’s debt to the body. Under Ethiopia’s constitution, the state owns all land and provides long-term leases to the tenants; the system continues to hamper growth in the industrial sector as entrepreneurs are unable to use land as collateral for loans. Drought struck again late in 2002, leading to a 3.3% decline in GDP in 2003. Normal weather patterns helped agricultural and GDP growth recover in 2004-07. |
| European Union | Internally, the EU is attempting to lower trade barriers, adopt a common currency, and move toward convergence of living standards. Internationally, the EU aims to bolster Europe’s trade position and its political and economic power. Because of the great differences in per capita income among member states (from $7,000 to $69,000) and historic national animosities, the EU faces difficulties in devising and enforcing common policies. For example, since 2003 Germany and France have flouted the member states’ treaty obligation to prevent their national budgets from running more than a 3% deficit. In 2004 and 2007, the EU admitted 10 and two countries, respectively, that are, in general, less advanced technologically and economically than the other 15. Eleven established EU member states introduced the euro as their common currency on 1 January 1999 (Greece did so two years later), but the UK, Sweden, and Denmark chose not to participate. Of the 12 most recent member states, only Slovenia (1 January 2007) and Cyprus and Malta (1 January 2008) have adopted the euro; the remaining nine are legally required to adopt the currency upon meeting EU’s fiscal and monetary convergence criteria. |
| Falkland Islands (Islas Malvinas) | The economy was formerly based on agriculture, mainly sheep farming, but today fishing contributes the bulk of economic activity. In 1987 the government began selling fishing licenses to foreign trawlers operating within the Falkland Islands’ exclusive fishing zone. These license fees total more than $40 million per year, which help support the island’s health, education, and welfare system. Squid accounts for 75% of the fish taken. Dairy farming supports domestic consumption; crops furnish winter fodder. Exports feature shipments of high-grade wool to the UK and the sale of postage stamps and coins. The islands are now self-financing except for defense. The British Geological Survey announced a 200-mile oil exploration zone around the islands in 1993, and early seismic surveys suggest substantial reserves capable of producing 500,000 barrels per day; to date, no exploitable site has been identified. An agreement between Argentina and the UK in 1995 seeks to defuse licensing and sovereignty conflicts that would dampen foreign interest in exploiting potential oil reserves. Tourism, especially eco-tourism, is increasing rapidly, with about 30,000 visitors in 2001. Another large source of income is interest paid on money the government has in the bank. The British military presence also provides a sizeable economic boost. |
| Faroe Islands | The Faroese economy is dependent on fishing, which makes the economy vulnerable to price swings. Since 2003 the Faroese economy has picked up as a result of higher prices for fish and for housing. Unemployment is minimal and government finances are relatively sound. Oil finds close to the Islands give hope for economically recoverable deposits, which could eventually lay the basis for a more diversified economy and lessen dependence on Danish economic assistance. Aided by a substantial annual subsidy (about 15% of GDP) from Denmark, the Faroese have a standard of living not far below the Danes and other Scandinavians. |
| Fiji | Fiji, endowed with forest, mineral, and fish resources, is one of the most developed of the Pacific island economies, though still with a large subsistence sector. Sugar exports, remittances from Fijians working abroad, and a growing tourist industry – with 300,000 to 400,000 tourists annually – are the major sources of foreign exchange. Fiji’s sugar has special access to European Union markets, but will be harmed by the EU’s decision to cut sugar subsidies. Sugar processing makes up one-third of industrial activity but is not efficient. Fiji’s tourism industry was damaged by the December 2006 coup and is facing an uncertain recovery time. The coup has created a difficult business climate. Tourist arrivals for 2007 are estimated to be down almost 6%, with substantial job losses in the service sector. In July 2007 the Reserve Bank of Fiji announced the economy was expected to contract by 3.1% in 2007. Fiji’s current account deficit reached 23% of GDP in 2006. The EU has suspended all aid until the interim government takes steps toward new elections. Long-term problems include low investment, uncertain land ownership rights, and the government’s inability to manage its budget. Overseas remittances from Fijians working in Kuwait and Iraq have increased significantly. |
| Finland | Finland has a highly industrialized, largely free-market economy with per capita output roughly that of the UK, France, Germany, and Italy. Its key economic sector is manufacturing – principally the wood, metals, engineering, telecommunications, and electronics industries. Trade is important; exports equal two-fifths of GDP. Finland excels in high-tech exports, e.g., mobile phones. Except for timber and several minerals, Finland depends on imports of raw materials, energy, and some components for manufactured goods. Because of the climate, agricultural development is limited to maintaining self-sufficiency in basic products. Forestry, an important export earner, provides a secondary occupation for the rural population. High unemployment remains a persistent problem. In 2007 Russia announced plans to impose high tariffs on raw timber exported to Finland. The Finnish pulp and paper industry will be threatened if these duties are put into place in 2008 and 2009, and the matter is now being handled by the European Union. |
| France | France is in the midst of transition from a well-to-do modern economy that has featured extensive government ownership and intervention to one that relies more on market mechanisms. The government has partially or fully privatized many large companies, banks, and insurers, and has ceded stakes in such leading firms as Air France, France Telecom, Renault, and Thales. It maintains a strong presence in some sectors, particularly power, public transport, and defense industries. The telecommunications sector is gradually being opened to competition. France’s leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that reduce income disparity and the impact of free markets on public health and welfare. Widespread opposition to labor reform has in recent years hampered the government’s ability to revitalize the economy. In 2007, the government launched divisive labor reform efforts that will continue into 2008. France’s tax burden remains one of the highest in Europe (nearly 50% of GDP in 2005). France brought the budget deficit within the eurozone’s 3%-of-GDP limit for the first time in 2007 and has reduced unemployment to roughly 8%. With at least 75 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism. |
| French Polynesia | Since 1962, when France stationed military personnel in the region, French Polynesia has changed from a subsistence agricultural economy to one in which a high proportion of the work force is either employed by the military or supports the tourist industry. With the halt of French nuclear testing in 1996, the military contribution to the economy fell sharply. Tourism accounts for about one-fourth of GDP and is a primary source of hard currency earnings. Other sources of income are pearl farming and deep-sea commercial fishing. The small manufacturing sector primarily processes agricultural products. The territory benefits substantially from development agreements with France aimed principally at creating new businesses and strengthening social services. |
| French Southern and Antarctic Lands | Economic activity is limited to servicing meteorological and geophysical research stations, military bases, and French and other fishing fleets. The fish catches landed on Iles Kerguelen by foreign ships are exported to France and Reunion. |
| Gabon | Gabon enjoys a per capita income four times that of most of sub-Saharan African nations. but because of high income inequality, a large proportion of the population remains poor. Gabon depended on timber and manganese until oil was discovered offshore in the early 1970s. The oil sector now accounts for 50% of GDP. Gabon continues to face fluctuating prices for its oil, timber, and manganese exports. Despite the abundance of natural wealth, poor fiscal management hobbles the economy. The devaluation of the CFA franc – its currency – by 50% in January 1994 sparked a one-time inflationary surge, to 35%; the rate dropped to 6% in 1996. The IMF provided a one-year standby arrangement in 1994-95, a three-year Enhanced Financing Facility (EFF) at near commercial rates beginning in late 1995, and stand-by credit of $119 million in October 2000. Those agreements mandated progress in privatization and fiscal discipline. France provided additional financial support in January 1997 after Gabon met IMF targets for mid-1996. In 1997, an IMF mission to Gabon criticized the government for overspending on off-budget items, overborrowing from the central bank, and slipping on its schedule for privatization and administrative reform. The rebound of oil prices since 1999 have helped growth, but drops in production have hampered Gabon from fully realizing potential gains, and will continue to temper the gains for most of this decade. In December 2000, Gabon signed a new agreement with the Paris Club to reschedule its official debt. A follow-up bilateral repayment agreement with the US was signed in December 2001. Gabon signed a 14-month Stand-By Arrangement with the IMF in May 2004, and received Paris Club debt rescheduling later that year. Short-term progress depends on an upbeat world economy and fiscal and other adjustments in line with IMF policies. |
| Gambia, The | The Gambia has no confirmed mineral or natural resource deposits and has a limited agricultural base. About 75% of the population depends on crops and livestock for its livelihood. Small-scale manufacturing activity features the processing of peanuts, fish, and hides. Reexport trade normally constitutes a major segment of economic activity, but a 1999 government-imposed preshipment inspection plan, and instability of the Gambian dalasi (currency) have drawn some of the reexport trade away from The Gambia. The Gambia’s natural beauty and proximity to Europe has made it one of the larger markets for tourism in West Africa. The government’s 1998 seizure of the private peanut firm Alimenta eliminated the largest purchaser of Gambian groundnuts. Despite an announced program to begin privatizing key parastatals, no plans have been made public that would indicate that the government intends to follow through on its promises. Unemployment and underemployment rates remain extremely high; short-run economic progress depends on sustained bilateral and multilateral aid, on responsible government economic management, on continued technical assistance from the IMF and bilateral donors, and on expected growth in the construction sector. |
| Gaza Strip | High population density, limited land access, and strict internal and external security controls have kept economic conditions in the Gaza Strip – the smaller of the two areas under the Palestinian Authority (PA)- even more degraded than in the West Bank. The beginning of the second intifadah in September 2000 sparked an economic downturn, largely the result of Israeli closure policies; these policies, which were imposed to address security concerns in Israel, disrupted labor and trade access to and from the Gaza Strip. In 2001, and even more severely in 2003, Israeli military measures in PA areas resulted in the destruction of capital, the disruption of administrative structures, and widespread business closures. The Israeli withdrawal from the Gaza Strip in September 2005 offered some medium-term opportunities for economic growth, but continued Israeli-imposed crossings closures, which became more restrictive after Hamas violently took over the territory in June 2007, have resulted in widespread private sector layoffs and shortages of most goods. |
| Georgia | Georgia’s economy has sustained robust GDP growth of close to 10% in 2006 and 12% in 2007, based on strong inflows of foreign investment and robust government spending. However, a widening trade deficit and higher inflation are emerging risks to the economy. Areas of recent improvement include increasing foreign direct investment as well as growth in the construction, banking services and mining sectors. Georgia’s main economic activities include the cultivation of agricultural products such as grapes, citrus fruits, and hazelnuts; mining of manganese and copper; and output of a small industrial sector producing alcoholic and nonalcoholic beverages, metals, machinery, aircraft and chemicals. The country imports nearly all its needed supplies of natural gas and oil products. It has sizeable hydropower capacity, a growing component of its energy supplies. Despite the severe damage the economy suffered due to civil strife in the 1990s, Georgia, with the help of the IMF and World Bank, has made substantial economic gains since 2000, achieving positive GDP growth and curtailing inflation. Georgia’s GDP growth neared 10% in 2006 and 2007 despite restrictions on commerce with Russia. Areas of recent improvement include increased foreign direct investment as well as growth in the construction, banking services, and mining sectors. In addition, the reinvigorated privatization process has met with success. However, a widening trade deficit and higher inflation are emerging risks to the economy. Georgia has suffered from a chronic failure to collect tax revenues; however, the new government is making progress and has reformed the tax code, improved tax administration, increased tax enforcement, and cracked down on corruption. Government revenues have increased nearly four fold since 2003. Due to improvements in customs and financial (tax) enforcement, smuggling is a declining problem. Georgia has overcome the chronic energy shortages of the past by renovating hydropower plants and by bringing newly available natural gas supplies from Azerbaijan. It also has an increased ability to pay for more expensive gas imports from Russia. The country is pinning its hopes for long-term growth on a determined effort to reduce regulation, taxes and corruption in order to attract foreign investment. The construction on the Baku-T’bilisi-Ceyhan oil pipeline, the Baku-T’bilisi-Erzerum gas pipeline, and the Kars-Akhalkalaki Railroad are part of a strategy to capitalize on Georgia’s strategic location between Europe and Asia and develop its role as a transit point for gas, oil and other goods. |
| Germany | Germany’s affluent and technologically powerful economy – the fifth largest in the world in PPP terms – showed considerable improvement in 2007 with 2.6% growth. After a long period of stagnation with an average growth rate of 0.7% between 2001-05 and chronically high unemployment, stronger growth led to a considerable fall in unemployment to about 8% near the end of 2007. Among the most important reasons for Germany’s high unemployment during the past decade were macroeconomic stagnation, the declining level of investment in plant and equipment, company restructuring, flat domestic consumption, structural rigidities in the labor market, lack of competition in the service sector, and high interest rates. The modernization and integration of the eastern German economy continues to be a costly long-term process, with annual transfers from west to east amounting to roughly $80 billion. The former government of Chancellor Gerhard SCHROEDER launched a comprehensive set of reforms of labor market and welfare-related institutions. The current government of Chancellor Angela MERKEL has initiated other reform measures, such as a gradual increase in the mandatory retirement age from 65 to 67 and measures to increase female participation in the labor market. Germany’s aging population, combined with high chronic unemployment, has pushed social security outlays to a level exceeding contributions, but higher government revenues from the cyclical upturn in 2006-07 and a 3% rise in the value-added tax pushed Germany’s budget deficit well below the EU’s 3% debt limit. Corporate restructuring and growing capital markets are setting the foundations that could help Germany meet the long-term challenges of European economic integration and globalization, although some economists continue to argue the need for change in inflexible labor and services markets. Growth may fall below 2% in 2008 as the strong euro, high oil prices, tighter credit markets, and slowing growth abroad take their toll. |
| Ghana | Well endowed with natural resources, Ghana has roughly twice the per capita output of the poorest countries in West Africa. Even so, Ghana remains heavily dependent on international financial and technical assistance. Gold and cocoa production, and individual remittances, are major sources of foreign exchange. The domestic economy continues to revolve around agriculture, which accounts for about 35% of GDP and employs about 55% of the work force, mainly small landholders. Ghana opted for debt relief under the Heavily Indebted Poor Country (HIPC) program in 2002, and is also benefiting from the Multilateral Debt Relief Initiative that took effect in 2006. Thematic priorities under its current Growth and Poverty Reduction Strategy, which also provides the framework for development partner assistance, are: macroeconomic stability; private sector competitiveness; human resource development; and good governance and civic responsibility. Sound macro-economic management along with high prices for gold and cocoa helped sustain GDP growth in 2007. Ghana signed a Millennium Challenge Corporation (MCC) Compact in 2006, which aims to assist in transforming Ghana’s agricultural sector. |
| Gibraltar | Self-sufficient Gibraltar benefits from an extensive shipping trade, offshore banking, and its position as an international conference center. The British military presence has been sharply reduced and now contributes about 7% to the local economy, compared with 60% in 1984. The financial sector, tourism (almost 5 million visitors in 1998), shipping services fees, and duties on consumer goods also generate revenue. The financial sector, the shipping sector, and tourism each contribute 25%-30% of GDP. Telecommunications accounts for another 10%. In recent years, Gibraltar has seen major structural change from a public to a private sector economy, but changes in government spending still have a major impact on the level of employment. |
| Greece | Greece has a capitalist economy with the public sector accounting for about 40% of GDP and with per capita GDP at least 75% of the leading euro-zone economies. Tourism provides 15% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs. Greece is a major beneficiary of EU aid, equal to about 3.3% of annual GDP. The Greek economy grew by nearly 4.0% per year between 2003 and 2007, due partly to infrastructural spending related to the 2004 Athens Olympic Games, and in part to an increased availability of credit, which has sustained record levels of consumer spending. Greece violated the EU’s Growth and Stability Pact budget deficit criteria of no more than 3% of GDP from 2001 to 2006, but finally met that criteria in 2007. Public debt, inflation, and unemployment are above the euro-zone average, but are falling. The Greek Government continues to grapple with cutting government spending, reducing the size of the public sector, and reforming the labor and pension systems, in the face of often vocal opposition from the country’s powerful labor unions and the general public. The economy remains an important domestic political issue in Greece and, while the ruling New Democracy government has had some success in improving economic growth and reducing the budget deficit, Athens faces long-term challenges in its effort to continue its economic reforms, especially social security reform and privatization. |
| Greenland | The economy remains critically dependent on exports of fish and a substantial subsidy from the Danish Government, which supplies about half of government revenues. The public sector, including publicly-owned enterprises and the municipalities, plays the dominant role in the economy. Several interesting hydrocarbon and mineral exploration activities are ongoing. Press reports in early 2007 indicated that two international aluminum companies were considering building smelters in Greenland to take advantage of local hydropower potential. Tourism is the only sector offering any near-term potential, and even this is limited due to a short season and high costs. Air Greenland began summer-season direct flights to the U.S. east coast in May 2007, potentially opening a major new tourism market. |
| Grenada | Grenada relies on tourism as its main source of foreign exchange, especially since the construction of an international airport in 1985. Strong performances in construction and manufacturing, together with the development of an offshore financial industry, have also contributed to growth in national output. Grenada has rebounded from the devastating effects of Hurricanes Ivan (2004) and Emily (2005), but is now saddled with the debt burden from the rebuilding process. The agricultural sector, particularly nutmeg and cocoa cultivation, has gradually recovered, and the tourism sector has seen substantial increases in foreign direct investment as the regional share of the tourism market increases. |
| Guam | The economy depends largely on US military spending and tourism. Total US grants, wage payments, and procurement outlays amounted to $1.3 billion in 2004. Over the past 30 years, the tourist industry has grown to become the largest income source following national defense. The Guam economy continues to experience expansion in both its tourism and military sectors. |
| Guatemala | Guatemala is the most populous of the Central American countries with a GDP per capita roughly one-half that of Argentina, Brazil, and Chile. The agricultural sector accounts for about one-fourth of GDP, two-fifths of exports, and half of the labor force. Coffee, sugar, and bananas are the main products, with sugar exports benefiting from increased global demand for ethanol. The 1996 signing of peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and Guatemala since then has pursued important reforms and macroeconomic stabilization. On 1 July 2006, the Central American Free Trade Agreement (CAFTA) entered into force between the US and Guatemala and has since spurred increased investment in the export sector. The distribution of income remains highly unequal with about 56% of the population below the poverty line. Other ongoing challenges include increasing government revenues, negotiating further assistance from international donors, upgrading both government and private financial operations, curtailing drug trafficking and rampant crime, and narrowing the trade deficit. Given Guatemala’s large expatriate community in the United States, it is the top remittance recipient in Central America, with inflows serving as a primary source of foreign income equivalent to nearly two-thirds of exports. |
| Guernsey | Financial services – banking, fund management, insurance – account for about 23% of employment and 32% of total income in this tiny, prosperous Channel Island economy. Tourism, manufacturing, and horticulture, mainly tomatoes and cut flowers, have been declining. Financial services, construction, retail, and the public sector have been growing. Light tax and death duties make Guernsey a popular tax haven. The evolving economic integration of the EU nations is changing the environment under which Guernsey operates. |
| Guinea | Guinea possesses major mineral, hydropower, and agricultural resources, yet remains an underdeveloped nation. The country has almost half of the world’s bauxite reserves and is the second-largest bauxite producer. The mining sector accounts for over 70% of exports. Long-run improvements in government fiscal arrangements, literacy, and the legal framework are needed if the country is to move out of poverty. Investor confidence has been sapped by rampant corruption, a lack of electricity and other infrastructure, a lack of skilled workers, and the political uncertainty due to the failing health of President Lansana CONTE. Guinea is trying to reengage with the IMF and World Bank, which cut off most assistance in 2003, and is working closely with technical advisors from the U.S. Treasury Department, the World Bank and IMF, seeking to return to a fully funded program. Growth rose slightly in 2006-07, primarily due to increases in global demand and commodity prices on world markets, but the standard of living fell. The Guinea franc depreciated sharply as the prices for basic necessities like food and fuel rose beyond the reach of most Guineans. Dissatisfaction with economic conditions prompted nationwide strikes in February and June 2006. |
| Guinea-Bissau | One of the five poorest countries in the world, Guinea-Bissau depends mainly on farming and fishing. Cashew crops have increased remarkably in recent years, and the country now ranks sixth in cashew production. Guinea-Bissau exports fish and seafood along with small amounts of peanuts, palm kernels, and timber. Rice is the major crop and staple food. However, intermittent fighting between Senegalese-backed government troops and a military junta destroyed much of the country’s infrastructure and caused widespread damage to the economy in 1998; the civil war led to a 28% drop in GDP that year, with partial recovery in 1999-2002. Before the war, trade reform and price liberalization were the most successful part of the country’s structural adjustment program under IMF sponsorship. The tightening of monetary policy and the development of the private sector had also begun to reinvigorate the economy. Because of high costs, the development of petroleum, phosphate, and other mineral resources is not a near-term prospect. Offshore oil prospecting is underway in several sectors but has not yet led to commercially viable crude deposits. The inequality of income distribution is one of the most extreme in the world. The government and international donors continue to work out plans to forward economic development from a lamentably low base. In December 2003, the World Bank, IMF, and UNDP were forced to step in to provide emergency budgetary support in the amount of $107 million for 2004, representing over 80% of the total national budget. Government drift and indecision, however, resulted in continued low growth in 2002-06. Higher raw material prices boosted growth to 3.7% in 2007. |
| Guyana | The Guyanese economy exhibited moderate economic growth in 2001-07, based on expansion in the agricultural and mining sectors, a more favorable atmosphere for business initiatives, a more realistic exchange rate, fairly low inflation, and the continued support of international organizations. Economic recovery since the 2005 flood-related contraction has been buoyed by increases in remittances and foreign direct investment. Chronic problems include a shortage of skilled labor and a deficient infrastructure. The government is juggling a sizable external debt against the urgent need for expanded public investment. In March 2007, the Inter-American Development Bank, Guyana’s principal donor, canceled Guyana’s nearly $470 million debt, equivalent to nearly 41% of GDP. The bauxite mining sector should benefit in the near term from restructuring and partial privatization, and the state-owned sugar industry will conduct efficiency increasing modernizations. Export earnings from agriculture and mining have fallen sharply, while the import bill has risen, driven by higher energy prices. Guyana’s entrance into the Caricom Single Market and Economy (CSME) in January 2006 will broaden the country’s export market, primarily in the raw materials sector. |
| Haiti | Haiti is the poorest country in the Western Hemisphere, with 80% of the population living under the poverty line and 54% in abject poverty. Two-thirds of all Haitians depend on the agricultural sector, mainly small-scale subsistence farming, and remain vulnerable to damage from frequent natural disasters, exacerbated by the country’s widespread deforestation. A macroeconomic program developed in 2005 with the help of the International Monetary Fund helped the economy grow 3.5% in 2007, the highest growth rate since 1999. US economic engagement under the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, passed in December 2006, has boosted the garment and automotive parts exports and investment by providing tariff-free access to the US. Haiti suffers from higher inflation than similar low-income countries, a lack of investment due to insecurity and limited infrastructure, and a severe trade deficit. In 2005, Haiti paid its arrears to the World Bank, paving the way for reengagement with the Bank. The government relies on formal international economic assistance for fiscal sustainability. Remittances are the primary source of foreign exchange, equaling nearly a quarter of GDP and over double the total for exports. |
| Heard Island and McDonald Islands | The islands have no indigenous economic activity, but the Australian Government allows limited fishing in the surrounding waters. |
| Holy See (Vatican City) | This unique, noncommercial economy is supported financially by an annual contribution (known as Peter’s Pence) from Roman Catholic dioceses throughout the world; by the sale of postage stamps, coins, medals, and tourist mementos; by fees for admission to museums; and by the sale of publications. Investments and real estate income also account for a sizable portion of revenue. The incomes and living standards of lay workers are comparable to those of counterparts who work in the city of Rome. |
| Honduras | Honduras, the second poorest country in Central America and one of the poorest countries in the Western Hemisphere, with an extraordinarily unequal distribution of income and massive unemployment, is banking on expanded trade under the US-Central America Free Trade Agreement (CAFTA) and on debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. Despite improvements in tax collections, the government’s fiscal deficit is growing due to increases in current expenditures and financial losses from the state energy and telephone companies. Honduras is the fastest growing remittance destination in the region with inflows representing over a quarter of GDP, equivalent to nearly three-quarters of exports. The economy relies heavily on a narrow range of exports, notably bananas and coffee, making it vulnerable to natural disasters and shifts in commodity prices, however, investments in the maquila and non-traditional export sectors are slowly diversifying the economy. Growth remains dependent on the economy of the US, its largest trading partner, and on reduction of the high crime rate, as a means of attracting and maintaining investment. |
| Hong Kong | Hong Kong has a free market economy highly dependent on international trade. In 2006, the total value of goods and services trade, including the sizable share of reexports, was equivalent to 400% of GDP. The territory has become increasingly integrated with mainland China over the past few years through trade, tourism, and financial links. The mainland has long been Hong Kong’s largest trading partner, accounting for 46% of Hong Kong’s total trade by value in 2006. As a result of China’s easing of travel restrictions, the number of mainland tourists to the territory has surged from 4.5 million in 2001 to 13.6 million in 2006, when they outnumbered visitors from all other countries combined. Hong Kong has also established itself as the premier stock market for Chinese firms seeking to list abroad. Bolstered by several successful initial public offerings in 2007, mainland companies by September 2007 accounted for one-third of the firms listed on the Hong Kong Stock Exchange, and over half of the Exchange’s market capitalization. Hong Kong’s service industry over the past decade has grown rapidly as its manufacturing industry has moved to the mainland and now accounts for 91% of the territory’s GDP. Hong Kong’s natural resources are limited, and food and raw materials must be imported. GDP growth averaged a strong 5% from 1989 to 2007, despite the economy suffering two recessions during the Asian financial crisis in 1997-98 and the global downturn in 2001-02. Hong Kong continues to link its currency closely to the US dollar, maintaining an arrangement established in 1983. |
| Hungary | Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-25 average. The private sector accounts for over 80% of GDP. Foreign ownership of and investment in Hungarian firms are widespread, with cumulative foreign direct investment totaling more than $60 billion since 1989. Hungary issues investment-grade sovereign debt. International observers, however, have expressed concerns over Hungary’s fiscal and current account deficits. In 2007, Hungary eliminated a trade deficit that had persisted for several years. Inflation declined from 14% in 1998 to a low of 3.7% in 2006, but jumped to 7.8% in 2007. Unemployment has persisted above 6%. Hungary’s labor force participation rate of 57% is one of the lowest in the Organization for Economic Cooperation and Development (OECD). Germany is by far Hungary’s largest economic partner. Policy challenges include cutting the public sector deficit to 4% of GDP by 2008, from about 6% in 2007. The government’s austerity program of tax hikes and subsidy cuts has reduced Hungary’s large budget deficit, but the reforms have dampened domestic consumption, slowing GDP growth to less than 2% in 2007. The government will need to pass additional reforms to ensure the long-term stability of public finances. The government plans to eventually lower its public sector deficit to below 3% of GDP to adopt the euro. |
| Iceland | Iceland’s Scandinavian-type economy is basically capitalistic, yet with an extensive welfare system (including generous housing subsidies), low unemployment, and remarkably even distribution of income. In the absence of other natural resources (except for abundant geothermal power), the economy depends heavily on the fishing industry, which provides nearly 70% of export earnings and employs 6% of the work force. The economy remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Substantial foreign investment in the aluminum and hydropower sectors has boosted economic growth which, nevertheless, has been volatile and characterized by recurrent imbalances. Government policies include reducing the current account deficit, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, and diversifying the economy. The government remains opposed to EU membership, primarily because of Icelanders’ concern about losing control over their fishing resources. Iceland’s economy has been diversifying into manufacturing and service industries in the last decade, and new developments in software production, biotechnology, and financial services are taking place. The tourism sector is also expanding, with the recent trends in ecotourism and whale watching. The 2006 closure of the US military base at Keflavik had very little impact on the national economy; Iceland’s low unemployment rate aided former base employees in finding alternate employment. |
| India | India’s diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India’s output with less than one third of its labor force. About three-fifths of the work force is in agriculture, leading the United Progressive Alliance (UPA) government to articulate an economic reform program that includes developing basic infrastructure to improve the lives of the rural poor and boost economic performance. The government has reduced controls on foreign trade and investment. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications. However, tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India’s vast and growing market. Privatization of government-owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, and again in 2007, significantly expanding production of manufactures. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit. However, strong growth combined with easy consumer credit and a real estate boom fueled inflation concerns in 2006 and 2007, leading to a series of central bank interest rate hikes that have slowed credit growth and eased inflation concerns. The huge and growing population is the fundamental social, economic, and environmental problem. |
| Indian Ocean | The Indian Ocean provides major sea routes connecting the Middle East, Africa, and East Asia with Europe and the Americas. It carries a particularly heavy traffic of petroleum and petroleum products from the oilfields of the Persian Gulf and Indonesia. Its fish are of great and growing importance to the bordering countries for domestic consumption and export. Fishing fleets from Russia, Japan, South Korea, and Taiwan also exploit the Indian Ocean, mainly for shrimp and tuna. Large reserves of hydrocarbons are being tapped in the offshore areas of Saudi Arabia, Iran, India, and western Australia. An estimated 40% of the world’s offshore oil production comes from the Indian Ocean. Beach sands rich in heavy minerals and offshore placer deposits are actively exploited by bordering countries, particularly India, South Africa, Indonesia, Sri Lanka, and Thailand. |
| Indonesia | Indonesia, a vast polyglot nation, has been undergoing significant economic reforms under President YUDHOYONO. Indonesia’s debt-to-GDP ratio has been declining steadily, its foreign exchange reserves are at an all-time high of over $50 billion, and its stock market has been one of the 3 best performers in the world in 2006 and 2007, as global investors sought out higher returns in emerging markets. The government has introduced significant reforms in the financial sector, including tax and customs reforms, the introduction of Treasury bills, and improved capital market supervision. Indonesia’s new investment law, passed in March 2007, seeks to address some of the concerns of foreign and domestic investors. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions. Indonesia has been slow to privatize over 100 state-owned enterprises, several of which have monopolies in key sectors. The non-bank financial sector, including pension funds and insurance, remains weak. Capital markets are underdeveloped. The high global price of oil in 2007 increased the cost of domestic fuel and electricity subsidies, and are contributing to concerns about higher food prices. Located on the Pacific “Ring of Fire” Indonesia remains vulnerable to volcanic and tectonic disasters. Significant progress has been made in rebuilding Aceh after the devastating December 2004 tsunami, and the province now shows more economic activity than before the disaster. Unfortunately, Indonesia suffered new disasters in 2006 and early 2007 including: a major earthquake near Yogyakarta, an industrial accident in Sidoarjo, East Java that created a “mud volcano,” a tsunami in South Java, and major flooding in Jakarta, all of which caused additional damages in the billions of dollars. Donors are assisting Indonesia with its disaster mitigation and early warning efforts. |
| Iran | Iran’s economy is marked by an inefficient state sector, reliance on the oil sector (which provides 85% of government revenues), and statist policies that create major distortions throughout. Most economic activity is controlled by the state. Private sector activity is typically small-scale workshops, farming, and services. President Mahmud AHMADI-NEJAD failed to make any notable progress in fulfilling the goals of the nation’s latest five-year plan. A combination of price controls and subsidies, particularly on food and energy, continue to weigh down the economy, and administrative controls, widespread corruption, and other rigidities undermine the potential for private-sector-led growth. As a result of these inefficiencies, significant informal market activity flourishes and shortages are common. High oil prices in recent years have enabled Iran to amass nearly $70 billion in foreign exchange reserves. Yet this increased revenue has not eased economic hardships, which include double-digit unemployment and inflation. The economy has seen only moderate growth. Iran’s educated population, economic inefficiency and insufficient investment – both foreign and domestic – have prompted an increasing number of Iranians to seek employment overseas, resulting in significant “brain drain.” |
| Iraq | Iraq’s economy is dominated by the oil sector, which has traditionally provided about 95% of foreign exchange earnings. Although looting, insurgent attacks, and sabotage have undermined economy rebuilding efforts, economic activity is beginning to pick up in areas recently secured by the US military surge. Oil exports are around levels seen before Operation Iraqi Freedom, and total government revenues have benefited from high oil prices. Despite political uncertainty, Iraq is making some progress in building the institutions needed to implement economic policy and has negotiated a debt reduction agreement with the Paris Club and a new Stand-By Arrangement with the IMF. The International Compact with Iraq was established in May 2007 to integrate Iraq into the regional and global economy, and the Iraqi government is seeking to pass laws to strengthen its economy. This legislation includes a hydrocarbon law to establish a modern legal framework to allow Iraq to develop its resources and a revenue sharing law to equitably divide oil revenues within the nation, although both are still bogged down in discussions. The Central Bank has been successful in controlling inflation through appreciation of the dinar against the US dollar. Reducing corruption and implementing structural reforms, such as bank restructuring and developing the private sector, will be key to Iraq’s economic success. |
| Ireland | Ireland is a small, modern, trade-dependent economy with growth averaging 6% in 1995-2007. Agriculture, once the most important sector, is now dwarfed by industry and services. Although the exports sector, dominated by foreign multinationals, remains a key component of Ireland’s economy, construction has most recently fueled economic growth along with strong consumer spending and business investment. Property prices have risen more rapidly in Ireland in the decade up to 2006 than in any other developed world economy. Per capita GDP is 40% above that of the four big European economies and the second highest in the EU behind Luxembourg, and in 2007 surpassed that of the United States. The Irish Government has implemented a series of national economic programs designed to curb price and wage inflation, invest in infrastructure, increase labor force skills, and promote foreign investment. A slowdown in the property market, more intense global competition, and increased costs, however, have compelled government economists to lower Ireland’s growth forecast slightly for 2008. Ireland joined in circulating the euro on 1 January 2002 along with 11 other EU nations. |
| Isle of Man | Offshore banking, manufacturing, and tourism are key sectors of the economy. The government offers incentives to high-technology companies and financial institutions to locate on the island; this has paid off in expanding employment opportunities in high-income industries. As a result, agriculture and fishing, once the mainstays of the economy, have declined in their shares of GDP. The Isle of Man also attracts online gambling sites and the film industry. Trade is mostly with the UK. The Isle of Man enjoys free access to EU markets. |
| Israel | Israel has a technologically advanced market economy with substantial, though diminishing, government participation. It depends on imports of crude oil, grains, raw materials, and military equipment. Despite limited natural resources, Israel has intensively developed its agricultural and industrial sectors over the past 20 years. Israel imports substantial quantities of grain, but is largely self-sufficient in other agricultural products. Cut diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are the leading exports. Israel usually posts sizable trade deficits, which are covered by large transfer payments from abroad and by foreign loans. Roughly half of the government’s external debt is owed to the US, its major source of economic and military aid. Israel’s GDP, after contracting slightly in 2001 and 2002 due to the Palestinian conflict and troubles in the high-technology sector, has grown by about 5% per year since 2003. The economy grew an estimated 5.4% in 2007, the fastest pace since 2000. The government’s prudent fiscal policy and structural reforms over the past few years have helped to induce strong foreign investment, tax revenues, and private consumption, setting the economy on a solid growth path. |
| Italy | Italy has a diversified industrial economy with roughly the same total and per capita output as France and the UK. This capitalistic economy remains divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with 20% unemployment. Most raw materials needed by industry and more than 75% of energy requirements are imported. Over the past decade, Italy has pursued a tight fiscal policy in order to meet the requirements of the Economic and Monetary Unions and has benefited from lower interest and inflation rates. The current government has enacted numerous short-term reforms aimed at improving competitiveness and long-term growth. Italy has moved slowly, however, on implementing needed structural reforms, such as lightening the high tax burden and overhauling Italy’s rigid labor market and over-generous pension system, because of the current economic slowdown and opposition from labor unions. But the leadership faces a severe economic constraint: Italy’s official debt remains above 100% of GDP, and the government has found it difficult to bring the budget deficit down to a level that would allow a rapid decrease in that debt. The economy continues to grow by less than the euro-zone average and growth is expected to decelerate from 1.9% in 2006 and 2007 to under 1.5% in 2008 as the euro-zone and world economies slow. |
| Jamaica | The Jamaican economy is heavily dependent on services, which now account for more than 60% of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 20% of GDP and are equivalent to tourism revenues. Jamaica’s economy, already saddled with a record of sluggish growth, will suffer an economic setback from damages caused by Hurricane Dean in August 2007. The economy faces serious long-term problems: high but declining interest rates, increased foreign competition, exchange rate instability, a sizable merchandise trade deficit, large-scale unemployment and underemployment, and a debt-to-GDP ratio of 135%. Jamaica’s onerous debt burden – the fourth highest per capita – is the result of government bailouts to ailing sectors of the economy, most notably the financial sector in the mid-to-late 1990s. Inflation also has declined, standing at about 7% at the end of 2007. High unemployment exacerbates the serious crime problem, including gang violence that is fueled by the drug trade. The GOLDING administration faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking a serious and growing crime problem that is hampering economic growth. |
| Jan Mayen | Jan Mayen is a volcanic island with no exploitable natural resources. Economic activity is limited to providing services for employees of Norway’s radio and meteorological stations on the island. |
| Japan | Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the rank of second most technologically powerful economy in the world after the US and the third-largest economy in the world after the US and China, measured on a purchasing power parity (PPP) basis. One notable characteristic of the economy has been how manufacturers, suppliers, and distributors have worked together in closely-knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features have now eroded. Japan’s industrial sector is heavily dependent on imported raw materials and fuels. The tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan must import about 55% of its food on a caloric basis. Japan maintains one of the world’s largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular – a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of overinvestment and an asset price bubble during the late 1980s that required a protracted period of time for firms to reduce excess debt, capital, and labor. From 2000 to 2001, government efforts to revive economic growth proved short lived and were hampered by the slowing of the US, European, and Asian economies. In 2002-07, growth improved and the lingering fears of deflation in prices and economic activity lessened, leading the central bank to raise interest rates to 0.25% in July 2006, up from the near 0% rate of the six years prior, and to 0.50% in February 2007. In addition, the ten-year privatization of Japan Post, which has functioned not only as the national postal delivery system but also, through its banking and insurance facilities as Japan’s largest financial institution, was completed in October 2007, marking a major milestone in the process of structural reform. Nevertheless, Japan’s huge government debt, which totals 182% of GDP, and the aging of the population are two major long-run problems. Some fear that a rise in taxes could endanger the current economic recovery. Debate also continues on the role of and effects of reform in restructuring the economy, particularly with respect to increasing income disparities. |
| Jersey | Jersey’s economy is based on international financial services, agriculture, and tourism. In 2005 the finance sector accounted for about 50% of the island’s output. Potatoes, cauliflower, tomatoes, and especially flowers are important export crops, shipped mostly to the UK. The Jersey breed of dairy cattle is known worldwide and represents an important export income earner. Milk products go to the UK and other EU countries. Tourism accounts for one-quarter of GDP. In recent years, the government has encouraged light industry to locate in Jersey, with the result that an electronics industry has developed alongside the traditional manufacturing of knitwear. All raw material and energy requirements are imported, as well as a large share of Jersey’s food needs. Light taxes and death duties make the island a popular tax haven. Living standards come close to those of the UK. |
| Jordan | Jordan is a small Arab country with insufficient supplies of water, oil, and other natural resources. Poverty, unemployment, and inflation are fundamental problems, but King ABDALLAH II, since assuming the throne in 1999, has undertaken some broad economic reforms in a long-term effort to improve living standards. Since Jordan’s graduation from its most recent IMF program in 2002, Amman has continued to follow IMF guidelines, practicing careful monetary policy, making substantial headway with privatization, and opening the trade regime. Jordan’s exports have significantly increased under the free trade accord with the US and Jordanian Qualifying Industrial Zones (QIZ), which allow Jordan to export goods duty free to the US. In 2006, Jordan reduced its debt-to-GDP ratio significantly. These measures have helped improve productivity and have made Jordan more attractive for foreign investment. Before the US-led war in Iraq, Jordan imported most of its oil from Iraq. Since 2003, however, Jordan has been more dependent on oil from other Gulf nations. The government ended subsidies for petroleum and other consumer goods in 2008 in an effort to control the budget. The main challenges facing Jordan are reducing dependence on foreign grants, reducing the budget deficit, attracting investments, and creating jobs. |
| Kazakhstan | Kazakhstan, the largest of the former Soviet republics in territory, excluding Russia, possesses enormous fossil fuel reserves and plentiful supplies of other minerals and metals. It also has a large agricultural sector featuring livestock and grain. Kazakhstan’s industrial sector rests on the extraction and processing of these natural resources and also on a growing machine-building sector specializing in construction equipment, tractors, agricultural machinery, and some defense items. The breakup of the USSR in December 1991 and the collapse in demand for Kazakhstan’s traditional heavy industry products resulted in a short-term contraction of the economy, with the steepest annual decline occurring in 1994. In 1995-97, the pace of the government program of economic reform and privatization quickened, resulting in a substantial shifting of assets into the private sector. Kazakhstan enjoyed double-digit growth in 2000-01 – 8% or more per year in 2002-07 – thanks largely to its booming energy sector, but also to economic reform, good harvests, and foreign investment. The opening of the Caspian Consortium pipeline in 2001, from western Kazakhstan’s Tengiz oilfield to the Black Sea, substantially raised export capacity. Kazakhstan in 2006 completed the Atasu-Alashankou portion of an oil pipeline to China that is planned to extend from the country’s Caspian coast eastward to the Chinese border in future construction. The country has embarked upon an industrial policy designed to diversify the economy away from overdependence on the oil sector by developing light industry. The policy aims to reduce the influence of foreign investment and foreign personnel. The government has engaged in several disputes with foreign oil companies over the terms of production agreements; tensions continue. Upward pressure on the local currency continued in 2007 due to massive oil-related foreign-exchange inflows. Aided by strong growth and foreign exchange earnings, Kazakhstan aspires to become a regional financial center and has created a banking system comparable to those in Central Europe. |
| Kenya | The regional hub for trade and finance in East Africa, Kenya has been hampered by corruption and by reliance upon several primary goods whose prices have remained low. In 1997, the IMF suspended Kenya’s Enhanced Structural Adjustment Program due to the government’s failure to maintain reforms and curb corruption. A severe drought from 1999 to 2000 compounded Kenya’s problems, causing water and energy rationing and reducing agricultural output. As a result, GDP contracted by 0.2% in 2000. The IMF, which had resumed loans in 2000 to help Kenya through the drought, again halted lending in 2001 when the government failed to institute several anticorruption measures. Despite the return of strong rains in 2001, weak commodity prices, endemic corruption, and low investment limited Kenya’s economic growth to 1.2%. Growth lagged at 1.1% in 2002 because of erratic rains, low investor confidence, meager donor support, and political infighting up to the elections. In the key December 2002 elections, Daniel Arap MOI’s 24-year-old reign ended, and a new opposition government took on the formidable economic problems facing the nation. After some early progress in rooting out corruption and encouraging donor support, the KIBAKI government was rocked by high-level graft scandals in 2005 and 2006. In 2006 the World Bank and IMF delayed loans pending action by the government on corruption. The international financial institutions and donors have since resumed lending, despite little action on the government’s part to deal with corruption. The scandals have not weighed down growth, with estimated real GDP growth at more than 6 percent in 2007. |
| Kiribati | A remote country of 33 scattered coral atolls, Kiribati has few natural resources. Commercially viable phosphate deposits were exhausted at the time of independence from the UK in 1979. Copra and fish now represent the bulk of production and exports. The economy has fluctuated widely in recent years. Economic development is constrained by a shortage of skilled workers, weak infrastructure, and remoteness from international markets. Tourism provides more than one-fifth of GDP. Private sector initiatives and a financial sector are in the early stages of development. Foreign financial aid from UK, Japan, Australia, New Zealand, and China equals more than 10% of GDP. Remittances from seamen on merchant ships abroad account for more than $5 million each year. Kiribati receives around $15 million annually for the government budget from an Australian trust fund. |
| Korea, North | North Korea, one of the world’s most centrally directed and least open economies, faces chronic economic problems. Industrial capital stock is nearly beyond repair as a result of years of underinvestment and shortages of spare parts. Industrial and power output have declined in parallel from pre-1990 levels. Due in part to severe summer flooding followed by dry weather conditions in the fall of 2006, the nation suffered its 13th year of food shortages because of on-going systemic problems including a lack of arable land, collective farming practices, and persistent shortages of tractors and fuel. During the summer of 2007, severe flooding again occurred. Large-scale international food aid deliveries have allowed the people of North Korea to escape widespread starvation since famine threatened in 1995, but the population continues to suffer from prolonged malnutrition and poor living conditions. Large-scale military spending draws off resources needed for investment and civilian consumption. Since 2002, the government has formalized an arrangement whereby private “farmers’ markets” were allowed to begin selling a wider range of goods. It also permitted some private farming on an experimental basis in an effort to boost agricultural output. In October 2005, the government tried to reverse some of these policies by forbidding private sales of grains and reinstituting a centralized food rationing system. By December 2005, the government terminated most international humanitarian assistance operations in North Korea (calling instead for developmental assistance only) and restricted the activities of remaining international and non-governmental aid organizations such as the World Food Program. External food aid now comes primarily from China and South Korea in the form of grants and long-term concessional loans. During the October 2007 summit, South Korea also agreed to develop some of North Korea’s infrastructure and natural resources and light industry. Firm political control remains the Communist government’s overriding concern, which will likely inhibit the loosening of economic regulations. |
| Korea, South | Since the 1960s, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. Four decades ago, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion dollar club of world economies. Today its GDP per capita is roughly the same as that of Greece and Spain. This success was achieved by a system of close government/business ties including directed credit, import restrictions, sponsorship of specific industries, and a strong labor effort. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption. The Asian financial crisis of 1997-98 exposed longstanding weaknesses in South Korea’s development model including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. GDP plunged by 6.9% in 1998, then recovered by 9.5% in 1999 and 8.5% in 2000. Growth fell back to 3.3% in 2001 because of the slowing global economy, falling exports, and the perception that much-needed corporate and financial reforms had stalled. Led by consumer spending and exports, growth in 2002 was an impressive 7%, despite anemic global growth. Between 2003 and 2007, growth moderated to about 4-5% annually. A downturn in consumer spending was offset by rapid export growth. Moderate inflation, low unemployment, and an export surplus in 2007 characterize this solid economy, but inflation and unemployment are increasing in the face of rising oil prices. |
| Kosovo | Kosovo’s economy continues to transition to a market-based system and is largely dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora – located mainly in Germany and Switzerland – account for about 30% of GDP. Kosovo’s citizens are the poorest in Europe with an average per capita income of only $1900 – about one-third the level of neighboring Albania. Most of Kosovo’s population lives in rural towns outside of the largest city, Pristina. Inefficient, near-subsistence farming is common – the result of small plots, limited mechanization, and lack of technical expertise. The complexity of Serbia and Kosovo’s political and legal relationships has created uncertainty over property rights and hindered the privatization of state-owned assets. Minerals and metals – including lignite, lead, zinc, nickel, chrome, aluminum, magnesium, and a wide variety of construction materials – formed the backbone of industry, but have declined because investment is insufficient to replace ageing Eastern Bloc equipment. Technical and financial problems in the power sector also impede industrial development. Economic growth is largely driven by the private sector – mostly small-scale retail businesses. Both the euro and the Serbian dinar circulate. Kosovo’s tie to the euro has helped keep inflation low. Kosovo has maintained a budget surplus as a result of efficient tax collection and inefficient spending. While maintaining ultimate oversight, UNMIK continues to work with the EU and Kosovo’s provisional government to accelerate economic growth, lower unemployment, and attract foreign investment. In order to help integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo) its accession to the Central Europe Free Trade Area (CEFTA) in 2006. |
| Kosovo | Kosovo’s economy has largely transitioned to a market-based system but is highly dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora – located mainly in Germany and Switzerland – account for about 30% of GDP. Kosovo’s citizens are the poorest in Europe with an average per capita income of only $1900 – about one-third the level of neighboring Albania. Unemployment – at 50% of the population – is a severe problem that encourages outward migration. Most of Kosovo’s population lives in rural towns outside of the largest city, Pristina. Inefficient, near-subsistence farming is common – the result of small plots, limited mechanization, and lack of technical expertise. The complexity of Serbia and Kosovo’s political and legal relationships created uncertainty over property rights and hindered the privatization of state-owned assets. Minerals and metals – including lignite, lead, zinc, nickel, chrome, aluminum, magnesium, and a wide variety of construction materials – once formed the backbone of industry, but output has declined because investment is insufficient to replace ageing Eastern Bloc equipment. Technical and financial problems in the power sector also impede industrial development, and deter foreign investment. Economic growth is largely driven by the private sector – mostly small-scale retail businesses. Both the euro and the Serbian dinar circulate. Kosovo’s tie to the euro has helped keep inflation low. Kosovo has maintained a budget surplus as a result of efficient tax collection and inefficient spending. While maintaining ultimate oversight, UNMIK continues to work with the EU and Kosovo’s provisional government to accelerate economic growth, lower unemployment, and attract foreign investment. In order to help integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo) its accession to the Central Europe Free Trade Area (CEFTA) in 2006. |
| Kuwait | Kuwait is a small, rich, relatively open economy with self-reported crude oil reserves of about 104 billion barrels – 10% of world reserves. Petroleum accounts for nearly half of GDP, 95% of export revenues, and 80% of government income. High oil prices in recent years have helped build Kuwait’s budget and trade surpluses and foreign reserves. As a result of this positive fiscal situation, the need for economic reforms is less urgent and the government has not earnestly pushed through new initiatives. Despite its vast oil reserves, Kuwait experienced power outages during the summer months in 2006 and 2007 because demand exceeded power generating capacity. Power outages are likely to worsen, given its high population growth rates, unless the government can increase generating capacity. In May 2007 Kuwait changed its currency peg from the US dollar to a basket of currencies in order to curb inflation and to reduce its vulnerability to external shocks. |
| Kyrgyzstan | Kyrgyzstan is a poor, mountainous country with a predominantly agricultural economy. Cotton, tobacco, wool, and meat are the main agricultural products, although only tobacco and cotton are exported in any quantity. Industrial exports include gold, mercury, uranium, natural gas, and electricity. Following independence Kyrgyzstan was progressive in carrying out market reforms, such as an improved regulatory system and land reform. Kyrgyzstan was the first Commonwealth of Independent States (CIS) country to be accepted into the World Trade Organization. Much of the government’s stock in enterprises has been sold. Drops in production had been severe after the breakup of the Soviet Union in December 1991, but by mid-1995, production began to recover and exports began to increase. The economy is heavily weighted toward gold export and a drop in output at the main Kumtor gold mine sparked a 0.5% decline in GDP in 2002 and a 0.6% decline in 2005. GDP grew more than 6% in 2007, partly due to higher gold prices internationally. The government made steady strides in controlling its substantial fiscal deficit, nearly closing the gap between revenues and expenditures in 2006, before boosting expenditures more than 20% in 2007. The government and international financial institutions have been engaged in a comprehensive medium-term poverty reduction and economic growth strategy; in 2005, Bishkek agreed to pursue much-needed tax reform and, in 2006, became eligible for the heavily indebted poor countries (HIPC) initiative. Progress fighting corruption, further restructuring of domestic industry, and success in attracting foreign investment are keys to future growth. |
| Laos | The government of Laos, one of the few remaining one-party Communist states, began decentralizing control and encouraging private enterprise in 1986. The results, starting from an extremely low base, were striking – growth averaged 6% per year in 1988-2007 except during the short-lived drop caused by the Asian financial crisis beginning in 1997. Despite this high growth rate, Laos remains a country with a underdeveloped infrastructure, particularly in rural areas. It has no railroads, a rudimentary road system, and limited external and internal telecommunications, though the government is sponsoring major improvements in the road system with support from Japan and China. Electricity is available in urban areas and in most rural districts. Subsistence agriculture, dominated by rice, accounts for about 40% of GDP and provides 80% of total employment. The economy will continue to benefit from aid from international donors and from foreign investment in hydropower and mining. Construction will be another strong economic driver, especially as hydroelectric dam and road projects gain steam. Several policy changes since 2004 may help spur growth. In late 2004, Laos gained Normal Trade Relations status with the US, allowing Laos-based producers to benefit from lower tariffs on exports. Laos is taking steps to join the World Trade Organization in the next few years; the resulting trade policy reforms will improve the business environment. On the fiscal side, a value-added tax (VAT) regime, slated to begin in 2008, should help streamline the government’s inefficient tax system. |
| Latvia | Latvia’s economy experienced GDP growth of more than 10% per year during 2006-07. The majority of companies, banks, and real estate have been privatized, although the state still holds sizable stakes in a few large enterprises. Latvia officially joined the World Trade Organization in February 1999. EU membership, a top foreign policy goal, came in May 2004. The current account deficit – more than 22% of GDP in 2007 – and inflation – at nearly 10% per year – remain major concerns. |
| Lebanon | The 1975-90 civil war seriously damaged Lebanon’s economic infrastructure, cut national output by half, and all but ended Lebanon’s position as a Middle Eastern entrepot and banking hub. In the years since, Lebanon has rebuilt much of its war-torn physical and financial infrastructure by borrowing heavily – mostly from domestic banks. In an attempt to reduce the ballooning national debt, the Rafiq HARIRI government began an austerity program, reining in government expenditures, increasing revenue collection, and privatizing state enterprises, but economic and financial reform initiatives stalled and public debt continued to grow despite receipt of more than $2 billion in bilateral assistance at the Paris II Donors Conference. The Israeli-Hizballah conflict in July-August 2006 caused an estimated $3.6 billion in infrastructure damage, and prompted international donors to pledge nearly $1 billion in recovery and reconstruction assistance. Donors met again in January 2007 and pledged over $7.5 billion to Lebanon for development projects and budget support, conditioned on progress on Beirut’s fiscal reform and privatization program. Internal Lebanese political tension continues to hamper economic activity, particularly in the tourism and retail sectors. |
| Lesotho | Small, landlocked, and mountainous, Lesotho relies on remittances from miners employed in South Africa and customs duties from the Southern Africa Customs Union for the majority of government revenue. However, the government has recently strengthened its tax system to reduce dependency on customs duties. Completion of a major hydropower facility in January 1998 now permits the sale of water to South Africa and also generates royalties for Lesotho. Lesotho produces about 90% of its own electrical power needs. As the number of mineworkers has declined steadily over the past several years, a small manufacturing base has developed based on farm products that support the milling, canning, leather, and jute industries, as well as a rapidly expanding apparel-assembly sector. The latter has grown significantly mainly due to Lesotho qualifying for the trade benefits contained in the Africa Growth and Opportunity Act. The economy is still primarily based on subsistence agriculture, especially livestock, although drought has decreased agricultural activity. The extreme inequality in the distribution of income remains a major drawback. Lesotho has signed an Interim Poverty Reduction and Growth Facility with the IMF. In July 2007 Lesotho signed a Millennium Challenge Account Compact with the US worth $362.5 million. |
| Liberia | Civil war and government mismanagement destroyed much of Liberia’s economy, especially the infrastructure in and around the capital, Monrovia. Many businesses fled the country, taking capital and expertise with them, but with the conclusion of fighting and the installation of a democratically-elected government in 2006, some have returned. Richly endowed with water, mineral resources, forests, and a climate favorable to agriculture, Liberia had been a producer and exporter of basic products – primarily raw timber and rubber. Local manufacturing, mainly foreign owned, had been small in scope. President JOHNSON SIRLEAF, a Harvard-trained banker and administrator, has taken steps to reduce corruption, build support from international donors, and encourage private investment. Embargos on timber and diamond exports have been lifted, opening new sources of revenue for the government. The reconstruction of infrastructure and the raising of incomes in this ravaged economy will largely depend on generous financial and technical assistance from donor countries and foreign investment in key sectors, such as infrastructure and power generation. |
| Libya | The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95% of export earnings, about one-quarter of GDP, and 60% of public sector wages. Substantial revenues from the energy sector coupled with a small population give Libya one of the highest per capita GDPs in Africa, but little of this income flows down to the lower orders of society. Libyan officials in the past five years have made progress on economic reforms as part of a broader campaign to reintegrate the country into the international fold. This effort picked up steam after UN sanctions were lifted in September 2003 and as Libya announced in December 2003 that it would abandon programs to build weapons of mass destruction. Almost all US unilateral sanctions against Libya were removed in April 2004, helping Libya attract more foreign direct investment, mostly in the energy sector. Libyan oil and gas licensing rounds continue to draw high international interest; the National Oil Company set a goal of nearly doubling oil production to 3 million bbl/day by 2015. Libya faces a long road ahead in liberalizing the socialist-oriented economy, but initial steps – including applying for WTO membership, reducing some subsidies, and announcing plans for privatization – are laying the groundwork for a transition to a more market-based economy. The non-oil manufacturing and construction sectors, which account for more than 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food. Libya’s primary agricultural water source remains the Great Manmade River Project, but significant resources are being invested in desalinization research to meet growing water demands. |
| Liechtenstein | Despite its small size and limited natural resources, Liechtenstein has developed into a prosperous, highly industrialized, free-enterprise economy with a vital financial service sector and living standards on a par with its large European neighbors. The Liechtenstein economy is widely diversified with a large number of small businesses. Low business taxes – the maximum tax rate is 20% – and easy incorporation rules have induced many holding or so-called letter box companies to establish nominal offices in Liechtenstein, providing 30% of state revenues. The country participates in a customs union with Switzerland and uses the Swiss franc as its national currency. It imports more than 90% of its energy requirements. Liechtenstein has been a member of the European Economic Area (an organization serving as a bridge between the European Free Trade Association (EFTA) and the EU) since May 1995. The government is working to harmonize its economic policies with those of an integrated Europe. |
| Lithuania | Lithuania, the Baltic state that has conducted the most trade with Russia, has grown rapidly since rebounding from the 1998 Russian financial crisis. Unemployment fell to 3.2% in 2007, while wages continued to grow at double digit rates, contributing to rising inflation. Exports and imports also grew strongly, and the current account deficit rose to nearly 15% of GDP in 2007. Trade has been increasingly oriented toward the West. Lithuania has gained membership in the World Trade Organization and joined the EU in May 2004. Privatization of the large, state-owned utilities is nearly complete. Foreign government and business support have helped in the transition from the old command economy to a market economy. |
| Luxembourg | This stable, high-income economy – benefiting from its proximity to France, Belgium, and Germany – features solid growth, low inflation, and low unemployment. The industrial sector, initially dominated by steel, has become increasingly diversified to include chemicals, rubber, and other products. Growth in the financial sector, which now accounts for about 28% of GDP, has more than compensated for the decline in steel. Most banks are foreign-owned and have extensive foreign dealings. Agriculture is based on small family-owned farms. The economy depends on foreign and cross-border workers for about 60% of its labor force. Although Luxembourg, like all EU members, suffered from the global economic slump in the early part of this decade, the country continues to enjoy an extraordinarily high standard of living – GDP per capita ranks first in the world. After two years of strong economic growth in 2006-07, Luxembourg’s economy probably will slow in 2008 as a result of turmoil in the world financial markets, but growth will remain above the European average. |
| Macau | Macau’s economy has enjoyed strong growth in recent years on the back of its expanding tourism and gaming sectors. Since opening up its locally-controlled casino industry to foreign competition in 2001, the territory has attracted 10s of billions of dollars in foreign investment that have helped transform it into the world’s largest gaming center. In 2006, Macau’s gaming revenue surpassed that of the Las Vegas strip, and gaming-related taxes accounted for 75% of total government revenue. The expanding casino sector, and China’s decision beginning in 2002 to relax travel restrictions, have reenergized Macau’s tourism industry, which saw total visitors grow to 27 million in 2007, up 62% in three years. Macau’s strong economic growth has put pressure its labor market prompting businesses to look abroad to meet their staffing needs. The resulting influx of non-resident workers, who totaled one-fifth of the workforce in 2006, has fueled tensions among some segments of the population. Macau’s traditional manufacturing industry has been in a slow decline. In 2006, exports of textiles and garments generated only $1.8 billion compared to $6.9 billion in gross gaming receipts. Macau’s textile industry will continue to move to the mainland because of the termination in 2005 of the Multi-Fiber Agreement, which provided a near guarantee of export markets, leaving the territory more dependent on gambling and trade-related services to generate growth. However, the Closer Economic Partnership Agreement (CEPA) between Macau and mainland China that came into effect on 1 January 2004 offers many Macau-made products tariff-free access to the mainland. Macau’s currency, the Pataca, is closely tied to the Hong Kong dollar, which is also freely accepted in the territory. |
| Macedonia | At independence in September 1991, Macedonia was the least developed of the Yugoslav republics, producing a mere 5% of the total federal output of goods and services. The collapse of Yugoslavia ended transfer payments from the central government and eliminated advantages from inclusion in a de facto free trade area. An absence of infrastructure, UN sanctions on the downsized Yugoslavia, and a Greek economic embargo over a dispute about the country’s constitutional name and flag hindered economic growth until 1996. GDP subsequently rose each year through 2000. However, the leadership’s commitment to economic reform, free trade, and regional integration was undermined by the ethnic Albanian insurgency of 2001. The economy shrank 4.5% because of decreased trade, intermittent border closures, increased deficit spending on security needs, and investor uncertainty. Growth barely recovered in 2002 to 0.9%, then averaged 4% per year during 2003-07. Macedonia has maintained macroeconomic stability with low inflation, but it has so far lagged the region in attracting foreign investment and job creation despite making extensive fiscal and business sector reforms. Official unemployment remains the highest in Europe at 35%, but may be somewhat overstated based on the existence of an extensive gray market, estimated to be more than 20 percent of GDP, that falls outside official statistics. |
| Madagascar | Having discarded past socialist economic policies, Madagascar has since the mid 1990s followed a World Bank- and IMF-led policy of privatization and liberalization. This strategy placed the country on a slow and steady growth path from an extremely low level. Agriculture, including fishing and forestry, is a mainstay of the economy, accounting for more than one-fourth of GDP and employing 80% of the population. Exports of apparel have boomed in recent years primarily due to duty-free access to the US. Deforestation and erosion, aggravated by the use of firewood as the primary source of fuel, are serious concerns. President RAVALOMANANA has worked aggressively to revive the economy following the 2002 political crisis, which triggered a 12% drop in GDP that year. Poverty reduction and combating corruption will be the centerpieces of economic policy for the next few years. |
| Malawi | Landlocked Malawi ranks among the world’s most densely populated and least developed countries. The economy is predominately agricultural, with about 85% of the population living in rural areas. Agriculture accounts for more than one-third of GDP and 90% of export revenues. The performance of the tobacco sector is key to short-term growth as tobacco accounts for more than half of exports. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. In December 2007 the US granted Malawi eligibility status to receive financial support within the Millennium Challenge Corporation (MCC) initiative. Malawi will now begin a consultative process to develop a five-year program before funding can begin. In 2006, Malawi was approved for relief under the Heavily Indebted Poor Countries (HIPC) program. The government faces many challenges, including developing a market economy, improving educational facilities, facing up to environmental problems, dealing with the rapidly growing problem of HIV/AIDS, and satisfying foreign donors that fiscal discipline is being tightened. In 2005, President MUTHARIKA championed an anticorruption campaign. Since 2005 President MUTHARIKA’S government has exhibited improved financial discipline under the guidance of Finance Minister Goodall GONDWE and signed a three year Poverty Reduction and Growth Facility worth $56 million with the IMF. Improved relations with the IMF lead other international donors to resume aid as well. |
| Malaysia | Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Since coming to office in 2003, Prime Minister ABDULLAH has tried to move the economy farther up the value-added production chain by attracting investments in high technology industries, medical technology, and pharmaceuticals. The Government of Malaysia is continuing efforts to boost domestic demand to wean the economy off of its dependence on exports. Nevertheless, exports – particularly of electronics – remain a significant driver of the economy. As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel forced Kuala Lumpur to reduce government subsidies. Malaysia “unpegged” the ringgit from the US dollar in 2005 and the currency appreciated 6% per year against the dollar in 2006-07. Although this has helped to hold down the price of imports, inflationary pressures began to build in 2007. Healthy foreign exchange reserves and a small external debt greatly reduce the risk that Malaysia will experience a financial crisis over the near term similar to the one in 1997. The government presented its five-year national development agenda in April 2006 through the Ninth Malaysia Plan, a comprehensive blueprint for the allocation of the national budget from 2006-10. With national elections expected within the year, ABDULLAH has unveiled a series of ambitious development schemes for several regions that have had trouble attracting business investment. Real GDP growth has averaged about 6% per year under ABDULLAH, but regions outside of Kuala Lumpur and the manufacturing hub Penang have not fared as well. |
| Maldives | Tourism, Maldives’ largest industry, accounts for 28% of GDP and more than 60% of the Maldives’ foreign exchange receipts. Over 90% of government tax revenue comes from import duties and tourism-related taxes. Fishing is the second leading sector. Agriculture and manufacturing continue to play a lesser role in the economy, constrained by the limited availability of cultivable land and the shortage of domestic labor. Most staple foods must be imported. Industry, which consists mainly of garment production, boat building, and handicrafts, accounts for about 7% of GDP. The Maldivian Government began an economic reform program in 1989 initially by lifting import quotas and opening some exports to the private sector. Subsequently, it has liberalized regulations to allow more foreign investment. Real GDP growth averaged over 7.5% per year for more than a decade. In late December 2004, a major tsunami left more than 100 dead, 12,000 displaced, and property damage exceeding $300 million. As a result of the tsunami, the GDP contracted by about 3.6% in 2005. A rebound in tourism, post-tsunami reconstruction, and development of new resorts helped the economy recover quickly. The trade deficit has expanded sharply as a result of high oil prices and imports of construction material. Diversifying beyond tourism and fishing and increasing employment are the major challenges facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is one meter or less above sea level. |
| Mali | Mali is among the poorest countries in the world, with 65% of its land area desert or semidesert and with a highly unequal distribution of income. Economic activity is largely confined to the riverine area irrigated by the Niger. About 10% of the population is nomadic and some 80% of the labor force is engaged in farming and fishing. Industrial activity is concentrated on processing farm commodities. Mali is heavily dependent on foreign aid and vulnerable to fluctuations in world prices for cotton, its main export, along with gold. The government has continued its successful implementation of an IMF-recommended structural adjustment program that is helping the economy grow, diversify, and attract foreign investment. Mali’s adherence to economic reform and the 50% devaluation of the CFA franc in January 1994 have pushed up economic growth to a 5% average in 1996-2007. Worker remittances and external trade routes for the landlocked country have been jeopardized by continued unrest in neighboring Cote d’Ivoire. |
| Malta | Major resources are limestone, a favorable geographic location, and a productive labor force. Malta produces only about 20% of its food needs, has limited fresh water supplies, and has few domestic energy sources. The economy is dependent on foreign trade, manufacturing (especially electronics and pharmaceuticals), and tourism. Economic recovery of the European economy has lifted exports, tourism, and overall growth. Malta adopted the euro on 1 January 2008. |
| Marshall Islands | US Government assistance is the mainstay of this tiny island economy. Agricultural production, primarily subsistence, is concentrated on small farms; the most important commercial crops are coconuts and breadfruit. Small-scale industry is limited to handicrafts, tuna processing, and copra. The tourist industry, now a small source of foreign exchange employing less than 10% of the labor force, remains the best hope for future added income. The islands have few natural resources, and imports far exceed exports. Under the terms of the Amended Compact of Free Association, the US will provide millions of dollars per year to the Marshall Islands (RMI) through 2023, at which time a Trust Fund made up of US and RMI contributions will begin perpetual annual payouts. Government downsizing, drought, a drop in construction, the decline in tourism, and less income from the renewal of fishing vessel licenses have held GDP growth to an average of 1% over the past decade. |
| Mauritania | Half the population still depends on agriculture and livestock for a livelihood, even though many of the nomads and subsistence farmers were forced into the cities by recurrent droughts in the 1970s and 1980s. Mauritania has extensive deposits of iron ore, which account for nearly 40% of total exports. The nation’s coastal waters are among the richest fishing areas in the world, but overexploitation by foreigners threatens this key source of revenue. The country’s first deepwater port opened near Nouakchott in 1986. In the past, drought and economic mismanagement resulted in a buildup of foreign debt, which now stands at more than three times the level of annual exports. In February 2000, Mauritania qualified for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and in December 2001 received strong support from donor and lending countries at a triennial Consultative Group review. A new investment code approved in December 2001 improved the opportunities for direct foreign investment. Ongoing negotiations with the IMF involve problems of economic reforms and fiscal discipline. In 2001, exploratory oil wells in tracts 80 km offshore indicated potential extraction at current world oil prices. Oil prospects, while initially promising, have failed to materialize. Meantime the government emphasizes reduction of poverty, improvement of health and education, and promoting privatization of the economy. |
| Mauritius | Since independence in 1968, Mauritius has developed from a low-income, agriculturally based economy to a middle-income diversified economy with growing industrial, financial, and tourist sectors. For most of the period, annual growth has been in the order of 5% to 6%. This remarkable achievement has been reflected in more equitable income distribution, increased life expectancy, lowered infant mortality, and a much-improved infrastructure. The economy rests on sugar, tourism, textiles and apparel, and financial services, and is expanding into fish processing, information and communications technology, and hospitality and property development. Sugarcane is grown on about 90% of the cultivated land area and accounts for 15% of export earnings. The government’s development strategy centers on creating vertical and horizontal clusters of development in these sectors. Mauritius has attracted more than 32,000 offshore entities, many aimed at commerce in India, South Africa, and China. Investment in the banking sector alone has reached over $1 billion. Mauritius, with its strong textile sector, has been well poised to take advantage of the Africa Growth and Opportunity Act (AGOA). |
| Mayotte | Economic activity is based primarily on the agricultural sector, including fishing and livestock raising. Mayotte is not self-sufficient and must import a large portion of its food requirements, mainly from France. The economy and future development of the island are heavily dependent on French financial assistance, an important supplement to GDP. Mayotte’s remote location is an obstacle to the development of tourism. |
| Mexico | Mexico has a free market economy in the trillion dollar class. It contains a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports. Per capita income is one-fourth that of the US; income distribution remains highly unequal. Trade with the US and Canada has tripled since the implementation of NAFTA in 1994. Mexico has 12 free trade agreements with over 40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements. In 2007, during his first year in office, the Felipe CALDERON administration was able to garner support from the opposition to successfully pass a pension and a fiscal reform. The administration continues to face many economic challenges including the need to upgrade infrastructure, modernize labor laws, and allow private investment in the energy sector. CALDERON has stated that his top economic priorities remain reducing poverty and creating jobs. |
| Micronesia, Federated States of | Economic activity consists primarily of subsistence farming and fishing. The islands have few mineral deposits worth exploiting, except for high-grade phosphate. The potential for a tourist industry exists, but the remote location, a lack of adequate facilities, and limited air connections hinder development. The Amended Compact of Free Association with the US guarantees the Federated States of Micronesia (FSM) millions of dollars in annual aid through 2023, and establishes a Trust Fund into which the US and the FSM make annual contributions in order to provide annual payouts to the FSM in perpetuity after 2023. The country’s medium-term economic outlook appears fragile due not only to the reduction in US assistance but also to the current slow growth of the private sector. |
| Moldova | Moldova remains one of the poorest countries in Europe despite recent progress from its small economic base. It enjoys a favorable climate and good farmland but has no major mineral deposits. As a result, the economy depends heavily on agriculture, featuring fruits, vegetables, wine, and tobacco. Moldova must import almost all of its energy supplies. Moldova’s dependence on Russian energy was underscored at the end of 2005, when a Russian-owned electrical station in Moldova’s separatist Transnistria region cut off power to Moldova and Russia’s Gazprom cut off natural gas in disputes over pricing. Russia’s decision to ban Moldovan wine and agricultural products, coupled with its decision to double the price Moldova paid for Russian natural gas, slowed GDP growth in 2006. However, in 2007 growth returned to the 6% level Moldova had achieved in 2000-05, boosted by Russia’s partial removal of the bans, solid fixed capital investment, and strong domestic demand driven by remittances from abroad. Economic reforms have been slow because of corruption and strong political forces backing government controls. Nevertheless, the government’s primary goal of EU integration has resulted in some market-oriented progress. The granting of EU trade preferences and increased exports to Russia will encourage higher growth rates in 2008, but the agreements are unlikely to serve as a panacea, given the extent to which export success depends on higher quality standards and other factors. The economy remains vulnerable to higher fuel prices, poor agricultural weather, and the skepticism of foreign investors. Also, the presence of an illegal separatist regime in Moldova’s Transnistria region continues to be a drag on the Moldovan economy. |
| Monaco | Monaco, bordering France on the Mediterranean coast, is a popular resort, attracting tourists to its casino and pleasant climate. The principality also is a major banking center and has successfully sought to diversify into services and small, high-value-added, nonpolluting industries. The state has no income tax and low business taxes and thrives as a tax haven both for individuals who have established residence and for foreign companies that have set up businesses and offices. The state retains monopolies in a number of sectors, including tobacco, the telephone network, and the postal service. Living standards are high, roughly comparable to those in prosperous French metropolitan areas. |
| Mongolia | Economic activity in Mongolia has traditionally been based on herding and agriculture. Mongolia has extensive mineral deposits. Copper, coal, gold, molybdenum, fluorspar, uranium, tin, and tungsten account for a large part of industrial production and foreign direct investment. Soviet assistance, at its height one-third of GDP, disappeared almost overnight in 1990 and 1991 at the time of the dismantlement of the USSR. The following decade saw Mongolia endure both deep recession because of political inaction and natural disasters, as well as economic growth because of reform-embracing, free-market economics and extensive privatization of the formerly state-run economy. Severe winters and summer droughts in 2000-02 resulted in massive livestock die-off and zero or negative GDP growth. This was compounded by falling prices for Mongolia’s primary sector exports and widespread opposition to privatization. Growth was 10.6% in 2004, 5.5% in 2005, 7.5% in 2006, and 9.9% in 2007 largely because of high copper prices and new gold production. Mongolia is experiencing its highest inflation rate in over a decade as consumer prices in 2007 rose 15%, largely because of increased fuel and food costs. Mongolia’s economy continues to be heavily influenced by its neighbors. For example, Mongolia purchases 95% of its petroleum products and a substantial amount of electric power from Russia, leaving it vulnerable to price increases. Trade with China represents more than half of Mongolia’s total external trade – China receives nearly 70% of Mongolia’s exports. Remittances from Mongolians working abroad both legally and illegally are sizable, and money laundering is a growing concern. Mongolia settled its $11 billion debt with Russia at the end of 2003 on favorable terms. Mongolia, which joined the World Trade Organization in 1997, seeks to expand its participation and integration into Asian regional economic and trade regimes. |
| Montenegro | The republic of Montenegro severed its economy from federal control and from Serbia during the MILOSEVIC era and maintained its own central bank, used the euro instead of the Yugoslav dinar as official currency, collected customs tariffs, and managed its own budget. The dissolution of the loose political union between Serbia and Montenegro in 2006 led to separate membership in several international financial institutions, such as the European Bank for Reconstruction and Development. On 18 January 2007, Montenegro joined the World Bank and IMF. Montenegro is pursuing its own membership in the World Trade Organization as well as negotiating a Stabilization and Association agreement with the European Union in anticipation of eventual membership. Severe unemployment remains a key political and economic problem for this entire region. Montenegro has privatized its large aluminum complex – the dominant industry – as well as most of its financial sector, and has begun to attract foreign direct investment in the tourism sector. |
| Montserrat | Severe volcanic activity, which began in July 1995, has put a damper on this small, open economy. A catastrophic eruption in June 1997 closed the airports and seaports, causing further economic and social dislocation. Two-thirds of the 12,000 inhabitants fled the island. Some began to return in 1998, but lack of housing limited the number. The agriculture sector continued to be affected by the lack of suitable land for farming and the destruction of crops. Prospects for the economy depend largely on developments in relation to the volcanic activity and on public sector construction activity. The UK has launched a three-year $122.8 million aid program to help reconstruct the economy. Half of the island is expected to remain uninhabitable for another decade. |
| Morocco | Moroccan economic policies brought macroeconomic stability to the country in the early 1990s but have not spurred growth sufficient to reduce unemployment – nearing 20% in urban areas – despite the Moroccan Government’s ongoing efforts to diversify the economy. Morocco’s GDP growth rate slowed to 2.1% in 2007 as a result of a draught that severely reduced agricultural output and necessitated wheat imports at rising world prices. Continued dependence on foreign energy and Morocco’s inability to develop small and medium size enterprises also contributed to the slowdown. Moroccan authorities understand that reducing poverty and providing jobs are key to domestic security and development. In 2005, Morocco launched the National Initiative for Human Development (INDH), a $2 billion social development plan to address poverty and unemployment and to improve the living conditions of the country’s urban slums. Moroccan authorities are implementing reform efforts to open the economy to international investors. Despite structural adjustment programs supported by the IMF, the World Bank, and the Paris Club, the dirham is only fully convertible for current account transactions. In 2000, Morocco entered an Association Agreement with the EU and, in 2006, entered a Free Trade Agreement (FTA) with the US. Long-term challenges include improving education and job prospects for Morocco’s youth, and closing the income gap between the rich and the poor, which the government hopes to achieve by increasing tourist arrivals and boosting competitiveness in textiles. |
| Mozambique | At independence in 1975, Mozambique was one of the world’s poorest countries. Socialist mismanagement and a brutal civil war from 1977-92 exacerbated the situation. In 1987, the government embarked on a series of macroeconomic reforms designed to stabilize the economy. These steps, combined with donor assistance and with political stability since the multi-party elections in 1994, have led to dramatic improvements in the country’s growth rate. Inflation was reduced to single digits during the late 1990s, and although it returned to double digits in 2000-06, in 2007 inflation had slowed to 8%, while GDP growth reached 7.5%. Fiscal reforms, including the introduction of a value-added tax and reform of the customs service, have improved the government’s revenue collection abilities. In spite of these gains, Mozambique remains dependent upon foreign assistance for much of its annual budget, and the majority of the population remains below the poverty line. Subsistence agriculture continues to employ the vast majority of the country’s work force. A substantial trade imbalance persists although the opening of the Mozal aluminum smelter, the country’s largest foreign investment project to date, has increased export earnings. At the end of 2007, and after years of negotiations, the government took over Portugal’s majority share of the Cahora Bassa Hydroelectricity (HCB) company, a dam that was not transferred to Mozambique at independence because of the ensuing civil war and unpaid debts. More power is needed for additional investment projects in titanium extraction and processing and garment manufacturing that could further close the import/export gap. Mozambique’s once substantial foreign debt has been reduced through forgiveness and rescheduling under the IMF’s Heavily Indebted Poor Countries (HIPC) and Enhanced HIPC initiatives, and is now at a manageable level. In July 2007 the Millennium Challenge Corporation (MCC) signed a Compact with Mozambique; the Mozambican government moved rapidly to ratify the Compact and propose a plan for funding. |
| Namibia | The economy is heavily dependent on the extraction and processing of minerals for export. Mining accounts for 8% of GDP, but provides more than 50% of foreign exchange earnings. Rich alluvial diamond deposits make Namibia a primary source for gem-quality diamonds. Namibia is the fourth-largest exporter of nonfuel minerals in Africa, the world’s fifth-largest producer of uranium, and the producer of large quantities of lead, zinc, tin, silver, and tungsten. The mining sector employs only about 3% of the population while about half of the population depends on subsistence agriculture for its livelihood. Namibia normally imports about 50% of its cereal requirements; in drought years food shortages are a major problem in rural areas. A high per capita GDP, relative to the region, hides one of the world’s most unequal income distributions. The Namibian economy is closely linked to South Africa with the Namibian dollar pegged one-to-one to the South African rand. Increased payments from the Southern African Customs Union (SACU) put Namibia’s budget into surplus in 2007 for the first time since independence, but SACU payments will decline after 2008 as part of a new revenue sharing formula. Increased fish production and mining of zinc, copper, uranium, and silver spurred growth in 2003-07, but growth in recent years was undercut by poor fish catches and high costs for metal inputs. |
| Nauru | Revenues of this tiny island have traditionally come from exports of phosphates, now significantly depleted. An Australian company in 2005 entered into an agreement intended to exploit remaining supplies. Few other resources exist with most necessities being imported, mainly from Australia, its former occupier and later major source of support. The rehabilitation of mined land and the replacement of income from phosphates are serious long-term problems. In anticipation of the exhaustion of Nauru’s phosphate deposits, substantial amounts of phosphate income were invested in trust funds to help cushion the transition and provide for Nauru’s economic future. As a result of heavy spending from the trust funds, the government faces virtual bankruptcy. To cut costs the government has frozen wages and reduced overstaffed public service departments. In 2005, the deterioration in housing, hospitals, and other capital plant continued, and the cost to Australia of keeping the government and economy afloat continued to climb. Few comprehensive statistics on the Nauru economy exist, with estimates of Nauru’s GDP varying widely. |
| Navassa Island | Subsistence fishing and commercial trawling occur within refuge waters. |
| Nepal | Nepal is among the poorest and least developed countries in the world with almost one-third of its population living below the poverty line. Agriculture is the mainstay of the economy, providing a livelihood for three-fourths of the population and accounting for 38% of GDP. Industrial activity mainly involves the processing of agricultural produce including jute, sugarcane, tobacco, and grain. Security concerns relating to the Maoist conflict have led to a decrease in tourism, a key source of foreign exchange. Nepal has considerable scope for exploiting its potential in hydropower and tourism, areas of recent foreign investment interest. Prospects for foreign trade or investment in other sectors will remain poor, however, because of the small size of the economy, its technological backwardness, its remoteness, its landlocked geographic location, its civil strife, and its susceptibility to natural disaster. |
| Netherlands | The Netherlands has a prosperous and open economy, which depends heavily on foreign trade. The economy is noted for stable industrial relations, moderate unemployment and inflation, a sizable current account surplus, and an important role as a European transportation hub. Industrial activity is predominantly in food processing, chemicals, petroleum refining, and electrical machinery. A highly mechanized agricultural sector employs no more than 3% of the labor force but provides large surpluses for the food-processing industry and for exports. The Netherlands, along with 11 of its EU partners, began circulating the euro currency on 1 January 2002. The country continues to be one of the leading European nations for attracting foreign direct investment and is one of the five largest investors in the US. The economy experienced a slowdown in 2005 but in 2006 recovered to the fastest pace in six years on the back of increased exports and strong investment. The pace of job growth reached 10-year highs in 2007. |
| Netherlands Antilles | Tourism, petroleum refining, and offshore finance are the mainstays of this small economy, which is closely tied to the outside world. Although GDP has declined or grown slightly in each of the past eight years, the islands enjoy a high per capita income and a well-developed infrastructure compared with other countries in the region. Most of the oil Netherlands Antilles imports for its refineries come from Venezuela. Almost all consumer and capital goods are imported, the US and Mexico being the major suppliers. Poor soils and inadequate water supplies hamper the development of agriculture. Budgetary problems hamper reform of the health and pension systems of an aging population. |
| New Caledonia | New Caledonia has about 25% of the world’s known nickel resources. Only a small amount of the land is suitable for cultivation, and food accounts for about 20% of imports. In addition to nickel, substantial financial support from France – equal to more than 15% of GDP – and tourism are keys to the health of the economy. Substantial new investment in the nickel industry, combined with the recovery of global nickel prices, brightens the economic outlook for the next several years. |
| New Zealand | Over the past 20 years the government has transformed New Zealand from an agrarian economy dependent on concessionary British market access to a more industrialized, free market economy that can compete globally. This dynamic growth has boosted real incomes – but left behind many at the bottom of the ladder – and broadened and deepened the technological capabilities of the industrial sector. Per capita income has risen for eight consecutive years and reached $27,800 in 2007 in purchasing power parity terms. Consumer and government spending have driven growth in recent years, and exports picked up in 2006 after struggling for several years. Exports were equal to about 22% of GDP in 2007, down from 33% of GDP in 2001. Thus far the economy has been resilient, and the Labor Government promises that expenditures on health, education, and pensions will increase proportionately to output. Inflationary pressures have built in recent years and the central bank raised its key rate 13 times since January 2004 to finish 2007 at 8.25%. A large balance of payments deficit poses another challenge in managing the economy. |
| Nicaragua | Nicaragua has widespread underemployment, one of the highest degrees of income inequality in the world, and the third lowest per capita income in the Western Hemisphere. While the country has progressed toward macroeconomic stability in the past few years, annual GDP growth has been far too low to meet the country’s needs, forcing the country to rely on international economic assistance to meet fiscal and debt financing obligations. In early 2004, Nicaragua secured some $4.5 billion in foreign debt reduction under the Heavily Indebted Poor Countries (HIPC) initiative, and in October 2007, the IMF approved a new poverty reduction and growth facility (PRGF) program that should create fiscal space for social spending and investment. The continuity of a relationship with the IMF reinforces donor confidence, despite private sector concerns surrounding Ortega, which has dampened investment. The US-Central America Free Trade Agreement (CAFTA) has been in effect since April 2006 and has expanded export opportunities for many agricultural and manufactured goods. Energy shortages fueled by high oil prices, however, are a serious bottleneck to growth. |
| Niger | Niger is one of the poorest countries in the world, ranking near last on the United Nations Development Fund index of human development. It is a landlocked, Sub-Saharan nation, whose economy centers on subsistence crops, livestock, and some of the world’s largest uranium deposits. Drought cycles, desertification, and a 2.9% population growth rate, have undercut the economy. Niger shares a common currency, the CFA franc, and a common central bank, the Central Bank of West African States (BCEAO), with seven other members of the West African Monetary Union. In December 2000, Niger qualified for enhanced debt relief under the International Monetary Fund program for Highly Indebted Poor Countries (HIPC) and concluded an agreement with the Fund on a Poverty Reduction and Growth Facility (PRGF). Debt relief provided under the enhanced HIPC initiative significantly reduces Niger’s annual debt service obligations, freeing funds for expenditures on basic health care, primary education, HIV/AIDS prevention, rural infrastructure, and other programs geared at poverty reduction. In December 2005, Niger received 100% multilateral debt relief from the IMF, which translates into the forgiveness of approximately US $86 million in debts to the IMF, excluding the remaining assistance under HIPC. Nearly half of the government’s budget is derived from foreign donor resources. Future growth may be sustained by exploitation of oil, gold, coal, and other mineral resources. Uranium prices have increased sharply in the last few years. A drought and locust infestation in 2005 led to food shortages for as many as 2.5 million Nigeriens. |
| Nigeria | Oil-rich Nigeria, long hobbled by political instability, corruption, inadequate infrastructure, and poor macroeconomic management, is undertaking some reforms under a new reform-minded administration. Nigeria’s former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 20% of GDP, 95% of foreign exchange earnings, and about 80% of budgetary revenues. The largely subsistence agricultural sector has failed to keep up with rapid population growth – Nigeria is Africa’s most populous country – and the country, once a large net exporter of food, now must import food. Following the signing of an IMF stand-by agreement in August 2000, Nigeria received a debt-restructuring deal from the Paris Club and a $1 billion credit from the IMF, both contingent on economic reforms. Nigeria pulled out of its IMF program in April 2002, after failing to meet spending and exchange rate targets, making it ineligible for additional debt forgiveness from the Paris Club. In the last year the government has begun showing the political will to implement the market-oriented reforms urged by the IMF, such as to modernize the banking system, to curb inflation by blocking excessive wage demands, and to resolve regional disputes over the distribution of earnings from the oil industry. In 2003, the government began deregulating fuel prices, announced the privatization of the country’s four oil refineries, and instituted the National Economic Empowerment Development Strategy, a domestically designed and run program modeled on the IMF’s Poverty Reduction and Growth Facility for fiscal and monetary management. In November 2005, Abuja won Paris Club approval for a debt – relief deal that eliminated $18 billion of debt in exchange for $12 billion in payments – a total package worth $30 billion of Nigeria’s total $37 billion external debt. The deal requires Nigeria to be subject to stringent IMF reviews. GDP rose strongly in 2007, based largely on increased oil exports and high global crude prices. Newly-elected President YAR’ADUA has pledged to continue the economic reforms of his successor and the proposed budget for 2008 reflects the administrations emphasis on infrastructure improvements. Infrastructure is the main impediment to growth. The government is working toward developing stronger public-private partnerships for electricity and roads. |
| Niue | The economy suffers from the typical Pacific island problems of geographic isolation, few resources, and a small population. Government expenditures regularly exceed revenues, and the shortfall is made up by critically needed grants from New Zealand that are used to pay wages to public employees. Niue has cut government expenditures by reducing the public service by almost half. The agricultural sector consists mainly of subsistence gardening, although some cash crops are grown for export. Industry consists primarily of small factories to process passion fruit, lime oil, honey, and coconut cream. The sale of postage stamps to foreign collectors is an important source of revenue. The island in recent years has suffered a serious loss of population because of emigration to New Zealand. Efforts to increase GDP include the promotion of tourism and a financial services industry, although the International Banking Repeal Act of 2002 resulted in the termination of all offshore banking licenses. Economic aid from New Zealand in 2002 was about US$2 million. Niue suffered a devastating typhoon in January 2004, which decimated nascent economic programs. While in the process of rebuilding, Niue has been dependent on foreign aid. |
| Norfolk Island | Tourism, the primary economic activity, has steadily increased over the years and has brought a level of prosperity unusual among inhabitants of the Pacific islands. The agricultural sector has become self-sufficient in the production of beef, poultry, and eggs. |
| Northern Mariana Islands | The economy benefits substantially from financial assistance from the US. The rate of funding has declined as locally generated government revenues have grown. The key tourist industry employs about 50% of the work force and accounts for roughly one-fourth of GDP. Japanese tourists predominate. Annual tourist entries have exceeded one-half million in recent years, but financial difficulties in Japan have caused a temporary slowdown. The agricultural sector is made up of cattle ranches and small farms producing coconuts, breadfruit, tomatoes, and melons. Garment production is by far the most important industry with the employment of 17,500 mostly Chinese workers and sizable shipments to the US under duty and quota exemptions. |
| Norway | The Norwegian economy is a prosperous bastion of welfare capitalism, featuring a combination of free market activity and government intervention. The government controls key areas, such as the vital petroleum sector, through large-scale state enterprises. The country is richly endowed with natural resources – petroleum, hydropower, fish, forests, and minerals – and is highly dependent on its oil production and international oil prices, with oil and gas accounting for one-third of exports. Only Saudi Arabia and Russia export more oil than Norway. Norway opted to stay out of the EU during a referendum in November 1994; nonetheless, as a member of the European Economic Area, it contributes sizably to the EU budget. The government has moved ahead with privatization. Although Norwegian oil production peaked in 2000, natural gas production is still rising. Norwegians realize that once their gas production peaks they will eventually face declining oil and gas revenues; accordingly, Norway has been saving its oil-and-gas-boosted budget surpluses in a Government Petroleum Fund, which is invested abroad and now is valued at more than $250 billion. After lackluster growth of less than 1% in 2002-03, GDP growth picked up to 3-5% in 2004-07, partly due to higher oil prices. Norway’s economy remains buoyant. Domestic economic activity is, and will continue to be, the main driver of growth, supported by high consumer confidence and strong investment spending in the offshore oil and gas sector. Norway’s record high budget surplus and upswing in the labor market in 2007 highlight the strength of its economic position going into 2008. |
| Oman | Oman is a middle-income economy that is heavily dependent on dwindling oil resources, but sustained high oil prices in recent years have helped build Oman’s budget and trade surpluses and foreign reserves. Oman joined the World Trade Organization in November 2000 and continues to liberalize its markets. It ratified a free trade agreement with the US in September 2006, and, through the Gulf Cooperation Council, seeks similar agreements with the EU, China and Japan. As a result of its dwindling oil resources, Oman is actively pursuing a development plan that focuses on diversification, industrialization, and privatization, with the objective of reducing the oil sector’s contribution to GDP to 9 percent by 2020. Muscat is attempting to “Omanize” the labor force by replacing foreign expatriate workers with local workers. Oman actively seeks private foreign investors, especially in the industrial, information technology, tourism, and higher education fields. Industrial development plans focus on gas resources, metal manufacturing, petrochemicals, and international transshipment ports. |
| Pacific Ocean | The Pacific Ocean is a major contributor to the world economy and particularly to those nations its waters directly touch. It provides low-cost sea transportation between East and West, extensive fishing grounds, offshore oil and gas fields, minerals, and sand and gravel for the construction industry. In 1996, over 60% of the world’s fish catch came from the Pacific Ocean. Exploitation of offshore oil and gas reserves is playing an ever-increasing role in the energy supplies of the US, Australia, NZ, China, and Peru. The high cost of recovering offshore oil and gas, combined with the wide swings in world prices for oil since 1985, has led to fluctuations in new drillings. |
| Pakistan | Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by generous foreign assistance and renewed access to global markets since 2001, have generated solid macroeconomic recovery the last five years. The government has made substantial macroeconomic reforms since 2000, most notably privatizing the banking sector. Poverty levels have decreased by 10% since 2001, and Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit – the result of chronically low tax collection and increased spending, including reconstruction costs from the October 2005 earthquake – appears manageable for now. GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-07. Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 6.9% in 2007. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit – driven by a widening trade gap as import growth outstrips export expansion – could draw down reserves and dampen GDP growth in the medium term. |
| Palau | The economy consists primarily of tourism, subsistence agriculture, and fishing. The government is the major employer of the work force, relying heavily on financial assistance from the US. Business and tourist arrivals numbered 63,000 in 2003. The population enjoys a per capita income roughly 50% higher than that of the Philippines and much of Micronesia. Long-run prospects for the key tourist sector have been greatly bolstered by the expansion of air travel in the Pacific, the rising prosperity of leading East Asian countries, and the willingness of foreigners to finance infrastructure development. |
| Panama | Panama’s dollarized economy rests primarily on a well-developed services sector that accounts for three-fourths of GDP. Services include operating the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, and tourism. Economic growth will be bolstered by the Panama Canal expansion project that began in 2007 and should be completed by 2014 at a cost of $5.3 billion (about 30% of current GDP). The expansion project will more than double the Canal’s capacity, enabling it to accommodate ships that are now too large to transverse the transoceanic crossway and should help to reduce the high unemployment rate. The government has implemented tax reforms, as well as social security reforms, and backs regional trade agreements and development of tourism. Not a CAFTA signatory, Panama in December 2006 independently negotiated a free trade agreement with the US, which, when implemented, will help promote the country’s economic growth. |
| Papua New Guinea | Papua New Guinea is richly endowed with natural resources, but exploitation has been hampered by rugged terrain and the high cost of developing infrastructure. Agriculture provides a subsistence livelihood for 85% of the population. Mineral deposits, including copper, gold, and oil, account for nearly two-thirds of export earnings. The government of Prime Minister SOMARE has expended much of its energy remaining in power. He was the first prime minister ever to serve a full five-year term. The government also brought stability to the national budget, largely through expenditure control; however, it relaxed spending constraints in 2006 and 2007 as elections approached. Numerous challenges still face the government including regaining investor confidence, restoring integrity to state institutions, promoting economic efficiency by privatizing moribund state institutions, and balancing relations with Australia, its former colonial ruler. Other socio-cultural challenges could upend the economy including a worsening HIV/AIDS epidemic and chronic law and order and land tenure issues. Australia will supply more than $300 million in aid in FY07/08, which accounts for nearly 20% of the national budget. |
| Paracel Islands | China announced plans in 1997 to open the islands for tourism. |
| Paraguay | Landlocked Paraguay has a market economy marked by a large informal sector. This sector features both reexport of imported consumer goods to neighboring countries, as well as the activities of thousands of microenterprises and urban street vendors. Because of the importance of the informal sector, accurate economic measures are difficult to obtain. A large percentage of the population, especially in rural areas, derives its living from agricultural activity, often on a subsistence basis. On a per capita basis, real income has stagnated at 1980 levels. Most observers attribute Paraguay’s poor economic performance to political uncertainty, corruption, limited progress on structural reform, and deficient infrastructure. The economy rebounded between 2003 and 2007, posting modest growth each year. Growing world demand for commodities combined with high prices and favorable weather to support Paraguay’s commodity-based export expansion. |
| Peru | Peru’s economy reflects its varied geography – an arid coastal region, the Andes further inland, and tropical lands bordering Colombia and Brazil. Abundant mineral resources are found in the mountainous areas, and Peru’s coastal waters provide excellent fishing grounds. However, overdependence on minerals and metals subjects the economy to fluctuations in world prices, and a lack of infrastructure deters trade and investment. After several years of inconsistent economic performance, the Peruvian economy grew by more than 4% per year during the period 2002-06, with a stable exchange rate and low inflation. Growth jumped to 7.5% in 2007, driven by higher world prices for minerals and metals. Risk premiums on Peruvian bonds on secondary markets reached historically low levels in late 2004, reflecting investor optimism regarding the government’s prudent fiscal policies and openness to trade and investment. Despite the strong macroeconomic performance, underemployment and poverty have stayed persistently high. Growth prospects depend on exports of minerals, textiles, and agricultural products, and by expectations for the Camisea natural gas megaproject and for other promising energy projects. Upon taking office, President GARCIA announced Sierra Exportadora, a program aimed at promoting economic growth in Peru’s southern and central highlands. |
| Philippines | The Philippine economy grew at its fastest pace in three decades with real GDP growth exceeding 7% in 2007. Higher government spending contributed to the growth, but a resilient service sector and large remittances from the millions of Filipinos who work abroad have played an increasingly important role. Economic growth has averaged 5% since President MACAPAGAL-ARROYO took office in 2001. Nevertheless, the Philippines will need still higher, sustained growth to make progress in alleviating poverty, given its high population growth and unequal distribution of income. MACAPAGAL-ARROYO averted a fiscal crisis by pushing for new revenue measures and, until recently, tightening expenditures. Declining fiscal deficits, tapering debt and debt service ratios, as well as recent efforts to increase spending on infrastructure and social services have heightened optimism over Philippine economic prospects. Although the general macroeconomic outlook has improved significantly, the Philippines continues to face important challenges and must maintain the reform momentum in order to catch up with regional competitors, improve employment opportunities, and alleviate poverty. Longer-term fiscal stability will require more sustainable revenue sources, rather than non-recurring revenues from privatization. |
| Pitcairn Islands | The inhabitants of this tiny isolated economy exist on fishing, subsistence farming, handicrafts, and postage stamps. The fertile soil of the valleys produces a wide variety of fruits and vegetables, including citrus, sugarcane, watermelons, bananas, yams, and beans. Bartering is an important part of the economy. The major sources of revenue are the sale of postage stamps to collectors and the sale of handicrafts to passing ships. In October 2004, more than one-quarter of Pitcairn’s small labor force was arrested, putting the economy in a bind, since their services were required as lighter crew to load or unload passing ships. |
| Poland | Poland has pursued a policy of economic liberalization since 1990 and today stands out as a success story among transition economies. In 2007, GDP grew an estimated 6.5%, based on rising private consumption, a jump in corporate investment, and EU funds inflows. GDP per capita is still much below the EU average, but is similar to that of the three Baltic states. Since 2004, EU membership and access to EU structural funds have provided a major boost to the economy. Unemployment is falling rapidly, though at roughly 11% in December 2007, it remains well above the EU average. Tightening labor markets, and rising global energy and food prices, pose a risk to consumer price stability. In December 2007 inflation reached 4.1% on a year-over-year basis, or higher than the upper limit of the National Bank of Poland’s target range. Poland’s economic performance could improve further if the country addresses some of the remaining deficiencies in its business environment. An inefficient commercial court system, a rigid labor code, bureaucratic red tape, and persistent low-level corruption keep the private sector from performing up to its full potential. Rising demands to fund health care, education, and the state pension system present a challenge to the Polish government’s effort to hold the consolidated public sector budget deficit under 3.0% of GDP, a target which was achieved in 2007. The PO/PSL coalition government which came to power in November 2007 plans to further reduce the budget deficit with the aim of eventually adopting the euro. The new government has also announced its intention to enact business-friendly reforms, reduce public sector spending growth, lower taxes, and accelerate privatization. However, the government does not have the necessary two-thirds majority needed to override a presidential veto, and thus may have to water down initiatives in order to garner enough support to pass its pro-business policies. |
| Portugal | Portugal has become a diversified and increasingly service-based economy since joining the European Community in 1986. Over the past two decades, successive governments have privatized many state-controlled firms and liberalized key areas of the economy, including the financial and telecommunications sectors. The country qualified for the European Monetary Union (EMU) in 1998 and began circulating the euro on 1 January 2002 along with 11 other EU member economies. Economic growth had been above the EU average for much of the 1990s, but fell back in 2001-07. GDP per capita stands at roughly two-thirds of the EU-27 average. A poor educational system, in particular, has been an obstacle to greater productivity and growth. Portugal has been increasingly overshadowed by lower-cost producers in Central Europe and Asia as a target for foreign direct investment. The budget deficit surged to an all-time high of 6% of GDP in 2005, but the government estimates it at 3% in 2007 – a year ahead of Portugal’s targeted schedule – thanks partly to deficit-cutting efforts. Nonetheless, the government faces tough choices in its attempts to boost Portugal’s economic competitiveness while keeping the budget deficit within the eurozone’s 3%-of-GDP ceiling. |
| Puerto Rico | Puerto Rico has one of the most dynamic economies in the Caribbean region. A diverse industrial sector has far surpassed agriculture as the primary locus of economic activity and income. Encouraged by duty-free access to the US and by tax incentives, US firms have invested heavily in Puerto Rico since the 1950s. US minimum wage laws apply. Sugar production has lost out to dairy production and other livestock products as the main source of income in the agricultural sector. Tourism has traditionally been an important source of income, with estimated arrivals of nearly 5 million tourists in 2004. Growth fell off in 2001-03, largely due to the slowdown in the US economy, recovered in 2004-05, but declined again in 2006-07. |
| Qatar | Qatar is in the midst of an economic boom supported by its expanding production of natural gas and oil. Economic policy is focused on development of Qatar’s nonassociated natural gas reserves and increasing private and foreign investment in non-energy sectors. Oil and gas account for more than 60% of GDP, roughly 85% of export earnings, and 70% of government revenues. Oil and gas have made Qatar one of the world’s faster growing and higher per-capita income countries – equal to the EU in 2007 per-capita income. Sustained high oil prices and increased natural gas exports in recent years have helped build Qatar’s budget and trade surpluses and foreign reserves. Proved oil reserves of more than 15 billion barrels should ensure continued output at current levels for 22 years. Qatar’s proved reserves of natural gas are roughly 25 trillion cubic meters, about 15% of the world total and third largest in the world. Qatar has permitted substantial foreign investment in the development of its gas fields during the last decade and became the world’s top liquefied natural gas (LNG) exporter in 2007. |
| Romania | Romania, which joined the European Union on 1 January 2007, began the transition from Communism in 1989 with a largely obsolete industrial base and a pattern of output unsuited to the country’s needs. The country emerged in 2000 from a punishing three-year recession thanks to strong demand in EU export markets. Domestic consumption and investment have fueled strong GDP growth in recent years, but have led to large current account imbalances. Romania’s macroeconomic gains have only recently started to spur creation of a middle class and address Romania’s widespread poverty. Corruption and red tape continue to handicap its business environment. Inflation rose in 2007 for the first time in eight years, driven in part by the depreciation of the currency, rising energy costs, a nation-wide drought affecting food prices, and a relaxation of fiscal discipline. Romania hopes to adopt the Euro by 2014. |
| Russia | Russia ended 2007 with its ninth straight year of growth, averaging 7% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble initially drove this growth, since 2003 consumer demand and, more recently, investment have played a significant role. Over the last six years, fixed capital investments have averaged real gains greater than 10% per year and personal incomes have achieved real gains more than 12% per year. During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis. The federal budget has run surpluses since 2001 and ended 2007 with a surplus of about 3% of GDP. Over the past several years, Russia has used its stabilization fund based on oil taxes to prepay all Soviet-era sovereign debt to Paris Club creditors and the IMF. Foreign debt is approximately one-third of GDP. The state component of foreign debt has declined, but commercial debt to foreigners has risen strongly. Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $470 billion at yearend 2007, the third largest reserves in the world. During PUTIN’s first administration, a number of important reforms were implemented in the areas of tax, banking, labor, and land codes. These achievements have raised business and investor confidence in Russia’s economic prospects, with foreign direct investment rising from $14.6 billion in 2005 to approximately $45 billion in 2007. In 2007, Russia’s GDP grew 7.6%, led by non-tradable services and goods for the domestic market, as opposed to oil or mineral extraction and exports. Rising inflation returned in the second half of 2007, driven largely by unsterilized capital inflows and by rising food costs, and approached 12% by year-end. In 2006, Russia signed a bilateral market access agreement with the US as a prelude to possible WTO entry, and its companies are involved in global merger and acquisition activity in the oil and gas, metals, and telecom sectors. Despite Russia’s recent success, serious problems persist. Oil, natural gas, metals, and timber account for more than 80% of exports and 30% of government revenues, leaving the country vulnerable to swings in world commodity prices. Russia’s manufacturing base is dilapidated and must be replaced or modernized if the country is to achieve broad-based economic growth. The banking system, while increasing consumer lending and growing at a high rate, is still small relative to the banking sectors of Russia’s emerging market peers. Political uncertainties associated with this year’s power transition, corruption, and lack of trust in institutions continue to dampen domestic and foreign investor sentiment. President PUTIN has granted more influence to forces within his government that desire to reassert state control over the economy. Russia has made little progress in building the rule of law, the bedrock of a modern market economy. The government has promised additional legislative amendments to make its intellectual property protection WTO-consistent, but enforcement remains problematic. |
| Rwanda | Rwanda is a poor rural country with about 90% of the population engaged in (mainly subsistence) agriculture. It is the most densely populated country in Africa and is landlocked with few natural resources and minimal industry. Primary foreign exchange earners are coffee and tea. The 1994 genocide decimated Rwanda’s fragile economic base, severely impoverished the population, particularly women, and eroded the country’s ability to attract private and external investment. However, Rwanda has made substantial progress in stabilizing and rehabilitating its economy to pre-1994 levels, although poverty levels are higher now. GDP has rebounded and inflation has been curbed. Despite Rwanda’s fertile ecosystem, food production often does not keep pace with population growth, requiring food imports. Rwanda continues to receive substantial aid money and obtained IMF-World Bank Heavily Indebted Poor Country (HIPC) initiative debt relief in 2005-06. Rwanda also received Millennium Challenge Account Threshold status in 2006. The government has embraced an expansionary fiscal policy to reduce poverty by improving education, infrastructure, and foreign and domestic investment and pursuing market-oriented reforms, although energy shortages, instability in neighboring states, and lack of adequate transportation linkages to other countries continue to handicap growth. |
| Saint Barthelemy | The economy of Saint Barthelemy is based upon high-end tourism and duty-free luxury commerce, serving visitors primarily from North America. The luxury hotels and villas host 70,000 visitors each year with another 130,000 arriving by boat. The relative isolation and high cost of living inhibits mass tourism. The construction and public sectors also enjoy significant investment in support of tourism. With limited fresh water resources, all food must be imported, as must all energy resources and most manufactured goods. Employment is strong and attracts labor from Brazil and Portugal. |
| Saint Helena | The economy depends largely on financial assistance from the UK, which will amount to about $27 million in FY06/07 or almost 70% of annual budgetary revenues. The local population earns income from fishing, raising livestock, and sales of handicrafts. Because there are few jobs, 25% of the work force has left to seek employment on Ascension Island, on the Falklands, and in the UK. |
| Saint Kitts and Nevis | Sugar was the traditional mainstay of the Saint Kitts economy until the 1970s. Following the 2005 harvest, the government closed the sugar industry after decades of losses of 3-4% of GDP annually. To compensate for employment losses, the government has embarked on a program to diversify the agricultural sector and to stimulate other sectors of the economy. Activities such as tourism, export-oriented manufacturing, and offshore banking have assumed larger roles in the economy and have contributed to the recent robust growth. Tourism revenues are now the chief source of the islands’ foreign exchange; about 341,800 tourists visited Nevis in 2005. The current government is constrained by a high debt burden, public debt reached 190% of GDP by the end of 2005, largely attributable to public enterprise losses. |
| Saint Lucia | The island nation has been able to attract foreign business and investment, especially in its offshore banking and tourism industries, with a surge in foreign direct investment in 2006, attributed to the construction of several tourism projects. Tourism is the main source of foreign exchange, with more than 700,000 arrivals in 2005. The manufacturing sector is the most diverse in the Eastern Caribbean area, and the government is trying to revitalize the banana industry. Saint Lucia is vulnerable to a variety of external shocks including declines in European Union banana preferences, volatile tourism receipts, natural disasters, and dependence on foreign oil. High debt servicing obligations constrain the KING administration’s ability to respond to adverse external shocks. Economic fundamentals remain solid, even though unemployment needs to be reduced. |
| Saint Martin | The economy of Saint Martin centers around tourism with 85% of the labor force engaged in this sector. Over one million visitors come to the island each year with most arriving through the Princess Juliana International Airport in Sint Maarten. No significant agriculture and limited local fishing means that almost all food must be imported. Energy resources and manufactured goods are also imported, primarily from Mexico and the United States. Saint Martin is reported to have the highest per capita income in the Caribbean. |
| Saint Pierre and Miquelon | The inhabitants have traditionally earned their livelihood by fishing and by servicing fishing fleets operating off the coast of Newfoundland. The economy has been declining, however, because of disputes with Canada over fishing quotas and a steady decline in the number of ships stopping at Saint Pierre. In 1992, an arbitration panel awarded the islands an exclusive economic zone of 12,348 sq km to settle a longstanding territorial dispute with Canada, although it represents only 25% of what France had sought. France heavily subsidizes the islands to the great betterment of living standards. The government hopes an expansion of tourism will boost economic prospects. Fish farming, crab fishing, and agriculture are being developed to diversify the local economy. Recent test drilling for oil may pave the way for development of the energy sector. |
| Saint Vincent and the Grenadines | Economic growth slowed slightly in 2007 after reaching a 10 year high of nearly 7% in 2006, but is expected to remain robust, hinging upon seasonal variations in the agricultural and tourism sectors and a recent increase in construction activity. This lower-middle-income country is vulnerable to natural disasters – tropical storms wiped out substantial portions of crops in 1994, 1995, and 2002. In 2005, the islands had more than 160,000 tourist arrivals, mostly to the Grenadines. Saint Vincent is home to a small offshore banking sector and has moved to adopt international regulatory standards. The government’s ability to invest in social programs and respond to external shocks is constrained by its high debt burden – 25 percent of current revenues are directed towards debt servicing. |
| Samoa | The economy of Samoa has traditionally been dependent on development aid, family remittances from overseas, agriculture, and fishing. The country is vulnerable to devastating storms. Agriculture employs two-thirds of the labor force and furnishes 90% of exports, featuring coconut cream, coconut oil, and copra. The fish catch declined during the El Nino of 2002-03 but returned to normal by mid-2005. The manufacturing sector mainly processes agricultural products. One factory in the Foreign Trade Zone employs 3,000 people to make automobile electrical harnesses for an assembly plant in Australia. Tourism is an expanding sector, accounting for 25% of GDP; about 100,000 tourists visited the islands in 2005. The Samoan Government has called for deregulation of the financial sector, encouragement of investment, and continued fiscal discipline, while at the same time protecting the environment. Observers point to the flexibility of the labor market as a basic strength for future economic advances. Foreign reserves are in a relatively healthy state, the external debt is stable, and inflation is low. |
| San Marino | The tourist sector contributes over 50% of GDP. In 2006 more than 2.1 million tourists visited San Marino. The key industries are banking, clothing and apparel, electronics, and ceramics. Main agricultural products are wine and cheeses. The per capita level of output and standard of living are comparable to those of the most prosperous regions of Italy, which supplies much of its food. |
| Sao Tome and Principe | This small, poor island economy has become increasingly dependent on cocoa since independence in 1975. Cocoa production has substantially declined in recent years because of drought and mismanagement. Sao Tome has to import all fuels, most manufactured goods, consumer goods, and a substantial amount of food. Over the years, it has had difficulty servicing its external debt and has relied heavily on concessional aid and debt rescheduling. Sao Tome benefited from $200 million in debt relief in December 2000 under the Highly Indebted Poor Countries (HIPC) program, which helped bring down the country’s $300 million debt burden. In August 2005, Sao Tome signed on to a new 3-year IMF Poverty Reduction and Growth Facility (PRGF) program worth $4.3 million. Considerable potential exists for development of a tourist industry, and the government has taken steps to expand facilities in recent years. The government also has attempted to reduce price controls and subsidies. Sao Tome is optimistic about the development of petroleum resources in its territorial waters in the oil-rich Gulf of Guinea, which are being jointly developed in a 60-40 split with Nigeria. The first production licenses were sold in 2004, though a dispute over licensing with Nigeria delayed Sao Tome’s receipt of more than $20 million in signing bonuses for almost a year. Real GDP growth exceeded 6% in 2007, as a result of increases in public expenditures and oil-related capital investment. |
| Saudi Arabia | Saudi Arabia has an oil-based economy with strong government controls over major economic activities. It possesses more than 20% of the world’s proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of budget revenues, 45% of GDP, and 90% of export earnings. About 40% of GDP comes from the private sector. Roughly 5.5 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors. High oil prices have boosted growth, government revenues, and Saudi ownership of foreign assets, while enabling Riyadh to pay down domestic debt. The government is encouraging private sector growth – especially in power generation, telecommunications, natural gas exploration, and petrochemicals – to lessen the kingdom’s dependence on oil exports and to increase employment opportunities for the swelling Saudi population, 40% of which are youths under 15 years old. Unemployment is high, and the large youth population generally lacks the education and technical skills the private sector needs. Riyadh has substantially boosted spending on job training and education, infrastructure development, and government salaries. As part of its effort to attract foreign investment and diversify the economy, Saudi Arabia acceded to the WTO in December 2005 after many years of negotiations. The government has announced plans to establish six “economic cities” in different regions of the country to promote development and diversification. |
| Senegal | In January 1994, Senegal undertook a bold and ambitious economic reform program with the support of the international donor community. This reform began with a 50% devaluation of Senegal’s currency, the CFA franc, which was linked at a fixed rate to the French franc. Government price controls and subsidies have been steadily dismantled. After seeing its economy contract by 2.1% in 1993, Senegal made an important turnaround, thanks to the reform program, with real growth in GDP averaging over 5% annually during 1995-2007. Annual inflation had been pushed down to the low single digits. As a member of the West African Economic and Monetary Union (WAEMU), Senegal is working toward greater regional integration with a unified external tariff and a more stable monetary policy. High unemployment, however, continues to prompt illegal migrants to flee Senegal in search of better job opportunities in Europe. Senegal was also beset by an energy crisis that caused widespread blackouts in 2006 and 2007. The phosphate industry has struggled for two years to secure capital, and reduced output has directly impacted GDP. In 2007, Senegal signed agreements for major new mining concessions for iron, zircon, and gold with foreign companies. Firms from Dubai have agreed to manage and modernize Dakar’s maritime port, and create a new special economic zone. Senegal still relies heavily upon outside donor assistance. Under the IMF’s Highly Indebted Poor Countries (HIPC) debt relief program, Senegal has benefited from eradication of two-thirds of its bilateral, multilateral, and private-sector debt. In 2007, Senegal and the IMF agreed to a new, non-disbursing, Policy Support Initiative program. |
| Serbia | MILOSEVIC-era mismanagement of the economy, an extended period of economic sanctions, and the damage to Yugoslavia’s infrastructure and industry during the NATO airstrikes in 1999 left the economy only half the size it was in 1990. After the ousting of former Federal Yugoslav President MILOSEVIC in October 2000, the Democratic Opposition of Serbia (DOS) coalition government implemented stabilization measures and embarked on a market reform program. After renewing its membership in the IMF in December 2000, a down-sized Yugoslavia continued to reintegrate into the international community by rejoining the World Bank (IBRD) and the European Bank for Reconstruction and Development (EBRD). A World Bank-European Commission sponsored Donors’ Conference held in June 2001 raised $1.3 billion for economic restructuring. In November 2001, the Paris Club agreed to reschedule the country’s $4.5 billion public debt and wrote off 66% of the debt. In July 2004, the London Club of private creditors forgave $1.7 billion of debt just over half the total owed. Belgrade has made only minimal progress in restructuring and privatizing its holdings in major sectors of the economy, including energy and telecommunications. It has made halting progress towards EU membership and is currently pursuing a Stabilization and Association Agreement with Brussels. Serbia is also pursuing membership in the World Trade Organization. Unemployment remains an ongoing political and economic problem. note: economic data for Serbia currently reflects information for the former Serbia and Montenegro, including Kosovo, unless otherwise noted; data for Serbia alone will be added when available |
| Seychelles | Since independence in 1976, per capita output in this Indian Ocean archipelago has expanded to roughly seven times the pre-independence, near-subsistence level, moving the island into the upper-middle income group of countries. Growth has been led by the tourist sector, which employs about 30% of the labor force and provides more than 70% of hard currency earnings, and by tuna fishing. In recent years, the government has encouraged foreign investment to upgrade hotels and other services. At the same time, the government has moved to reduce the dependence on tourism by promoting the development of farming, fishing, and small-scale manufacturing. Sharp drops illustrated the vulnerability of the tourist sector in 1991-92 due largely to the Gulf War and once again following the 11 September 2001 terrorist attacks on the US. Economic growth slowed in 1998-2002 and fell in 2003-04, due to sluggish tourist and tuna sectors, but resumed in 2005-07. Real GDP grew by 5.8% in 2007, driven by tourism and a boom in tourism-related construction. The Seychelles rupee was allowed to depreciate in 2006 after being overvalued for years and fell by 10% in the first 9 months of 2007. |
| Sierra Leone | Sierra Leone is an extremely poor nation with tremendous inequality in income distribution. While it possesses substantial mineral, agricultural, and fishery resources, its physical and social infrastructure is not well developed, and serious social disorders continue to hamper economic development. Nearly half of the working-age population engages in subsistence agriculture. Manufacturing consists mainly of the processing of raw materials and of light manufacturing for the domestic market. Alluvial diamond mining remains the major source of hard currency earnings accounting for nearly half of Sierra Leone’s exports. The fate of the economy depends upon the maintenance of domestic peace and the continued receipt of substantial aid from abroad, which is essential to offset the severe trade imbalance and supplement government revenues. The IMF has completed a Poverty Reduction and Growth Facility program that helped stabilize economic growth and reduce inflation. A recent increase in political stability has led to a revival of economic activity such as the rehabilitation of bauxite and rutile mining. |
| Singapore | Singapore has a highly developed and successful free-market economy. It enjoys a remarkably open and corruption-free environment, stable prices, and a per capita GDP equal to that of the four largest West European countries. The economy depends heavily on exports, particularly in consumer electronics and information technology products. It was hard hit from 2001-03 by the global recession, by the slump in the technology sector, and by an outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003, which curbed tourism and consumer spending. Fiscal stimulus, low interest rates, a surge in exports, and internal flexibility led to vigorous growth in 2004-07 with real GDP growth averaging 7% annually. The government hopes to establish a new growth path that will be less vulnerable to the global demand cycle for information technology products – it has attracted major investments in pharmaceuticals and medical technology production – and will continue efforts to establish Singapore as Southeast Asia’s financial and high-tech hub. |
| Slovakia | Slovakia has mastered much of the difficult transition from a centrally planned economy to a modern market economy. The DZURINDA government made excellent progress during 2001-04 in macroeconomic stabilization and structural reform. Major privatizations are nearly complete, the banking sector is almost completely in foreign hands, and the government has helped facilitate a foreign investment boom with business friendly policies such as labor market liberalization and a 19% flat tax. Foreign investment in the automotive sector has been strong. Slovakia’s economic growth exceeded expectations in 2001-07 despite the general European slowdown. Unemployment, at an unacceptable 18% in 2003-04, dropped to 8.6% in 2007 but remains the economy’s Achilles heel. Slovakia joined the EU on 1 May 2004 and will be the second of the new EU member states to adopt the euro in 2009 if it continues to meet euro adoption criteria in 2008. Despite its 2006 pre-election promises to loosen fiscal policy and reverse the previous DZURINDA government’s pro-market reforms, FICO’s cabinet has thus far been careful to keep a lid on spending in order to meet euro adoption criteria. The FICO government is pursuing a state-interventionist economic policy, however, and has pushed to regulate energy and food prices. |
| Slovenia | Slovenia, which on 1 January 2007 became the first 2004 European Union entrant to adopt the euro, is a model of economic success and stability for the region. With the highest per capita GDP in Central Europe, Slovenia has excellent infrastructure, a well-educated work force, and a strategic location between the Balkans and Western Europe. Privatization has lagged since 2002, and the economy has one of highest levels of state control in the EU. Structural reforms to improve the business environment have allowed for somewhat greater foreign participation in Slovenia’s economy and have helped to lower unemployment. In March 2004, Slovenia became the first transition country to graduate from borrower status to donor partner at the World Bank. In December 2007, Slovenia was invited to begin the accession process for joining the OECD. Despite its economic success, foreign direct investment (FDI) in Slovenia has lagged behind the region average, and taxes remain relatively high. Furthermore, the labor market is often seen as inflexible, and legacy industries are losing sales to more competitive firms in China, India, and elsewhere. |
| Solomon Islands | The bulk of the population depends on agriculture, fishing, and forestry for at least part of its livelihood. Most manufactured goods and petroleum products must be imported. The islands are rich in undeveloped mineral resources such as lead, zinc, nickel, and gold. Prior to the arrival of the Regional Assistance Mission to the Solomon Islands (RAMSI), severe ethnic violence, the closing of key businesses, and an empty government treasury culminated in economic collapse. RAMSI’s efforts to restore law and order and economic stability have led to modest growth as the economy rebuilds. |
| Somalia | Despite the lack of effective national governance, Somalia has maintained a healthy informal economy, largely based on livestock, remittance/money transfer companies, and telecommunications. Agriculture is the most important sector, with livestock normally accounting for about 40% of GDP and about 65% of export earnings. Nomads and semi-pastoralists, who are dependent upon livestock for their livelihood, make up a large portion of the population. Livestock, hides, fish, charcoal, and bananas are Somalia’s principal exports, while sugar, sorghum, corn, qat, and machined goods are the principal imports. Somalia’s small industrial sector, based on the processing of agricultural products, has largely been looted and sold as scrap metal. Somalia’s service sector also has grown. Telecommunication firms provide wireless services in most major cities and offer the lowest international call rates on the continent. In the absence of a formal banking sector, money exchange services have sprouted throughout the country, handling between $500 million and $1 billion in remittances annually. Mogadishu’s main market offers a variety of goods from food to the newest electronic gadgets. Hotels continue to operate and are supported with private-security militias. Somalia’s arrears to the IMF continued to grow in 2006-07. Statistics on Somalia’s GDP, growth, per capita income, and inflation should be viewed skeptically. In late December 2004, a major tsunami caused an estimated 150 deaths and resulted in destruction of property in coastal areas. |
| South Africa | South Africa is a middle-income, emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that is 17th largest in the world; and modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region. Growth has been robust since 2004, as South Africa has reaped the benefits of macroeconomic stability and a global commodities boom. However, unemployment remains high and outdated infrastructure has constrained growth. At the end of 2007, South Africa began to experience an electricity crisis because state power supplier Eskom suffered supply problems with aged plants, necessitating “load-shedding” cuts to residents and businesses in the major cities. Daunting economic problems remain from the apartheid era – especially poverty, lack of economic empowerment among the disadvantaged groups, and a shortage of public transportation. South African economic policy is fiscally conservative but pragmatic, focusing on controlling inflation, maintaining a budget surplus, and using state-owned enterprises to deliver basic services to low-income areas as a means to increase job growth and household income. |
| South Georgia and the South Sandwich Islands | Some fishing takes place in adjacent waters. There is a potential source of income from harvesting finfish and krill. The islands receive income from postage stamps produced in the UK, sale of fishing licenses, and harbor and landing fees from tourist vessels. Tourism from specialized cruise ships is increasing rapidly. |
| Southern Ocean | Fisheries in 2003-04 landed 136,262 metric tons, of which 87% (118,166 tons) was krill and 8% (11,182 tons) Patagonian toothfish, compared to 142,555 tons in 2002-03 of which 83% (117,728 tons) was krill and 12% (16,479 tons) Patagonian toothfish (estimated fishing from the area covered by the Convention of the Conservation of Antarctic Marine Living Resources (CCAMLR), which extends slightly beyond the Southern Ocean area). International agreements were adopted in late 1999 to reduce illegal, unreported, and unregulated fishing, which in the 2000-01 season landed, by one estimate, 8,376 metric tons of Patagonian and Antarctic toothfish. In the 2004-05 Antarctic summer, 28,202 tourists, most of them seaborne (approximately 97%), visited the Southern Ocean and Antarctica, compared to 14,762 in 1999-2000. |
| Spain | The Spanish economy boomed from 1986 to 1990 averaging 5% annual growth. After a European-wide recession in the early 1990s, the Spanish economy resumed moderate growth starting in 1994. Spain’s mixed capitalist economy supports a GDP that on a per capita basis is equal to that of the leading West European economies. The center-right government of former President Jose Maria AZNAR successfully worked to gain admission to the first group of countries launching the European single currency (the euro) on 1 January 1999. The AZNAR administration continued to advocate liberalization, privatization, and deregulation of the economy and introduced some tax reforms to that end. Unemployment fell steadily under the AZNAR administration but remains high at 7.6%. Growth averaging more than 3% annually during 2003-07 was satisfactory given the background of a faltering European economy. The Socialist president, RODRIGUEZ ZAPATERO, has made mixed progress in carrying out key structural reforms, which need to be accelerated and deepened to sustain Spain’s economic growth. Despite the economy’s relative solid footing significant downside risks remain including Spain’s continued loss of competitiveness, the potential for a housing market collapse, the country’s changing demographic profile, and a decline in EU structural funds. |
| Spratly Islands | Economic activity is limited to commercial fishing. The proximity to nearby oil- and gas-producing sedimentary basins suggests the potential for oil and gas deposits, but the region is largely unexplored. There are no reliable estimates of potential reserves. Commercial exploitation has yet to be developed. |
| Sri Lanka | In 1977, Colombo abandoned statist economic policies and its import substitution trade policy for more market-oriented policies, export-oriented trade, and encouragement of foreign investment. Recent changes in government, however, have brought some policy reversals. Currently, the ruling Sri Lanka Freedom Party has a more statist economic approach, which seeks to reduce poverty by steering investment to disadvantaged areas, developing small and medium enterprises, promoting agriculture, and expanding the already enormous civil service. The government has halted privatizations. Although suffering a brutal civil war that began in 1983, Sri Lanka saw GDP growth average 4.5% in the last 10 years with the exception of a recession in 2001. In late December 2004, a major tsunami took about 31,000 lives, left more than 6,300 missing and 443,000 displaced, and destroyed an estimated $1.5 billion worth of property. Government spending and reconstruction drove growth to more than 7% in 2006 but reduced agriculture output probably slowed growth to about 6 percent in 2007. Government spending and lose monetary policy drove inflation to 16% in 2007. Sri Lanka’s most dynamic sectors now are food processing, textiles and apparel, food and beverages, port construction, telecommunications, and insurance and banking. In 2006, plantation crops made up only about 15% of exports (compared with more than 90% in 1970), while textiles and garments accounted for more than 60%. About 800,000 Sri Lankans work abroad, 90% of them in the Middle East. They send home more than $1 billion a year. The struggle by the Tamil Tigers of the north and east for an independent homeland continues to cast a shadow over the economy. |
| Sudan | Sudan’s economy is booming on the back of increases in oil production, high oil prices, and large inflows of foreign direct investment. GDP growth registered more than 10% per year in 2006 and 2007. From 1997 to date, Sudan has been working with the IMF to implement macroeconomic reforms, including a managed float of the exchange rate. Sudan began exporting crude oil in the last quarter of 1999. Agricultural production remains important, because it employs 80% of the work force and contributes a third of GDP. The Darfur conflict, the aftermath of two decades of civil war in the south, the lack of basic infrastructure in large areas, and a reliance by much of the population on subsistence agriculture ensure much of the population will remain at or below the poverty line for years despite rapid rises in average per capita income. In January 2007, the government introduced a new currency, the Sudanese Pound, at an initial exchange rate of $1.00 equals 2 Sudanese Pounds. |
| Suriname | The economy is dominated by the mining industry, with exports of alumina, gold, and oil accounting for about 55% of GDP, 85% of exports, and 25% of government revenues, making the economy highly vulnerable to mineral price volatility. The short-term economic outlook depends on the government’s ability to control inflation and on the development of projects in the bauxite and gold mining sectors. Suriname’s economic prospects for the medium term will depend on continued commitment to responsible monetary and fiscal policies and to the introduction of structural reforms to liberalize markets and promote competition. In 2000, the government of Ronald VENETIAAN, returned to office and inherited an economy with inflation of over 100% and a growing fiscal deficit. He quickly implemented an austerity program, raised taxes, attempted to control spending, and tamed inflation. These economic policies are likely to remain in effect during VENETIAAN’s third term. Prospects for local onshore oil production are good as a drilling program is underway. Offshore oil drilling was given a boost in 2004 when the State Oil Company (Staatsolie) signed exploration agreements with Repsol, Maersk, and Occidental. Bidding on these new offshore blocks was completed in July 2006. |
| Svalbard | Coal mining is the major economic activity on Svalbard. The treaty of 9 February 1920 gave the 41 signatories equal rights to exploit mineral deposits, subject to Norwegian regulation. Although US, UK, Dutch, and Swedish coal companies have mined in the past, the only companies still mining are Norwegian and Russian. The settlements on Svalbard are essentially company towns. The Norwegian state-owned coal company employs nearly 60% of the Norwegian population on the island, runs many of the local services, and provides most of the local infrastructure. There is also some hunting of seal, reindeer, and fox. |
| Swaziland | In this small, landlocked economy, subsistence agriculture occupies approximately 70% of the population. The manufacturing sector has diversified since the mid-1980s. Sugar and wood pulp remain important foreign exchange earners. In 2007, the sugar industry increased efficiency and diversification efforts, in response to a 17% decline in EU sugar prices. Mining has declined in importance in recent years with only coal and quarry stone mines remaining active. Surrounded by South Africa, except for a short border with Mozambique, Swaziland is heavily dependent on South Africa from which it receives more than nine-tenths of its imports and to which it sends 60% of its exports. Swaziland’s currency is pegged to the South African rand, subsuming Swaziland’s monetary policy to South Africa. Customs duties from the Southern African Customs Union, which may equal as much as 70% of government revenue this year, and worker remittances from South Africa substantially supplement domestically earned income. Swaziland is not poor enough to merit an IMF program; however, the country is struggling to reduce the size of the civil service and control costs at public enterprises. The government is trying to improve the atmosphere for foreign investment. With an estimated 40% unemployment rate, Swaziland’s need to increase the number and size of small and medium enterprises and attract foreign direct investment is acute. Overgrazing, soil depletion, drought, and sometimes floods persist as problems for the future. More than one-fourth of the population needed emergency food aid in 2006-07 because of drought, and nearly two-fifths of the adult population has been infected by HIV/AIDS. |
| Sweden | Aided by peace and neutrality for the whole of the 20th century, Sweden has achieved an enviable standard of living under a mixed system of high-tech capitalism and extensive welfare benefits. It has a modern distribution system, excellent internal and external communications, and a skilled labor force. Timber, hydropower, and iron ore constitute the resource base of an economy heavily oriented toward foreign trade. Privately owned firms account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. Agriculture accounts for only 1% of GDP and 2% of employment. Sweden is in the midst of a sustained economic upswing, boosted by increased domestic demand and strong exports. This and robust finances have offered the center-right government considerable scope to implement its reform program aimed at increasing employment, reducing welfare dependence, and streamlining the state’s role in the economy. The govenment plans to sell $31 billion in state assets during the next three years to further stimulate growth and raise revenue to pay down the federal debt. In September 2003, Swedish voters turned down entry into the euro system concerned about the impact on the economy and sovereignty. |
| Switzerland | Switzerland is a peaceful, prosperous, and stable modern market economy with low unemployment, a highly skilled labor force, and a per capita GDP larger than that of the big Western European economies. The Swiss in recent years have brought their economic practices largely into conformity with the EU’s to enhance their international competitiveness. Switzerland remains a safehaven for investors, because it has maintained a degree of bank secrecy and has kept up the franc’s long-term external value. Reflecting the anemic economic conditions of Europe, GDP growth stagnated during the 2001-03 period, improved during 2004-05, and jumped to 2.9% in 2006, and 2.6% in 2007. Unemployment has remained at less than half the EU average. |
| Syria | The Syrian economy grew by an estimated 3.5% in real terms in 2007 led by the petroleum and agricultural sectors, which together account for about one-half of GDP. Higher crude oil prices countered declining oil production and led to higher budgetary and export receipts. Damascus has implemented modest economic reforms in the past few years, including cutting lending interest rates, opening private banks, consolidating all of the multiple exchange rates, raising prices on some subsidized items, most notably, gasoline and cement, and establishing the Damascus Stock Exchange-which is set to begin operations in 2008. In October 2007, for example, Damascus raised the price of subsidized gasoline by 20%, and may institute a rationing system in 2008. In addition, President ASAD signed legislative decrees to encourage corporate ownership reform, and to allow the Central Bank to issue Treasury bills and bonds for government debt. Nevertheless, the economy remains highly controlled by the government. Long-run economic constraints include declining oil production, high unemployment and inflation, rising budget deficits, and increasing pressure on water supplies caused by heavy use in agriculture, rapid population growth, industrial expansion, and water pollution. |
| Taiwan | Taiwan has a dynamic capitalist economy with gradually decreasing guidance of investment and foreign trade by the authorities. In keeping with this trend, some large, state-owned banks and industrial firms are being privatized. Exports have provided the primary impetus for industrialization. The island runs a large trade surplus, and its foreign reserves are among the world’s largest. Despite restrictions on cross-strait links, China has overtaken the US to become Taiwan’s largest export market and its second-largest source of imports after Japan. China is also the island’s number one destination for foreign direct investment. Strong trade performance in 2007 pushed Taiwan’s GDP growth rate above 5%, and unemployment is below 4%. |
| Tajikistan | Tajikistan has one of the lowest per capita GDPs among the 15 former Soviet republics. Only 7% of the land area is arable; cotton is the most important crop. Mineral resources include silver, gold, uranium, and tungsten. Industry consists only of a large aluminum plant, hydropower facilities, and small obsolete factories mostly in light industry and food processing. The civil war (1992-97) severely damaged the already weak economic infrastructure and caused a sharp decline in industrial and agricultural production. While Tajikistan has experienced steady economic growth since 1997, nearly two-thirds of the population continues to live in abject poverty. Economic growth reached 10.6% in 2004, but dropped to 8% in 2005, 7% in 2006, and 7.2% in 2007. Tajikistan’s economic situation remains fragile due to uneven implementation of structural reforms, weak governance, widespread unemployment, and the external debt burden. Continued privatization of medium and large state-owned enterprises could increase productivity. A debt restructuring agreement was reached with Russia in December 2002 including a $250 million write-off of Tajikistan’s $300 million debt. Tajikistan ranks third in the world in terms of water resources per head. Russian investment in the Sangtuda I hydropower dam, set to go online late 2007 or early 2008, will increase production of electricity for domestic consumption. The completion of Sangtuda II and Rogun dams would substantially add to electricity output, which could also be exported for profit. If finished, Rogun will be the world’s tallest dam. Tajikistan was also the recipient of substantial infrastructure development credits from the Shanghai Cooperation Organization to improve roads and an electricity transmission network. To help increase north-south trade, the US funded a $36 million bridge which opened in August 2007 and links Tajikistan and Afghanistan. |
| Tanzania | Tanzania is one of the poorest countries in the world. The economy depends heavily on agriculture, which accounts for more than 40% of GDP, provides 85% of exports, and employs 80% of the work force. Topography and climatic conditions, however, limit cultivated crops to only 4% of the land area. Industry traditionally featured the processing of agricultural products and light consumer goods. The World Bank, the IMF, and bilateral donors have provided funds to rehabilitate Tanzania’s out-of-date economic infrastructure and to alleviate poverty. Long-term growth through 2005 featured a pickup in industrial production and a substantial increase in output of minerals led by gold. Recent banking reforms have helped increase private-sector growth and investment. Continued donor assistance and solid macroeconomic policies supported real GDP growth of nearly 7% in 2007. |
| Thailand | With a well-developed infrastructure, a free-enterprise economy, and generally pro-investment policies, Thailand appears to have fully recovered from the 1997-98 Asian Financial Crisis. The country was one of East Asia’s best performers from 2002-04. Boosted by strong export growth, the Thai economy grew 4.5% in 2007. Bangkok has pursued preferential trade agreements with a variety of partners in an effort to boost exports and to maintain high growth. By 2007, the tourism sector had largely recovered from the major 2004 tsunami. Following the military coup in September 2006, investment and consumer confidence stagnated due to the uncertain political climate that lasted through the December 2007 elections. Foreign investor sentiment was further tempered by a 30% reserve requirement on capital inflows instituted in December 2006, and discussion of amending Thailand’s rules governing foreign-owned businesses. Economic growth in 2007 was due almost entirely to robust export performance – despite the pressure of an appreciating currency. Exports have performed at record levels, rising nearly 17% in 2006 and 12% in 2007. Export-oriented manufacturing – in particular automobile production – and farm output are driving these gains. |
| Timor-Leste | In late 1999, about 70% of the economic infrastructure of Timor-Leste was laid waste by Indonesian troops and anti-independence militias. Three hundred thousand people fled westward. Over the next three years a massive international program, manned by 5,000 peacekeepers (8,000 at peak) and 1,300 police officers, led to substantial reconstruction in both urban and rural areas. By the end of 2005, refugees had returned or had settled in Indonesia. The country continues to face great challenges in rebuilding its infrastructure, strengthening the civil administration, and generating jobs for young people entering the work force. The development of oil and gas resources in offshore waters has begun to supplement government revenues ahead of schedule and above expectations – the result of high petroleum prices. The technology-intensive industry, however, has done little to create jobs for the unemployed because there are no production facilities in Timor. Gas is piped to Australia. In June 2005 the National Parliament unanimously approved the creation of a Petroleum Fund to serve as a repository for all petroleum revenues and preserve the value of Timor-Leste’s petroleum wealth for future generations. The Fund held assets of US$1.8 billion as of September 2007. The mid-2006 outbreak of violence and civil unrest disrupted both private and public sector economic activity and created 100,000 internally displaced persons – about 10 percent of the population. While real non-oil GDP growth in 2006 was negative, the economy probably rebounded in 2007. The underlying economic policy challenge the country faces remains how best to use oil-and-gas wealth to lift the non-oil economy onto a higher growth path and reduce poverty. In late 2007, the new government announced plans aimed at increasing spending, reducing poverty, and improving the country’s infrastructure, but it continues to face capacity constraints. In the short term, the government must also address continuing problems related to the crisis of 2006, especially the displaced Timorese. |
| Togo | This small, sub-Saharan economy is heavily dependent on both commercial and subsistence agriculture, which provides employment for 65% of the labor force. Some basic foodstuffs must still be imported. Cocoa, coffee, and cotton generate about 40% of export earnings with cotton being the most important cash crop. Togo is the world’s fourth-largest producer of phosphate. The government’s decade-long effort, supported by the World Bank and the IMF, to implement economic reform measures, encourage foreign investment, and bring revenues in line with expenditures has moved slowly. Progress depends on follow through on privatization, increased openness in government financial operations, progress toward legislative elections, and continued support from foreign donors. Togo is working with donors to write a Poverty Reduction and Growth Facility (PRGF) that could eventually lead to a debt reduction plan. Economic growth remains marginal due to declining cotton production, underinvestment in phosphate mining, and strained relations with donors. |
| Tokelau | Tokelau’s small size (three villages), isolation, and lack of resources greatly restrain economic development and confine agriculture to the subsistence level. The people rely heavily on aid from New Zealand – about $4 million annually – to maintain public services with annual aid being substantially greater than GDP. The principal sources of revenue come from sales of copra, postage stamps, souvenir coins, and handicrafts. Money is also remitted to families from relatives in New Zealand. |
| Tonga | Tonga has a small, open, South Pacific island economy. It has a narrow export base in agricultural goods. Squash, coconuts, bananas, and vanilla beans are the main crops, and agricultural exports make up two-thirds of total exports. The country must import a high proportion of its food, mainly from New Zealand. The country remains dependent on external aid and remittances from Tongan communities overseas to offset its trade deficit. Tourism is the second-largest source of hard currency earnings following remittances. The government is emphasizing the development of the private sector, especially the encouragement of investment, and is committing increased funds for health and education. Tonga has a reasonably sound basic infrastructure and well-developed social services. High unemployment among the young, a continuing upturn in inflation, pressures for democratic reform, and rising civil service expenditures are major issues facing the government. |
| Trinidad and Tobago | Trinidad and Tobago has earned a reputation as an excellent investment site for international businesses and has one of the highest growth rates and per capita incomes in Latin America. Recent growth has been fueled by investments in liquefied natural gas (LNG), petrochemicals, and steel. Additional petrochemical, aluminum, and plastics projects are in various stages of planning. Trinidad and Tobago is the leading Caribbean producer of oil and gas, and its economy is heavily dependent upon these resources but it also supplies manufactured goods, notably food and beverages, as well as cement to the Caribbean region. Oil and gas account for about 40% of GDP and 80% of exports, but only 5% of employment. The country is also a regional financial center, and tourism is a growing sector, although it is not proportionately as important as in many other Caribbean islands. The economy benefits from a growing trade surplus. Economic growth reached 12.6% in 2006 and 5.5% in 2007 as prices for oil, petrochemicals, and LNG remained high, and as foreign direct investment continued to grow to support expanded capacity in the energy sector. |
| Tunisia | Tunisia has a diverse economy, with important agricultural, mining, tourism, and manufacturing sectors. Governmental control of economic affairs while still heavy has gradually lessened over the past decade with increasing privatization, simplification of the tax structure, and a prudent approach to debt. Progressive social policies also have helped raise living conditions in Tunisia relative to the region. Real growth, which averaged almost 5% over the past decade, reached 6.3% in 2007 because of development in non-textile manufacturing, a recovery in agricultural production, and strong growth in the services sector. However, Tunisia will need to reach even higher growth levels to create sufficient employment opportunities for an already large number of unemployed as well as the growing population of university graduates. Broader privatization, further liberalization of the investment code to increase foreign investment, improvements in government efficiency, and reduction of the trade deficit are among the challenges ahead. |
| Turkey | Turkey’s dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that still accounts for more than 35% of employment. It has a strong and rapidly growing private sector, yet the state still plays a major role in basic industry, banking, transport, and communication. The largest industrial sector is textiles and clothing, which accounts for one-third of industrial employment; it faces stiff competition in international markets with the end of the global quota system. However, other sectors, notably the automotive and electronics industries, are rising in importance within Turkey’s export mix. Real GNP growth has exceeded 6% in many years, but this strong expansion has been interrupted by sharp declines in output in 1994, 1999, and 2001. The economy is turning around with the implementation of economic reforms, and 2004 GDP growth reached 9%, followed by roughly 5% annual growth from 2005-07. Inflation fell to 7.7% in 2005 – a 30-year low but climbed back to 8.5% in 2007. Despite the strong economic gains from 2002-07, which were largely due to renewed investor interest in emerging markets, IMF backing, and tighter fiscal policy, the economy is still burdened by a high current account deficit and high external debt. Further economic and judicial reforms and prospective EU membership are expected to boost foreign direct investment. The stock value of FDI currently stands at about $85 billion. Privatization sales are currently approaching $21 billion. Oil began to flow through the Baku-Tblisi-Ceyhan pipeline in May 2006, marking a major milestone that will bring up to 1 million barrels per day from the Caspian to market. In 2007, Turkish financial markets weathered significant domestic political turmoil, including turbulence sparked by controversy over the selection of former Foreign Minister Abdullah GUL as Turkey’s 11th president. Economic fundamentals are sound, marked by strong economic growth and foreign direct investment. Turkey’s high current account deficit leaves the economy vulnerable to destabilizing shifts in investor confidence, however. |
| Turkmenistan | Turkmenistan is a largely desert country with intensive agriculture in irrigated oases and large gas and oil resources. One-half of its irrigated land is planted in cotton; formerly it was the world’s 10th-largest producer. Poor harvests in recent years have led to an almost 50% decline in cotton exports. With an authoritarian ex-Communist regime in power and a tribally based social structure, Turkmenistan has taken a cautious approach to economic reform, hoping to use gas and cotton sales to sustain its inefficient economy. Privatization goals remain limited. From 1998-2005, Turkmenistan suffered from the continued lack of adequate export routes for natural gas and from obligations on extensive short-term external debt. At the same time, however, total exports rose by an average of roughtly 15% per year from 2003-07, largely because of higher international oil and gas prices. Overall prospects in the near future are discouraging because of widespread internal poverty, a poor educational system, government misuse of oil and gas revenues, and Ashgabat’s unwillingness to adopt market-oriented reforms. Turkmenistan’s economic statistics are state secrets, and GDP and other figures are subject to wide margins of error. In particular, the rate of GDP growth is uncertain. President BERDIMUHAMEDOW’s election platform included plans to build a gas line to China, to complete the Amu Darya railroad bridge in Lebap province, and to create special border trade zones in southern Balkan province – a hint that the new post-NYYAZOW government will work to create a friendlier foreign investment environment. |
| Turks and Caicos Islands | The Turks and Caicos economy is based on tourism, offshore financial services, and fishing. Most capital goods and food for domestic consumption are imported. The US is the leading source of tourists, accounting for more than three-quarters of the 175,000 visitors that arrived in 2004. Major sources of government revenue also include fees from offshore financial activities and customs receipts. |
| Tuvalu | Tuvalu consists of a densely populated, scattered group of nine coral atolls with poor soil. The country has no known mineral resources and few exports. Subsistence farming and fishing are the primary economic activities. Fewer than 1,000 tourists, on average, visit Tuvalu annually. Government revenues largely come from the sale of stamps and coins and remittances from seamen on merchant ships abroad. Substantial income is received annually from an international trust fund established in 1987 by Australia, NZ, and the UK and supported also by Japan and South Korea. Thanks to wise investments and conservative withdrawals, this fund grew from an initial $17 million to over $35 million in 1999. The US Government is also a major revenue source for Tuvalu because of payments from a 1988 treaty on fisheries. In an effort to reduce its dependence on foreign aid, the government is pursuing public sector reforms, including privatization of some government functions and personnel cuts of up to 7%. Tuvalu derives around $1.5 million per year from the lease of its “.tv” Internet domain name. With merchandise exports only a fraction of merchandise imports, continued reliance must be placed on fishing and telecommunications license fees, remittances from overseas workers, official transfers, and income from overseas investments. |
| Uganda | Uganda has substantial natural resources, including fertile soils, regular rainfall, and sizable mineral deposits of copper, cobalt, gold, and other minerals. Agriculture is the most important sector of the economy, employing over 80% of the work force. Coffee accounts for the bulk of export revenues. Since 1986, the government – with the support of foreign countries and international agencies – has acted to rehabilitate and stabilize the economy by undertaking currency reform, raising producer prices on export crops, increasing prices of petroleum products, and improving civil service wages. The policy changes are especially aimed at dampening inflation and boosting production and export earnings. During 1990-2001, the economy turned in a solid performance based on continued investment in the rehabilitation of infrastructure, improved incentives for production and exports, reduced inflation, gradually improved domestic security, and the return of exiled Indian-Ugandan entrepreneurs. Growth continues to be solid, despite variability in the price of coffee, Uganda’s principal export, and a consistent upturn in Uganda’s export markets. In 2000, Uganda qualified for enhanced Highly Indebted Poor Countries (HIPC) debt relief worth $1.3 billion and Paris Club debt relief worth $145 million. These amounts combined with the original HIPC debt relief added up to about $2 billion. |
| Ukraine | After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Shortly after independence was ratified in December 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Ukraine’s dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements. A dispute with Russia over pricing in late 2005 and early 2006 led to a temporary gas cut-off; Ukraine concluded a deal with Russia in January 2006 that almost doubled the price Ukraine pays for Russian gas. Outside institutions – particularly the IMF – have encouraged Ukraine to quicken the pace and scope of reforms. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine’s large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. Ukraine’s economy remains buoyant despite political turmoil between the Prime Minister and President. Real GDP growth reached about 7% in 2006-07, fueled by high global prices for steel – Ukraine’s top export – and by strong domestic consumption, spurred by rising pensions and wages. Although the economy is likely to expand in 2008, long-term growth could be threatened by the government’s plans to reinstate tax, trade, and customs privileges and to maintain restrictive grain export quotas. |
| United Arab Emirates | The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Despite largely successful efforts at economic diversification, nearly 40% of GDP is still directly based on oil and gas output. Since the discovery of oil in the UAE more than 30 years ago, the UAE has undergone a profound transformation from an impoverished region of small desert principalities to a modern state with a high standard of living. The government has increased spending on job creation and infrastructure expansion and is opening up utilities to greater private sector involvement. In April 2004, the UAE signed a Trade and Investment Framework Agreement with Washington and in November 2004 agreed to undertake negotiations toward a Free Trade Agreement with the US. The country’s Free Trade Zones – offering 100% foreign ownership and zero taxes – are helping to attract foreign investors. Higher oil revenue, strong liquidity, housing shortages, and cheap credit in 2005-07 led to a surge in asset prices (shares and real estate) and consumer inflation. Rising prices are increasing the operating costs for businesses in the UAE and adversely impacting government employees and others on fixed incomes. Dependence on oil and a large expatriate workforce are significant long-term challenges. The UAE’s strategic plan for the next few years focuses on diversification and creating more opportunities for nationals through improved education and increased private sector employment. |
| United Kingdom | The UK, a leading trading power and financial center, is one of the quintet of trillion dollar economies of Western Europe. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with less than 2% of the labor force. The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. Since emerging from recession in 1992, Britain’s economy has enjoyed the longest period of expansion on record; growth has remained in the 2-3% range since 2004, outpacing most of Europe. The economy’s strength has complicated the Labor government’s efforts to make a case for Britain to join the European Economic and Monetary Union (EMU). Critics point out that the economy is doing well outside of EMU, and public opinion polls show a majority of Britons are opposed to the euro. The BROWN government has been speeding up the improvement of education, health services, and affordable housing at a cost in higher taxes and a widening public deficit. |
| United States | The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $46,000. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals’ home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a “two-tier labor market” in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. The response to the terrorist attacks of 11 September 2001 showed the remarkable resilience of the economy. The war in March-April 2003 between a US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military. The rise in GDP in 2004-07 was undergirded by substantial gains in labor productivity. Hurricane Katrina caused extensive damage in the Gulf Coast region in August 2005, but had a small impact on overall GDP growth for the year. Soaring oil prices in 2005-2007 threatened inflation and unemployment, yet the economy continued to grow through year-end 2007. Imported oil accounts for about two-thirds of US consumption. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. The merchandise trade deficit reached a record $847 billion in 2007. Together, these problems caused a marked reduction in the value and status of the dollar worldwide in 2007. |
| United States Pacific Island Wildlife Refuges | no economic activity |
| Uruguay | Uruguay’s economy is characterized by an export-oriented agricultural sector, a well-educated work force, and high levels of social spending. After averaging growth of 5% annually during 1996-98, in 1999-2002 the economy suffered a major downturn, stemming largely from the spillover effects of the economic problems of its large neighbors, Argentina and Brazil. For instance, in 2001-02 Argentina made massive withdrawals of dollars deposited in Uruguayan banks, which led to a plunge in the Uruguayan peso and a massive rise in unemployment. Total GDP in these four years dropped by nearly 20%, with 2002 the worst year due to the banking crisis. The unemployment rate rose to nearly 20% in 2002, inflation surged, and the burden of external debt doubled. Cooperation with the IMF helped stem the damage. Uruguay in 2007 improved its debt profile by paying off $1.1 billion in IMF debt, and continues to follow the orthodox economic plan set by the Fund in 2005. The construction of a pulp mill in Fray Bentos, which represents the largest foreign direct investment in Uruguay’s history at $1.2 billion, came online in November 2007 and is expected to add 1.6% to GDP and boost already rising exports. The economy has grown strongly since 2004 as a result of high commodity prices for Uruguayan exports, a strong peso, growth in the region, and low international interest rates. |
| Uzbekistan | Uzbekistan is a dry, landlocked country of which 11% consists of intensely cultivated, irrigated river valleys. More than 60% of its population lives in densely populated rural communities. Uzbekistan is now the world’s second-largest cotton exporter and fifth largest producer; it relies heavily on cotton production as the major source of export earnings. Other major export earners include gold, natural gas, and oil. Following independence in September 1991, the government sought to prop up its Soviet-style command economy with subsidies and tight controls on production and prices. While aware of the need to improve the investment climate, the government still sponsors measures that often increase, not decrease, its control over business decisions. A sharp increase in the inequality of income distribution has hurt the lower ranks of society since independence. In 2003, the government accepted Article VIII obligations under the IMF, providing for full currency convertibility. However, strict currency controls and tightening of borders have lessened the effects of convertibility and have also led to some shortages that have further stifled economic activity. The Central Bank often delays or restricts convertibility, especially for consumer goods. Potential investment by Russia and China in Uzbekistan’s gas and oil industry may boost growth prospects. In November 2005, Russian President Vladimir PUTIN and Uzbekistan President KARIMOV signed an “alliance,” which included provisions for economic and business cooperation. Russian businesses have shown increased interest in Uzbekistan, especially in mining, telecom, and oil and gas. In 2006, Uzbekistan took steps to rejoin the Collective Security Treaty Organization (CSTO) and the Eurasian Economic Community (EurASEC), both organizations dominated by Russia. Uzbek authorities have accused US and other foreign companies operating in Uzbekistan of violating Uzbek tax laws and have frozen their assets. US firms have not made major investments in Uzbekistan in the last six years. |
| Vanuatu | This South Pacific island economy is based primarily on small-scale agriculture, which provides a living for 65% of the population. Fishing, offshore financial services, and tourism, with more than 60,000 visitors in 2005, are other mainstays of the economy. Mineral deposits are negligible; the country has no known petroleum deposits. A small light industry sector caters to the local market. Tax revenues come mainly from import duties. Economic development is hindered by dependence on relatively few commodity exports, vulnerability to natural disasters, and long distances from main markets and between constituent islands. In response to foreign concerns, the government has promised to tighten regulation of its offshore financial center. In mid-2002 the government stepped up efforts to boost tourism through improved air connections, resort development, and cruise ship facilities. Agriculture, especially livestock farming, is a second target for growth. Australia and New Zealand are the main suppliers of tourists and foreign aid. |
| Venezuela | Venezuela remains highly dependent on oil revenues, which account for roughly 90% of export earnings, more than 50% of the federal budget revenues, and around 30% of GDP. A nationwide strike between December 2002 and February 2003 had far-reaching economic consequences – real GDP declined by around 9% in 2002 and 8% in 2003 – but economic output since then has recovered strongly. Fueled by high oil prices, record government spending helped to boost GDP in 2006 by about 9% and in 2007 by about 8%. This spending, combined with recent minimum wage hikes and improved access to domestic credit, has created a consumption boom but has come at the cost of higher inflation-roughly 20 percent in 2007. Imports also have jumped significantly. Embolden by his December 2006 reelection, President Hugo CHAVEZ in 2007 nationalized firms in the petroleum, communications, and electricity sectors, which reduced foreign influence in the economy. Although voters in December 2007 rejected CHAVEZ’s proposed constitutional changes, CHAVEZ still has significant control of the economy and has indicated he intends to continue to consolidate and centralize authority over the economy by implementing “21st Century Socialism.” |
| Vietnam | Vietnam is a densely-populated developing country that in the last 30 years has had to recover from the ravages of war, the loss of financial support from the old Soviet Bloc, and the rigidities of a centrally-planned economy. Economic stagnation marked the period after reunification from 1975 to 1985. In 1986, the Sixth Party Congress approved a broad economic reform package that introduced market reforms and set the groundwork for Vietnam’s improved investment climate. Substantial progress was achieved from 1986 to 1997 in moving forward from an extremely low level of development and significantly reducing poverty. The 1997 Asian financial crisis highlighted the problems in the Vietnamese economy and temporarily allowed opponents of reform to slow progress toward a market-oriented economy. GDP growth averaged 6.8% per year from 1997 to 2004 even against the background of the Asian financial crisis and a global recession. Since 2001, Vietnamese authorities have reaffirmed their commitment to economic liberalization and international integration. They have moved to implement the structural reforms needed to modernize the economy and to produce more competitive, export-driven industries. The economy grew 8.5% in 2007. Vietnam’s membership in the ASEAN Free Trade Area (AFTA) and entry into force of the US-Vietnam Bilateral Trade Agreement in December 2001 have led to even more rapid changes in Vietnam’s trade and economic regime. Vietnam’s exports to the US increased 900% from 2001 to 2007. Vietnam joined the WTO in January 2007, following over a decade long negotiation process. WTO membership has provided Vietnam an anchor to the global market and reinforced the domestic economic reform process. Among other benefits, accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners on 1 January 2005. Agriculture’s share of economic output has continued to shrink, from about 25% in 2000 to less than 20% in 2007. Deep poverty, defined as a percent of the population living under $1 per day, has declined significantly and is now smaller than that of China, India, and the Philippines. Vietnam is working to create jobs to meet the challenge of a labor force that is growing by more than one-and-a-half million people every year. In an effort to stem high inflation which took off in 2007, early in 2008 Vietnamese authorities began to raise benchmark interest rates and reserve requirements. Hanoi is targeting an economic growth rate of 7.5-8% during the next four years. |
| Virgin Islands | Tourism is the primary economic activity, accounting for 80% of GDP and employment. The islands hosted 2.6 million visitors in 2005. The manufacturing sector consists of petroleum refining, textiles, electronics, pharmaceuticals, and watch assembly. One of the world’s largest petroleum refineries is at Saint Croix. The agricultural sector is small, with most food being imported. International business and financial services are small but growing components of the economy. The islands are vulnerable to substantial damage from storms. The government is working to improve fiscal discipline, to support construction projects in the private sector, to expand tourist facilities, to reduce crime, and to protect the environment. |
| Wake Island | Economic activity is limited to providing services to military personnel and contractors located on the island. All food and manufactured goods must be imported. |
| Wallis and Futuna | The economy is limited to traditional subsistence agriculture, with about 80% of labor force earnings from agriculture (coconuts and vegetables), livestock (mostly pigs), and fishing. About 4% of the population is employed in government. Revenues come from French Government subsidies, licensing of fishing rights to Japan and South Korea, import taxes, and remittances from expatriate workers in New Caledonia. |
| West Bank | The West Bank – the larger of the two areas comprising the Palestinian Authority (PA) – has experienced a general decline in economic conditions since the second intifada began in September 2000. The downturn has been largely a result of Israeli closure policies – the imposition of closures and access restrictions in response to security concerns in Israel – which disrupted labor and trading relationships. In 2001, and even more severely in 2002, Israeli military measures in PA areas resulted in the destruction of capital, the disruption of administrative structures, and widespread business closures. International aid of at least $1.14 billion to the West Bank and Gaza Strip in 2004 prevented the complete collapse of the economy and allowed some reforms in the government’s financial operations. In 2005, high unemployment and limited trade opportunities – due to continued closures both within the West Bank and externally – stymied growth. Israel’s and the international community’s financial embargo of the PA when HAMAS ran the PA during March 2006 – June 2007 has interrupted the provision of PA social services and the payment of PA salaries. Since June the Fayyad government in the West Bank has restarted salary payments and the provision of services but would be unable to operate absent high levels of international assistance. |
| Western Sahara | Western Sahara depends on pastoral nomadism, fishing, and phosphate mining as the principal sources of income for the population. The territory lacks sufficient rainfall for sustainable agricultural production, and most of the food for the urban population must be imported. Incomes in Western Sahara are substantially below the Moroccan level. The Moroccan Government controls all trade and other economic activities in Western Sahara. Morocco and the EU signed a four-year agreement in July 2006 allowing European vessels to fish off the coast of Morocco, including the disputed waters off the coast of Western Sahara. Moroccan energy interests in 2001 signed contracts to explore for oil off the coast of Western Sahara, which has angered the Polisario. However, in 2006 the Polisario awarded similar exploration licenses in the disputed territory, which would come into force if Morocco and the Polisario resolve their dispute over Western Sahara. |
| World | Global output rose by 5.2% in 2007, led by China (11.4%), India (8.5%), and Russia (7.4%). The 14 other successor nations of the USSR and the other old Warsaw Pact nations again experienced widely divergent growth rates; the three Baltic nations continued as strong performers, in the 8%-10% range of growth. From 2006 to 2007 growth rates slowed in all the major industrial countries except for the United Kingdom (3.0%). Analysts attribute the slowdown to uncertainties in the financial markets and lowered consumer confidence. Worldwide, nations varied widely in their growth results. Externally, the nation-state, as a bedrock economic-political institution, is steadily losing control over international flows of people, goods, funds, and technology. Internally, the central government often finds its control over resources slipping as separatist regional movements – typically based on ethnicity – gain momentum, e.g., in many of the successor states of the former Soviet Union, in the former Yugoslavia, in India, in Iraq, in Indonesia, and in Canada. Externally, the central government is losing decisionmaking powers to international bodies, notably the EU. In Western Europe, governments face the difficult political problem of channeling resources away from welfare programs in order to increase investment and strengthen incentives to seek employment. The addition of 80 million people each year to an already overcrowded globe is exacerbating the problems of pollution, desertification, underemployment, epidemics, and famine. Because of their own internal problems and priorities, the industrialized countries devote insufficient resources to deal effectively with the poorer areas of the world, which, at least from an economic point of view, are becoming further marginalized. The introduction of the euro as the common currency of much of Western Europe in January 1999, while paving the way for an integrated economic powerhouse, poses economic risks because of varying levels of income and cultural and political differences among the participating nations. The terrorist attacks on the US on 11 September 2001 accentuated a growing risk to global prosperity, illustrated, for example, by the reallocation of resources away from investment to anti-terrorist programs. The opening of war in March 2003 between a US-led coalition and Iraq added new uncertainties to global economic prospects. After the initial coalition victory, the complex political difficulties and the high economic cost of establishing domestic order in Iraq became major global problems that continued through 2007. |
| Yemen | Yemen, one of the poorest countries in the Arab world, reported average annual growth in the range of 3-4% from 2000 through 2007. Its economic fortunes depend mostly on declining oil resources, but the country is trying to diversify its earnings. In 2006 Yemen began an economic reform program designed to bolster non-oil sectors of the economy and foreign investment. As a result of the program, international donors pledged about $5 billion for development projects. In addition, Yemen has made some progress on reforms over the last year that will likely encourage foreign investment. Oil revenues probably increased in 2007 as a result of higher prices. |
| Zambia | Zambia’s economy has experienced modest growth in recent years, with real GDP growth in 2005-07 between 5-6% per year. Privatization of government-owned copper mines in the 1990s relieved the government from covering mammoth losses generated by the industry and greatly improved the chances for copper mining to return to profitability and spur economic growth. Copper output has increased steadily since 2004, due to higher copper prices and foreign investment. In 2005, Zambia qualified for debt relief under the Highly Indebted Poor Country Initiative, consisting of approximately USD 6 billion in debt relief. Zambia experienced a bumper harvest in 2007, which helped to boost GDP and agricultural exports and contain inflation. Although poverty continues to be significant problem in Zambia, its economy has strengthened, featuring single-digit inflation, a relatively stable currency, decreasing interest rates, and increasing levels of trade. |
| Zimbabwe | The government of Zimbabwe faces a wide variety of difficult economic problems as it struggles with an unsustainable fiscal deficit, an overvalued official exchange rate, hyperinflation, and bare store shelves. Its 1998-2002 involvement in the war in the Democratic Republic of the Congo drained hundreds of millions of dollars from the economy. The government’s land reform program, characterized by chaos and violence, has badly damaged the commercial farming sector, the traditional source of exports and foreign exchange and the provider of 400,000 jobs, turning Zimbabwe into a net importer of food products. Badly needed support from the IMF has been suspended because of the government’s arrears on past loans and the government’s unwillingness to enact reforms that would stabilize the economy. The Reserve Bank of Zimbabwe routinely prints money to fund the budget deficit, causing the official annual inflation rate to rise from 32% in 1998, to 133% in 2004, 585% in 2005, passed 1000% in 2006, and 26000% in November 2007. Private sector estimates of inflation in 2007 are well above 100,000%. Meanwhile, the official exchange rate fell from approximately 1 (revalued) Zimbabwean dollar per US dollar in 2003 to 30,000 per US dollar in 2007. |