In this endeavour, an appropriate balance will be maintained between our priority to substantially strengthen the capacity of the banking system to absorb future shocks arising from financial and economic stresses, and avoiding material competitive distortions that can arise from uncoordinated moves between countries on specific elements of the framework. Through the continued rigor of our stress testing requirements, the expectations are for banks and insurers to operate at levels that remain sound even under stressed conditions. This will be further reinforced with the implementation of Pillar 2 from 2011, which will accord greater focus on the individual banks’ own internal capital adequacy assessment processes to determine the adequacy of capital against their specific risk profiles and capital management strategies. With respect to liquidity, our existing Liquidity Framework will be enhanced in 2011 to bring it in line with the Basel III standard, while making appropriate customisations to take into account the specific structural characteristics of our market. We will also issue additional guidance to promote more stable funding structures that will increase the robustness of bank liquidity positions, particularly during periods of stress in funding markets. These quantitative liquidity standards will be further complemented by principles for sound and effective management of liquidity risk. While major agreement has been reached on most areas concerning capital and liquidity, proposals in other areas including the non-risk-based leverage ratio, countercyclical capital buffers and the supervision of systemically important financial institutions continue to be a work in progress at the Basel Committee.

The external financing needs, within the current scenario, are expected to be covered by further inflows of foreign direct investments and by the public borrowing for infrastructure purposes. The current forecast points to a rather stable external debt to GDP ratio. No major pressures are foreseen in the following two years on foreign reserves, and they are to be maintained at the adequate level. Risks surrounding this baseline macroeconomic scenario should not be neglected. For us, as a small an open economy, they mostly come from the external environment and our main trading and financial partners. Although with the latest monetary easing of the ECB the downside risks to the euro zone growth are less pronounced, and in general the global growth risks are more balanced, they are still present and if being materialized, could impact the economy. Additional source of risks are the sharp and sudden swings in the primary commodities prices, which for country like ours, can change the envisaged economic profile to a large extent. A new, additional source of risks is the current domestic political context, which can harm the economy, if not being tackled swiftly. Of course, the risks are challenging and are to be closely monitored. This is even more pronounced, given that the policies’ space at the current juncture is to a great extent exhausted. Hence, the continuation of the structural reforms remains paramount and a challenge, as it can further increase the resilience of the economy, mitigate the risks and reduce the policy burden.