6/18  Meeting the guidelines of the preventative arm of the European Stability and Growth Pact should show the temporary fiscal consolidation path to follow in the future after having managed last year to cut the budget deficit to below 3%. At the same time, a review of the composition of public spending and revenue might also contribute decisively to improving the economy’s potential growth. There is room both to increase the efficiency of public spending and steer its composition towards those items exerting greater influence on the accumulation of physical, technological and human capital, and to re-define the structure of the tax basket in order to make it more conducive to growth. The presence of high tax benefits in our tax system, arising from numerous exemptions, allowances and special low rates, which generate substantial revenue-related losses and distort the efficiency and fairness of the tax system, are a good example of the headroom existing here. Secondly, despite the notable correction to date, the negative net international investment position is still at 77.1% of GDP. And the nation’s gross debt amounts to 166.7% of GDP, only slightly below the peak seen during the crisis. To bring down the debt vis-à-vis the rest of the world, Spain will have to run external surpluses over an extended period of time. And that, in turn, requires maintaining the gains in competitiveness, which throughout the recovery have been based on the moderation of labour and financial costs, and which, hereafter, should rest to a greater extent on increases in productivity.

The regulatory framework governing market practices by the Islamic financial institutions can also be strengthened further to ensure its continued soundness. This will involve the implementation of the prudential standards that have been issued by the Islamic Financial Services Board, the IFSB. Greater transparency through the observance of minimum disclosure requirements needs to be adopted by the industry. Good business practices need to be embedded in all aspects of Islamic financial operations, not only as part of good governance and corporate social responsibility, but also as part of brand building. Market efficiency in conducting Islamic business activities can also be enhanced further to ensure its sustained competitiveness as an intermediation process. As we are advancing into the third phase of the Financial Sector Master Plan, where the environment will become increasingly more liberalised and dynamic, we now have to look beyond the 2010 strategies. A key feature of the new environment is increased competition. The benefit of this trend will be to the consumers and businesses in terms of better prices, better range of products and services that are of a higher quality. This in turn would contribute to the overall performance of the economy. To be at the leading edge of competition, continuous efforts have to be intensified to enhance business efficiency and innovation. In this regard, the Islamic subsidiaries, with their increased autonomy in business operations, would be better positioned to determine their own business strategies and to realise the vast growth potential in the Islamic financial industry.