2000 to 79 per cent last year. a key consideration here is the extent to which resources are allocated to capital formation rather than consumed. between 2000 and 2008 the share of gross fixed capital formation averaged 19 per cent of gdp in malta, compared with 21 per cent in the euro area. in 2008 the share fell to 15 per cent for malta. there is clearly scope for improvement. in this regard, the budget for 2010 provides several incentives that are conducive to a stronger productivity performance, particularly concerning smes and research and development. beyond capital deepening, improved prospects for productivity growth also require a heightened awareness that inefficient work practices, including over manning, slow down output growth and threaten the sustainability of employment and income levels. the concept of value for money that is increasingly determining consumer behaviour should be given equal importance in the workplace. there also exists potential for creating a more congenial business climate to reinforce malta enterprise ’ s investment promotion strategy. in a recent survey of corporations, a reduction in bureaucracy topped the list of measures that were considered necessary to further enhance malta ’ s attractiveness as a location for foreign direct investment. 3 education policies, too, can play a role by strengthening the country ’ s human capital, particularly by promoting greater synergies between educational institutions and industry. in assessing the role of productivity, it is well to reflect on the words of the nobel laureate paul krugman, who said “ productivity is not everything, but in the long run it is almost everything. a country ’ s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker ”. 4 … and sound public finances the third policy priority is to achieve sustainable public finances. the process of fiscal consolidation must resume in earnest once the recovery materialises. for a start, each year ’ s deficit translates into higher debt and debt - servicing burdens, which already stand at 67 per cent and 3. 4 per cent of gdp, respectively. 5 put differently, the 196 million euro in interest due on the debt next year is equivalent to what the government would spend on medicines structural issues report 2010, which focuses on the impact of the energy markets on the macroeconomy. a detailed report is to be published next year in the form of an ecb occasional paper. weathering the challenges, in ernst & young ’ s 2009 malta attractiveness survey. paul krugman, the age of diminished expectations : us economic policy in the

were unable to anticipate future downturns and build up suitable safeguards while giving loans. i do believe that the rising impaired assets is a “ governance ” issue as banks have forgotten the art of saying “ no ”, except, may be, to small borrowers. banks need to significantly improve their risk assessment capability and their ability to price risks, so that they take on only those risks that they understand and can effectively manage. i believe that this need is all the more pronounced in the case of public sector banks, which, at times, end up with assets that have been exited by private sector / foreign banks on account of inherent weaknesses. the ability to manage npas is important in order to preserve the strength of bank balance sheets and to retain the appetite to take on good risks. an attitude of complete risk aversion would not be appropriate as banks are in the business of taking risks, but with adequate safeguards. i note that npas are a recurrent theme in shri venugopal ’ s articles and hope that they do provide insights into how banks can manage this problem. another issue that i would like to bring up before you is the element of discrimination practiced by the banks in restructuring of loans. analysis of available data indicates that the larger borrowers have invariably received the benefit of restructuring of loans, while the restructuring in case of sme / agriculture loans has remained abysmally low. i believe that with timely intervention and support from the banks, this sector would have definitely shown much lower levels of impaired assets than it presently does. bis central bankers ’ speeches d ) financial inclusion despite several steps having been taken by the government and the reserve bank of india, the extent of exclusion in the indian financial system continues to be unacceptably high. the unbanked masses constitute a unique but important stakeholder group for banks, even though they may not be bank customers. meeting the expectations of this group through financial inclusion efforts presents a huge business opportunity for banks. while there is no “ one - size - fits - all ” approach to financial inclusion, it is important that banks recognize three important prerequisites for maximising the benefits of financial inclusion efforts. these are : • holistic approach to provision of financial services, not just credit or deposit alone • meeting the needs of small firms • focussing on segments of population excluded by gender or geographical remoteness banks need to focus on leveraging technology to create new business models and delivery channels that are customized