needs to be institutionalized. i believe these challenges can be overcome if banks adopt a systematic approach like the one prescribed by the basel committee. let me briefly talk about the spectrum of approaches offered by basel accord to calculate operational risk capital charge. under the two simple approaches ( i. e. basic indicator and standardized approaches ), gross income is used as a proxy for the scale of business operations. this suggests that banks with higher gross incomes are relatively bigger in size and have more operational risk exposure. however, it is often argued that gross income is not always a perfect proxy for operational risk since it may fluctuate with the business / economic cycle. nevertheless, in the absence of any other proxy, income is being used due to its simplicity, comparability and reduced capital arbitrage opportunity. another approach offered under basel ii is the advanced measurement approach ( ama ), wherein banks can develop their own internal assessment techniques. unfortunately, the quantitative techniques for measuring operational risk are evolving and there is no broad consensus on the modeling methodologies of operational risk. thus, it can be said that the quantitative approaches offered under basel accord are still in the process of refinement. however, this is all the more reason for banks to focus on qualitative requirements depending on the regulatory approach they intend to follow. in the past one decade, the awareness of operational risk has improved and resultantly the principles for sound management of operational risk have emerged. banks need to incorporate these internationally agreed principles while implementing any operational risk management framework. these principles mainly focus on the governance, risk management environment, role of supervisors and business resilience. bis central bankers ’ speeches i will now outline sbp ’ s expectation on the integrated components of the overall framework for managing operational risk across the enterprise. sound internal governance forms the foundation of an effective operational risk management framework. it is necessary that those at the top of the organization should take the lead in establishing a strong risk management culture. the board of directors needs to regularly review the framework and ensure that senior management is actively monitoring the effectiveness of risk management and controls. for this purpose, the board should establish a management structure based on clear lines of responsibility, accountability and reporting. the board should set the bank ’ s risk appetite through the approval of operational risk management policy. sbp expects that boards should seek periodic reports from management to the monitor the operational risk profile of the bank in a proactive manner. the role of senior management is to implement the operational risk management framework

have attempted to widen the tax base, strengthen tax administration, promote self - assessment, eliminate whitener schemes, reduce multiplicity of taxes and tackle the culture of tax evasion and corruption. a new income tax ordinance has been introduced in 2001, which allows for universal self - assessment, uniform tax rates, removal of non - adjustable withholding taxes, elimination of exemptions and detailed audit. moreover, the tax survey and documentation drive during 1999 - 2000 has allowed the cbr to bring in additional income tax payers and new sales tax payers in the tax net. it has also profiled 600, 000 tax payers which will help enhance the effectiveness of tax assessment, and help detect tax evasion and under - reporting. tariff reforms pakistan made significant efforts in liberalizing its trade regime during the 1990s. the maximum tariff rate has declined from 225 percent in 1990 - 1 to 25 percent ; the average tariff rate stands at just 11 percent compared to 65 percent a decade ago. the number of duty slabs has also been reduced to four. quantitative import restrictions have already been eliminated except those relating to security, health, public morals, religious and cultural concerns. the number of statutory orders that exempted certain industries from import duties have been phased out by june 2004 and import duties on 4, 000 items were reduced. these measures have brought down effective rate of protection, eliminated the anti - export bias and promoted competitive and efficient industries. a number of laws have also been promulgated to bring the trade regime in conformity with world trade organization regulations. these include antidumping and countervailing measures intellectual property rights. privatization public sector corporations have been a constant source of burden on the budget as well as quasi - fiscal accounts. as much as one - third of the fiscal deficit could be directly attributed to the losses of public corporations. in addition, nationalized commercial banks had been carrying a large burden of these corporations. a new law was promulgated under which privatization can take place. this step was necessary to ensure transparency, provide an institutional and legal framework, avoid unnecessary delays and litigations, and outline the process through which the transactions are to be carried out. three major banks along with several other key public sector units have already been sold to strategic investors in the private sector. shares of large companies such as oil and gas development company ltd. and pakistan petroleum ltd have been divested through public offerings. plans to sell the pakistan telecommunications co. ltd ( ptcl ) and pakistan state oil (