gdp, in fact, net fdi inflows increased from 16 % to 28 % in the six years to 2006. progress has also been registered in other areas. particularly significant was the narrowing of the inequality of income distribution ratio from 4. 6 in 2000 to 4. 1 five years later, well below the euro area average of 4. 8. in education, the proportion of students having completed at least an upper secondary education increased from 41 % of the relevant age group to 50 % over the same period, and the proportion of students in tertiary education rose from 11 % to 16 %. there was also some improvement in the female participation rate, from 35 % to 38 %. new challenges lie ahead a sense of satisfaction is, therefore, justified. complacency, however, is not, for much remains to be done. and any further progress will have to be pursued in an external environment that has become even more challenging. in the first place, competition, mainly from asia, has eliminated any residual advantage in our labour intensive industries, and represents a growing threat even in more capital and knowledge intensive activities. another worrying development is the increasing prospect of a slowdown in global economic activity, reflected in the recent downward revisions to gdp growth forecasts by leading central banks and multilateral institutions. the full impact of the chain of events set off by the sub - prime mortgage crisis in the united states has yet to be felt, and risks being compounded by the mounting inflationary pressures in commodity markets, especially for oil and agricultural products, with as yet unpredictable consequences. given the circumstances, while the adoption of the euro will undoubtedly enable malta to face these challenges from a stronger position than if the convergence process had been slower, the euro alone will not be enough. against this background, i would be failing in my duty if i did not express concern at the insufficient recognition by public opinion of the risks that the evolving external scenario poses for the maltese economy and of the need to improve the country ’ s international competitiveness. the reaction to the budget for 2008 is a case in point. attention has been focussed primarily on the perceived adequacy or otherwise of the proposed increases in incomes and benefits. the media regularly carry suggestions for still more handouts and other measures that would result in even higher consumption rather than investment. in contrast, little is said about where the “ more ” would come from. neither has there been any serious discussion as to whether current levels of combined private and public consumption

is responsible for the prudential regulation and supervision of all financial institutions in malta, while the bank remains the lender of last resort. it is, therefore, the only domestic institution with the capacity to inject liquidity into a troubled institution against collateral. the ministry of finance, on the other hand, is involved with respect to the possible use of public funds. as the international financial crisis unfolded, the bank was in continuous contact, at the highest levels, with both the mfsa and with the ministry of finance. it also took steps to obtain more frequent balance sheet data from credit institutions. the government on its part gave a commitment to protect financial institutions and depositors in malta should the need ever arise. meanwhile, and in the light of similar steps taken elsewhere, it decided to raise the guarantee provided on bank deposits to eur100, 000. here i would like to remind this audience that the relevant eu directive emphasises that the cost of financing such guarantee schemes must be borne by the credit institutions themselves. furthermore, in the light of the commission ’ s proposals to strengthen the directive, which have been supported by ecofin, it is clear that the resources available to the maltese depositor compensation scheme need to be significantly enhanced before the end of 2009. looking beyond the crisis, we can already anticipate further changes at the international level. major modifications are likely, for example, in the regulatory framework, covering liquidity, leverage and risk management. the role of credit rating agencies is also being reappraised. clearly, the models used in the past to evaluate risk have proved inadequate. entire types of financial institution, such as stand - alone investment banks, may cease to exist while certain categories of financial instruments, such as the more exotic derivatives, may never be traded again. as regards regulatory arrangements, the crisis has highlighted the importance of a close central bank involvement in prudential oversight. this stems from the fact that central banks need supervisory information to carry out their core functions, including the implementation of monetary policy. information about the soundness of banks is important for them to be able to assess the health of their counterparties in the conduct of monetary operations. it is also valuable because central banks, including the central bank of malta, are often responsible for the regulation and oversight of payment and settlement systems. such information becomes essential when central banks are called upon to provide emergency liquidity in times of stress as lenders of last resort. in malta, it is important that