sros were being used to favour certain individuals or tariffs were raised to protect selective groups or banks loans were given to supporters of the ruling parties. in the past five years, however, these practices have been done away and a level playing field now exists for all businesses – small or large – in the economy. the second player in this process is the provincial and the local governments. they have to allocate and earmark land for setting up industrial estates and deliver the infrastructure facilities in these estates. the economies of agglomeration dictate that if clusters of same industries are relocated in the same vicinity the suppliers of raw materials and components, and providers of services and marketing of output also move to the same areas. the logistics management and reduction in transportation cost reduce the unit cost of production and distribution for a single enterprise and also improve the reliability and timeliness in the delivery of products. in many countries such zones and clusters have worked very well and helped small and medium enterprises to become more competitive. thirdly, organizations such as smeda have to play a critical role in the business developments support, advisory services and managerial training of smes. for example, most small enterprises do not maintain proper accounting of their operation and do not have a trained accountant on their staff. this impedes their ability to access credit from commercial banks. smeda can organize training courses in accounting and assign these certified trainees to work on a part – time basis with a number of enterprises. simple accounting software packages are now available for small businesses and these can be profitably used in a large number of smes. smeda can design simplified standardized book keeping, inventory management and ledger forms which can aid in the preparation of financials. the sme bank, which was established in the public sector in 2002 to provide financing to the sme sector, is another important player in the sector. however, it alone cannot cater to the needs of the entire sector but it could develop a prototype of program lending, credit appraisal and delivery methodology, standardized documentation, monitoring mechanisms, which can be replicated and followed by other commercial banks. the sme bank can produce experienced and skilled professionals who are specialists in the sme credit for the whole industry. the commercial banks, leasing industry, modarabas themselves have to develop dedicated groups for servicing the smes. they should establish their presence and branches at the clusters and places such as daska, d. i. khan, wazirabad, khairpur

##vails between the budget management, oil companies and consumers. • second, portfolio switches and liquidity mismatches that have emerged have produced sizeable volatility in reserve money with an upward pressure on money supply, combined with a shortening of maturity of deposits in the banking system. demand deposits have grown faster than time deposits and certificate of deposits have become an important source of funding for certain banks. these developments warrant continuous and careful monitoring so as to be on guard against the incipient build - up of potential demand pressures. • third, continued vigilance is required to examine possible strains on credit quality especially to ensure financial stability and thereby derive synergies with macroeconomic and price stability. • fourth, the surge in imports has produced a sizeable expansion in the current account deficit in the first half of fy06 despite a significant of growth of exports. higher oil prices accounted for 28 % of the increase in oil bill and 47 % of the increase in external current account deficit. concurrently, there has been high demand for capital goods, raw material and intermediate goods ( including fertilizer, non - ferrous metals and iron and steel ) and some of this is expected to help in enhancing industrial capacity utilization. management of external current account deficit pressures and their non - debt financing would be critical for the next few years. recognizing this, the foreign exchange reserves would be kept at prudent levels to provide cover for six months of imports. • finally, in view of the upward pressures on aggregate demand including pick up in investment activity, a reduction in the revenue deficit and further improvement in the fiscal deficit will add comfort to macroeconomic management. vi. inflation targeting recently, there has been a proactive debate in pakistan on alternative monetary policy frameworks monetary targeting and nominal income targeting versus inflation targeting. former is questioned because of an unpredictable relationship between money and nominal income and instability in the demand for money. advocates of inflation targeting have pointed out to the substantive success across industrialized and emerging market economies of achieving a high degree of price stability. at the same time it is recognized that preconditions for adopting inflation targeting are now evolving in pakistan, for instance there : draft paper on “ is inflation a fiscal phenomenon ”, economic policy department, sbp. akbari, ather h. and randukwa, wimal, “ inflation targeting in a small emerging market economy : the case of pakistan ” and khalid, ahmed m., “ is inflation targeting the best