that controlling banks ’ risk - taking would be in the long - run interests of the kingdom. the fear and anxiety of the last weeks of september and early october began to subside as people came to recognise that the banking system was continuing to function normally. people who had taken money out the banks began to return, and for the last several months banks ’ deposits have been very stable. we have also seen banks continuing to report solid profitability, despite the impact of the crisis in the final quarter of 2008. the second impact of the lehman collapse was on the liquidity of global markets. there was a massive rise in risk aversion, reflected in a variety of indicators, including a rise in risk premiums, the rising cost of credit default swaps, and steep falls in global stock markets. activity in interbank markets virtually ceased. the shortage of global liquidity had an impact even here in the gulf. as recently as july 2008 the liquidity position of the gcc had never been stronger. in part, this was due to the high price of oil, but it also reflected large speculative inflows of capital betting on a possible of revaluation of gcc currencies. as the financial crisis worsened in september, we began to see rapid acceleration in the outflow of capital. speculative positions were quickly reversed as the banks which had placed those bets now discovered that they needed the liquidity closer to home. the result was a liquidity squeeze on banks throughout the gcc, from which those in bahrain were not immune. recognising the liquidity pressures on bahrain ’ s banking system, the central bank took action to alleviate the problem. we extended the range of collateral that we would accept in our lending operations with the banking system, so that this now includes long - and shortterm ijara sukuk issued by the kingdom of bahrain. we are also looking at extending the scope of acceptable collateral still further. our main policy initiative, however, was to establish a foreign exchange swap facility. this allows banks that have us dollars to bring them to the central bank to swap for bahraini dinar at no cost. as the federal reserve and other leading central banks had taken measures to provide us dollars to financial markets in almost unlimited quantities, banks in bahrain could obtain dollars and swap them for dinar whenever needed. the result has been to offset to a large degree the liquidity impact of capital outflows. we have done so in a way that

partners ’ currencies, the real effective exchange rate of the dinar remains close to its equilibrium level. therefore, the exchange rate played, to a large extent, its role as an external shock absorber, reflecting its flexibility, supported by the bank of algeria ’ s interventions in the interbank exchange market. third, as a result of the sharp contraction in fiscal oil revenue and the expansion of public spending, the fiscal deficit rose to 16 percent of gdp in 2015 from 7. 3 percent in 2014. however, public debt has remained historically low, representing 13. 6 percent of gdp at end 2015. fourth, the significant reduction in the treasury ’ s financing capacity in 2014 and 2015 is well reflected in the aggregate monetary survey, with the treasury becoming a net borrower in 2015 vis - a - vis the banking system for the first time in many years. on the other hand, the decline in net external assets and the significant slowdown in the growth of credits to the economy more than offset the reversal of the treasury ’ s net position. overall, monetary expansion, as measured by m2 growth, was only 0. 12 percent in 2015, the lowest rate ever, mainly reflecting the magnitude of the impact of the oil price decline. excluding hydrocarbon sector deposits, the money supply increased by 2. 8 percent. bis central bankers ’ speeches the credits to deposits ratio rose from 69. 5 percent by end 2013 to 74. 7 percent by end 2014 and 86. 7 percent by end 2015, indicating a decline in the surplus of banks ’ collected resources compared to extended credits. the evolution of credits, in particular medium and long term credits, in a situation of stable deposits, is the main factor explaining the decline in the public banks ’ short term liquidity ratio. deposits in the banking sector, which rose in 2013 ( 7. 5 percent ) and 2014 ( 17. 5 percent ), slightly declined in 2015 ( - 0. 2 percent ) as a result of the sharp contraction in the deposits of the hydrocarbon sector ( - 41 percent ). consequently, the banking sector ’ s liquidity, in excess since 2002, declined gradually during 2015 to reach dinar billion 1833 by the end of the year ( a decline of 33 percent ), after relative stability in 2014 ( dinar billion 2731 by end 2014 ). with a milder recession in the hydrocarbon sector in 2014 and an upturn as of 2015, economic activity strengthened during these two years despite the external shock. growth was