security standards are being implemented in the banking system. ladies and gentlemen! the world is now more inter - connected ; this offers not only benefits but also poses risks for our banking and payment systems. due to rapid technological innovations, consumers are now especially demanding instant funds transfer facilities, both at domestic and cross border levels. we need to understand these changing consumer preferences and find ways to address them. this is vital, not only for the growth of domestic and regional trade and commerce, but for facilitating home remittance transfers by overseas nationals as well. at the same time, we cannot afford to ignore the risks related to anti money laundering and counter financing of terrorism ( aml / cft ) that are increasingly being faced by financial institutions in today ’ s world. you are all aware that correspondent banking is the contractual relationship between banks that provide payment services for each other. however, as identified by international stakeholders like bis and the world bank, correspondent banking relationships are weakening due to various factors, such as higher costs and increased kyc requirements, especially for firms operating in risky jurisdictions. as a result, smaller banks in weak jurisdictions have suffered the most. bis central bankers ’ speeches to address these weaknesses, central banks of the saarc region must work together and support banks in their respective countries in addressing these challenges. this can be done through policy development that supports mutual coordination and communication with regards to sharing of customer due diligence information and effective compliance with aml / cft regulations, as recommended by international bodies. the regulators can, therefore, focus on the following broader areas : first, a risk - based approach needs to be adopted to identify, assess and understand money laundering and terrorist financing risks in the area of correspondent banking, and the corresponding aml / cft measures that are largely implemented but still needs more reinforcement. banks also need to be more proactive in their customer due diligence by gathering and sharing sufficient information among themselves, in a timely manner. second, as highlighted by the financial stability board ( fsb ), the reduction of correspondent banking relationships or what is now commonly called derisking has implications for financial inclusion in general and for the remittance transfer business in particular. this is important because financial inclusion has lately emerged as a priority policy objective for many central banks in developing countries across the world. therefore, regulators need to take steps to address this issue. and finally, the importance of modern and robust domestic payment systems in strengthening and complimenting correspondent banking in a particular

announced by president musharraf in december 1999 consisted of four key elements : ( a ) restoration of macroeconomic stability and pakistan ’ s relationship with the international financial institutions. ( b ) structural reforms to remove distortions. ( c ) improving economic governance and reviving key institutions. ( d ) poverty alleviation through targeted interventions and social safety nets. the interconnection between economic growth, poverty reduction, structural reforms and improved governance is fairly strong in the case of pakistan. macroeconomic stability and the consequent rapid economic growth help reduce poverty in conjunction with investment in social sectors, targeted interventions and social safety nets. structural reforms are needed to strengthen the underpinning of macroeconomic policies and to remove microeconomic distortions affecting key sectors of the economy thus paving the way for accelerating economic growth. improved governance affects the quality of growth by allowing realization of higher returns on investment and is also conducive to poverty reduction through better delivery of social services to the poor. poverty reduction, as we know by now, can be achieved with rapid economic growth, structural reforms and improved governance. 2. 1. macroeconomic stability macroeconomic stability has been achieved through reduction in fiscal deficit, acquiring a surplus on the current account balance of payments, lowering of inflation, and a transformation of external debt profile. these have been brought about partially through the support of international financial institutions and the paris club bilateral creditors which significantly eased the external payments position that had been a major and consistent risk to the economy since 1998. fiscal deficit was reduced by pursuing a combination of four sets of policy measures ( i ) mobilizing additional tax revenues ( ii ) reducing subsidies to public enterprises and corporations and ( iii ) bringing about a significant decline in debt servicing payments and ( iv ) containing defence expenditures. monetary policy was kept reasonably tight during the first two years with money supply growth at about 9 percent. expansion in private sector credit, in the subsequent years, did not put much pressure as the government borrowing was limited to a manageable level. as the monetary conditions improved, the interest rate came down gradually to a single digit and demand for credit by private businesses picked up resulting in higher capacity utilization in manufacturing and increased industrial production. however, with the mounting of inflationary pressures in recent months, the state bank is taking measures to tighten its monetary policy ; the interest rates are expected to go up gradually in the coming months so as not to hurt the growth of the economy. external debt management focused on ( a ) rep