mugur isarescu : the 39th meeting of the central banks governors ’ club of the central asia, black sea region and balkan countries speech by mr mugur isarescu, governor of the national bank of romania, at the conference " the 39th meeting of the central banks governors'club of the central asia, black sea region and balkan countries ", bodrum, turkey, 14 may 2018. * * * dear colleagues, let me start by saying that i am honoured to have been invited to speak here, in beautiful bodrum, at the 39th meeting of the central banks governors ’ club of the central asia, black sea region and balkan countries. our club includes central banks from eu countries, some already in the eurozone, while others belong to countries outside the eu. some of the members in our group come from countries that have enormous economic potential and belong to g20, which has become an essential part of the architecture that has fostered international debate on financial and economic issues after the crisis. this is why our club reflects quite interestingly the constellation of political and economic interests that defines our world. this meeting comes at a time when the international landscape is dominated by an overall positive mood, on the economic front at least, even though, recently, a number of downside risks have become more apparent. in the european union, economic growth reached in 2017 its postcrisis peak, with most member states witnessing higher gdp dynamics. at the same time, unemployment continued on a downward path and economic sentiment improved across the board. some recent signals point to a slowdown, yet they seem to have more to do with temporary influences, growth prospects continuing to look strong. the past year recorded, on average, positive developments in eu candidate and potential candidate countries as well, in spite of gdp dynamics delivering a more mixed picture ( from over 7 percent in turkey to around 2 percent in serbia and even stagnation in the former yugoslav republic of macedonia ). nevertheless, the outlook is positive, with recent forecasts pointing to relatively robust growth in the coming years. however, against this relatively rosy background, i should highlight that our economies, even those that belong to the eurozone, have still much to do in order to become robust and offer good living standards to most of their citizens. some members of this club, romania included, had to go through very painful adjustments during the past decade, as the global crisis found them trapped in a pro - cyclical policy stance and it remains to be

- through of the exchange rate depreciation and adjustment in energy prices. cognizant of the building up of inflationary pressures, sbp has been pursuing a tight monetary policy stance since early 2018. however, the impact of this tightening is going to reflect in the headline inflation with a certain lag. page 2 of 10 4. at present, barring any sudden shock, the monetary policy committee ( mpc ) of sbp is of the view, as stated in the last monetary policy statement, that the adjustment related to interest rate and the exchange rate from previously accumulated imbalances has already taken place. the recent monetary policy statement has explicitly stated that the mpc decision has inbuilt the impact of following 3 important developments : first, the outlook for external financing has further strengthened with the disbursement of the first tranche associated with the imf extended fund facility, activation of the saudi oil facility, and other commitments of support from multilateral and bilateral partners ; second, the government of pakistan has passed fy20 budget that seeks to improve fiscal sustainability by focusing on revenue measures to widen the tax base. the government has also committed to cease borrowing from the sbp that would qualitatively improve the inflation outlook ; finally, on the international front, the sentiment towards emerging markets has improved as expectations of further policy rate cut in the united states have grown stronger and with all the conducive policies pakistan has the capacity to attract foreign investment. 5. as we know, the effectiveness of monetary policy critically depends on the level of financial sector development, including financial access. therefore, countries with low financial inclusion and financial development may have a weaker monetary policy transmission mechanism as opposed to countries with higher financial inclusion and developed financial markets. globally, financial inclusion is considered page 3 of 10 an effective tool for achieving sustainable and inclusive economic growth, as it is a prerequisite for equitable distribution of the economic opportunities, poverty reduction, and financial stability. pakistan is committed towards broadening access to financial services and implementing development finance reforms and policies that can empower individuals and firms to access a well - functioning financial system, which cultivates opportunities for enhanced socio - economic outcomes, improved livelihoods and protection against economic shocks. the stated vision for financial inclusion in pakistan is to improve the access and usage of quality financial services among individuals and firms, with dignity and fairness. 6. with this vision, and being cognizant of high financial exclusion in the country