state bank of pakistan opening address by the governor sbp seminar with her excellency ms. christine lagarde, managing director imf emerging markets in the world economy ” 24th october 2016 • her excellency madame christine lagarde, managing director imf, • hon ’ ble senator mohammad ishaq dar, federal minister for finance, revenue, economic affairs, statistics, and privatisation, • esteemed diplomats • learned scholars from academia, • heads and representatives of national and international financial institutions, • government officials, • friends of media, • distinguished guests, ladies and gentlemen, i warmly welcome you all to this seminar! first, let us all greet her excellency ms. lagarde on her visit to pakistan and thank her for gracing today ’ s seminar as the keynote speaker. armed with her remarkable credentials, ms. lagarde has not only led the imf judiciously during a time of global economic and financial stress, but in fact it has been under her leadership that the imf has forged successful collaborations with many emerging countries for their economic betterment. most of these countries have now overcome their short - term external imbalances and adopted better standards of governance – and you can be sure they know exactly who to thank! befittingly, we will request ms. lagarde to enlighten us today on the role of emerging markets in the world economy, drawing on her invaluable insights and extensive firsthand experiences. state bank of pakistan ladies and gentlemen, the relevance of the topic for pakistan is high, as it is an emerging economy with a large population. when we observe the evolving global economy, it is evident that emerging markets face a unique set of challenges, but if managed well, the results have far reaching implications for growth. however, economic developments do not occur in a vacuum ; in fact, they often precipitate a host of new considerations, such as income inequality, social security, environmental concerns, and so on. moreover, for any progress to be truly sustainable, the need for macroeconomic stability in general – and financial stability in particular – is a matter of paramount significance. ladies and gentlemen, it was within this context that pakistan – faced with a balance of payments crisis – embarked upon the imf ’ s external fund facility program in september 2013. at that time, the economy was mired in persistent energy deficiencies, declining development expenditures, rising inflation, and meager foreign exchange

financing, structured financial derivatives, and private equity, retail banking and islamic mortgages. • develop suitable frameworks and applications of pls - based products. at present, the share of equity investment in if ranges from 0 to 24 % of the banking books of islamic banks. pls modalities like mudaraba and musharaka, based on equity partnership arrangements, offer interesting options for innovation. however, weaknesses in legal, regulatory and policy frameworks have impeded their growth. some of the constraints of its effective application 5 include ( i ) equity holders and investors ’ aversion to risk, given the uncertainties over return in pls arrangements, ( ii ) absence of effective property rights in most countries, ( iii ) long term nature of pls financing and ( iv ) higher taxation, compared to interest income, on equity transactions underlying pls arrangements. nevertheless, promoting pls arrangements will not only offer new products but will also address the serious mismatch of assets and liabilities which has aggravated due to the heavy reliance of ifis on short - term, low profit and fixed income assets. 15. in conclusion, it has to be recognized that if services have been transformed from being a peripheral activity to a sizeable industry which is attracting global interest. evidence and arguments presented above make the case that financial globalization will foster if and given the inherent features and richness of islamic principles, modalities and products ’ growth in if will be beneficial for supporting the process of regional and global financial deepening. although currently the size of if is small relative to the global financial system, it has promising growth prospects. well - developed and integrated islamic money, capital, and foreign exchange markets will not only be beneficial for borrowers and institutional investors, they can also further enhance the stability of if institutions, providing them with improved portfolio, liquidity and risk management tools. the challenge for the industry is to consolidate “ lack of profit loss sharing in islamic banking ; management and control imbalances ”, humayon dar and john r. presley ( 2001 ). itself to be able to better compete with global players through achieving scale, efficiency and cost effectiveness in addition to rapidly building its capacities to standardize regulation and supervision, and accounting practices, while strengthening the governance of the industry.