unlike many developed and developing countries, data on quarterly gdp, employment and wages, etc. is not available in case of pakistan. moreover, the data on key macroeconomic variables ( such as government expenditure and revenue, output of large - scale manufacturing, crop estimates, etc. ) is usually available with substantial lags. this constrains an in - depth analysis of the current economic situation and evolving trends, and hinders the ability of the sbp to develop a forward - looking policy stance. 3. unlike many countries, both developed and developing, there is no prescribed limit on government borrowing from sbp defined in the sbp act or the fiscal responsibility and debt limitation ( frdl ) act 2005. besides being highly inflationary, government borrowing from sbp also complicates liquidity management. borrowing from the central bank injects liquidity in the system through increased currency in circulation and deposits of the government with the banks. in both cases, the impact of tight monetary stance is diluted as this automatic creation of money increases money supply without any prior notice. moreover, access to potentially unlimited borrowings from the sbp provides little incentives to the government to put the fiscal accounts in order. therefore, the foremost task to improve the effectiveness of monetary policy is to prohibit the practice of government borrowings from the sbp. in this regard, appropriate provisions are required to cease or limit government recourse to central bank financing through amendments in the sbp act and the frdl act 2005. 4. another issue is to make a clear distinction between exchange rate management and monetary management. currently, there is a general perception that the state bank is bound to keep the exchange rate at some predefined level and any movement away from this level is then considered as an inefficiency of the sbp. there is a need to understand that for an open economy, it is impossible to pursue an independent monetary and exchange rate policy as well as allowing capital to move freely across the border. since the sbp endeavors to achieve price stability through achieving monetary targets by changes in the policy rate, it is not possible to maintain exchange rates at some level with free capital mobility. this can only be achieved by putting complete restrictions on capital movements, which is not possible. sbps responsibility is to ensure an environment where foreign exchange flows are driven by economic fundamental and are not mis - guided by rent seeking speculation. 5. finally, based on experience particularly gained during the last two months is to

recruitment of entry - level bankers. the next step in this value chain of human resource development is the continuing education, training, testing and progression of in - service employees and identification of future managers of the financial industry. recently, i had a very productive meeting with the human resource heads of some of your institutions at the ibp and we have agreed that this area needs your personal attention and commitment. we, at the sbp, have gained some experience in this endeavour and we are willing to share that with you. the ibp has been given a much larger mandate, the nibaf facilities have been opened up to the whole industry and the five large banks have offered to upgrade the quality of their training institutions which can then be available to other banks, leasing companies, etc. i attach a lot of importance to this particular area of work and i will take personal interest in developing a cadre of professional bankers in pakistan who are of international standards and can move into multinational banks without much difficulty. ( i ) risk management : the advent of basle ii regime in a couple of years imposes a sense of urgency on both the regulators as well as the financial industry to put their act together as far as risk management is concerned. i have very little doubt that the foreign banks operating in pakistan will have any serious problems in making the transition successfully but i remain very much worried about our domestic banks - large, medium and small. although we all have been talking about basle ii for sometime, our response in preparing ourselves have been at best patchy. the sbp has installed capacity for risk management within the institution and we intend to keep on expanding this capacity but i see that our large banks have not yet woken up to attract the human resource of the right kind, set up the internal rating systems and the supporting technology. we have started the training courses in real earnest and i have asked the ibp to give priority to this area but we need trainable material from the banks. i hope that the pakistan banks association ( pba ) will form an internal working group to bring their member institutions to reach minimum standards by certain timelines. ( j ) promotion of islamic banking : i have been very much encouraged by the enthusiastic response to the setting up of islamic banks and branches in the country. this is an extremely positive development as it brings into the fold of formal financial sector those who have remained outside because of their faith and beliefs. from my interactions, i can tell you that their numbers are in millions and