ishrat husain : harmonization of the banking sector in saarc region keynote address by mr ishrat husain, governor of the state bank of pakistan, at the south asian federation of accountants conference held in new delhi, india on 28 august 2004. * * * harmonization of the banking sector should not be seen as an objective in itself for the member countries of saarc region but it should be considered as a tool for achieving a large objective. south asia has the largest number of poor people in the world. any objective must therefore aim to address this particular issue in a perceptible way. thus there must be a broad agreement and consensus that the objective should be greater production and exchange of goods and services among the regional countries so that the larger market achieved through intra - regional trading is able to generate economies of scale, lower cost of production, increase efficiency and lead to higher growth rate and reduce the incidence of poverty. unless all the stakeholders in the countries of the region strike a consensus, forge a strategy and action plan in a sequenced and structured way the likelihood of an enlarged south asian market becoming fully effective will remain low. • leaders of saarc region have, after a long hiatus and slow start, agreed to weave together the south asia free trade agreement ( safta ) in 2006. the practical implementation of safta is therefore a priority for all the member countries. careful planning and sequencing will be required along with strong political will to move in this direction. some of the preparatory steps for making safta take off in a meaningful way are : • trade facilitation through expeditious border crossings, quick custom clearance, efficient port facilities, improved transport links should precede or take place simultaneously with the expansion of volume of cross border trade. • domestic tax, tariff and subsidy policies that affect production and trade incentives should be harmonized to avoid recurrence of trade disputes and frequent use of anti dumping laws. as india provides a lot of subsidies to its producers in various forms and shapes the smaller countries are hesitant to allow mfn status to india. the recourse to a long negative list that restricts the volume of trade should be avoided at all costs. • macroeconomic policies such as fiscal and monetary policies should be harmonized to achieve a stable, non - discriminating macroeconomic environment for all the countries in the region. • supporting institutions to manage and facilitate integration, for example, setting standards

enhance vocational and technical education which thus far only caters for requirements of one percent of 15 - 23 years age cohort ; ( ii ) open six foreign sponsored universities to augment supply and quality of higher education in the country ; and ( iii ) enhance sme and industry entrepreneurial skills. supplementary efforts are underway to develop strong integrated linkages between technology and r & d needs of industrial sector and science and technical education. conclusion pakistan has great potential, both in terms of its natural and human resource, and has developed fairly good forward looking development agenda and plans. a major breakthrough in industrial and export diversification depends, among others, critically on reinvigorating agriculture sector and ensuring adequate availability of infrastructure to meet the growing economic requirements. given huge domestic demand and high returns in virtually every sector, there has been a strong interest in pakistan ’ s economy as illustrated by the strong foreign investment that has come from both gcc and west. the region given its diversity and richness of resources – with gulf countries accounting for large proportion of world ’ s oil and gas proven reserves and now holding sizeable world foreign exchange reserves – along with pakistan ’ s large agriculture and growing industrial base, domestic market, skilled labor force which, if effectively, exploited offers opportunities for deepening collaboration and cooperation for mutual advantage. the new government given its strong political backing has the opportunity to restore macroeconomic stability disrupted in last couple of years which should help restore investor confidence and allow country to attract non - debt creating flows critical for development of industry and infrastructure sectors and to ease the balance of payments situation.