fiscal picture has improved considerably. the national government posted a p9. 4 billion budget deficit in 2007 equivalent to less than 1 percent of gdp, its lowest in ten years. moreover, for the first time in more than a decade, the consolidated public sector financial position registered a surplus in 2006. this has continued on in the first three quarters of 2007 with the surplus reaching p52. 7 billion. gains brought about by the government ’ s fiscal consolidation efforts were also evident in the material reduction in the public debt burden. three, our external position is strong, making us less vulnerable to external shocks. the country ’ s balance of payments posted a record surplus of us $ 8. 6 billion in 2007, buoyed by strong inflows of overseas remittances, higher net services receipts, and direct and portfolio investments. this has allowed us to build up the country ’ s gross international reserves to record highs. consequently, we were able to prepay external debt. in fact, in the bsp, we have prepaid all that we could. the ng, other goccs and the private sector have all taken advantage of our strong bop and prepaid external debt. thus, the country ‘ s external debt and debt service burden have also gone down. at the same time, the steady inflow of foreign exchange has kept the peso firm, broadly maintaining its competitiveness in real effective terms over this period, and providing a mitigating effect on inflation. finally, the sturdier policy framework and broad - based structural reform that we have put in place, have helped promote a more coordinated and productive economic environment. this is evidenced by the economy achieving in 2007 the highest gdp growth rate in 31 years of 7. 3 percent against a backdrop of low and stable inflation. the 2007 full year average inflation of 2. 8 percent was the lowest in 21 years. this combination has allowed market interest rates to generally trend downward. those, in brief, ladies and gentlemen, are our buffers. how can we further build these to ensure that we can ride out any unforeseen bumps in the road? well, my friends, like any good driver, we must keep our eyes on the road and follow the map that we have set out on. this brings me to the bsp ’ s policy thrust for 2008. the bsp ’ s monetary policy thrust will involve a balancing act between managing the risks to inflation and inflation expectations, and seeing to it that the economy

’ s growth momentum continues over the policy horizon. we will continue to focus on our core mandate of promoting price stability. this will require intensified environmental scanning and continuous surveillance of key macroeconomic developments, particularly those that indicate emerging risks to the inflation outlook. relative the external sector, our policies will be geared toward : ensuring the sustainability of the country ’ s external debt ; maintaining a market - determined exchange rate, with scope for occasional action to keep orderly market conditions ; and maintaining a comfortable level of reserves as market opportunities will allow. reforms in the financial sector will be aimed at maintaining a strong banking system and a vibrant capital market. specifically, we will focus on : further enhancing the regulatory framework through the implementation of the basel ii roadmap ; improving corporate governance by promoting compliance with international accounting and financial reporting standards ; accelerating the implementation of risk - based supervision technology ; and continuing support for the development of a deep and efficient capital market, including by supporting necessary legislative reforms. in sum, we will continue to be focused on our primary mandate. ” more of the same ” is what you may have heard me say before. more of these which have served us well in the past. on the basis of these policy directions, the outlook for the macroeconomy continues to be favorable. although we are seeing a hump - shaped inflation path in the first half of 2008, whereby monthly inflation rates are expected to rise to around the top end of the target range, we forecast full year average inflation to be within target in both 2008 and 2009. the volatility in world oil prices and uptrend in non - commodity prices remain the key risks to the inflation outlook. nevertheless, the emerging scenario is for commodity prices to taper towards the end of this year. this within - target outlook will allow us to maintain a low interest rate environment. we expect the bop to continue to be in surplus, although at a level that is smaller compared to the previous year. the liquidity impact of the external surplus will have to be managed such that the amount of money in the system remains consistent with the inflation objective. ladies and gentlemen, the philippine economy has travelled a remarkable distance in recent years. responsible economic policies and purposeful reforms have resulted in significant economic dividends for the country. but equally significant patches are now threatening the sustainability of the gains we have achieved thus far. yes, we have built up “ buffers ”, but we cannot afford to be complacent. much is yet to