petroleum products imported in fiscal year 2004 - 05 amounted to rs11 billion, twice the value recorded only three years ago. it is projected to attain over rs13 billion in the current fiscal year. for every rs100 worth of imports, rs13 account for petroleum products. only in a society that embraces self - criticisms can decision - making processes produce real facts to cope with real problems. a back - of - the - envelope arithmetic shows that in certain organizations, employees, after making allowances for week - ends, vacation leave, casual leave and sick leave entitlements, are at work for only 200 days in a year ; i do not wish to say that they consume during 400 days in a year. household consumption expenditure grew by 8 per cent in 2005, twice the average growth rate of 4 per cent in the four years ended 2003. fortunately, the incisiveness of the bank of mauritius led to an accumulation of net international foreign currency reserves amounting to rs54 billion today. we cannot lean against the wind for long. the policy implications of these developments are fiscal rectitude and strong demand management policies. why fiscal rectitude? let me explain. two different hypotheses exist in regard to the relation between trade deficits and budget deficits. one of them is the twin deficit hypothesis postulating that budget deficits cause trade deficits. the policy implication of this theory is that budget deficits need to be reduced to restore trade balance. the other hypothesis is what economists refer to as the ricardian equivalence hypothesis : an increase in government expenditure is absorbed by a rise in private savings and therefore no increase in consumption expenditure, which in our case, means no increase in imports and therefore no impact on the balance of trade. contrarily, our consumption rate has gone up meaning that savings rate has gone down. trade deficit has widened. the first hypothesis seems to be more valid in the case of our economy. although there is no one to one relationship between budget deficits and trade deficits in our context, the case for a reduction in budget deficit is strong. fiscal dentistry needs to be carried out ; the cavities need to be filled in. on the monetary policy side, stringent demand management policy is the order of the day. finally, let me share with you the reflections made in the 1980s by a former prime minister of the u. k. on the state of mind of the british public, “ i think we ’ ve

but we should guard against actions that unnecessarily reinforce this trend and reverse the long - term progress towards global financial integration. for example, actions to support banking systems should not distinguish between domestic and foreign - owned institutions, nor should credit be diverted to domestic borrowers through subsidies or inappropriate regulatory incentives. stabilising the financial sector also includes establishing greater clarity on what the regulatory framework will look like in the longer term. even as we implement measures to build a stronger, better capitalised financial system, banks and their investors need to be reassured as to their prospects for pursuing profitable business models going forward. this means allowing room for innovation and flexibility, without short - changing fundamental policy goals such as controlling leverage and enhancing consumer protection. thanks to the work of the financial stability board ( fsb ) and others, the broad outlines of this future regulatory environment are now much clearer than they were a year ago. the financial stability forum ( fsf ) – predecessor to the fsb – and its member bodies made several recommendations for strengthening the system over the past year. this represents an enormous effort in terms of international policy development and the priority now must be on national implementation. this work has encompassed actions to : • strengthen prudential oversight of capital, liquidity and risk management, with key proposals and work underway to strengthen the basel ii framework and enhance supervisory guidance. • strengthen the operational infrastructure for over - the - counter ( otc ) derivatives, with central counterparty clearing for otc credit derivatives now launched in the united states and in europe. • enhance transparency and valuation, with consistent guidance now issued by accounting standards setters in a number of areas. • improve the role and use of credit ratings, with a revised code of conduct fundamentals for credit rating agencies issued by the international organization of securities commissions ( iosco ) last year and substantial implementation by the rating agencies. • strengthen information exchange among authorities, with supervisory colleges now established for most global banks. • and finally, actions to strengthen arrangements to deal with financial stress, including through the fsf principles for cross - border cooperation on crisis management ( published this month ), and the new core principles for effective deposit insurance systems, now out for public comment. work has been also underway to mitigate procyclicality in the financial system, with recommendations issued by the fsf earlier this month covering the bank capital framework, loan loss provisioning practices, and ways of dampening the adverse interaction between leverage and valuation. and the f