signal the economy was picking up. unfortunately, the data throw up these kinds of puzzles all the time, making it hard to rely on them as guides for monetary policy. at a more fundamental level, it doesn ’ t make much difference if we use growth or employment in our taylor rule, a point made by academics assessing our policy decisions. page 11 of 14 they find that the sarb cares about jobs as well as growth, and does not behave as if it cared about inflation and nothing else. 7 we can also measure our policy stance with reference to something called a ‘ neutral real interest rate ’, which in recent years has increased. this makes it more difficult to cut rates without inducing inflation. a part of the rise in our neutral rate has come from higher global rates, which affect us because we have to borrow from foreigners to finance our current account deficit. a larger part of the rise comes from an increasing risk premium. the risk premium is the price that lenders demand for putting their money here in south africa instead of somewhere else they perceive as safer. our risk premium has increased by about three - quarters of a percentage point over the past five years. if risk subsides again, perhaps because we borrow less or invest more to grow faster, we will have more monetary space and might cut rates responsibly. ladies and gentlemen, to conclude, let me make a point frankly. we don ’ t have balanced and sustainable growth in south africa. with annual gdp growth rates under 1 %, we barely have any growth. indeed, adjusting for the increase in our population, we have been getting poorer for half a decade. we also don ’ t have balance or sustainability. government ’ s debtto - gdp ratio is moving steadily higher, and with bailouts for state - owned enterprises, there are real risks we will soon have one of the highest debt levels amongst our emerging market peers. because we have borrowed so much from abroad, we pay a rapidly rising amount of interest to nonsouth african creditors, and this is contributing to a large current account deficit – again, one of the biggest in our peer group. 7 bold, s. and harris, l. april 2018. ‘ identifying monetary policy rules in south africa with inflation expectations and unemployment ’. sa - tied working paper 7. available at : http : / / satied. wider. unu. edu / sites / default / files / pdf / wp - 7 - 2018 - bold. pdf.

burden ( 92. 9 as % of gdp in fy00 to 57. 7 % by fy07 ). current challenges. pakistan is at a critical cross road. on one hand, there are achievements to be recounted. the country ’ s smooth, though protracted, transition to democracy and the preceding few years ’ economic performance that managed to excite foreign interest in pakistan lends us confidence that pakistan has strong economic potential and can attract global capital. on the other hand, there remain key economic risks and challenges that the country faces. unless addressed holistically these could threaten economic prospects ; a luxury pakistan can ill - afford given the geopolitical context and the emerging global challenges. re - emergence of twin deficits has complicated monetary management. borrowings from sbp induce expansion in reserve money and government ’ s high recourse to banking system potentially crowds out private sector credit. these complications introduce volatility in overnight and other interest rates weaken the monetary policy transmission mechanism and hurts investment potential. growing demand for goods and services, both from domestic sources and from abroad has helped domestic industry, but has also enhanced import reliance. over fy03 - 07, import growth ( including oil ) averaged 24. 7 % outpacing export growth ( 13. 4 % ) leading to a widening external current account deficit. during this period, capital inflows funded fully the external current account deficit and the residual helped in building foreign exchange reserves ( growing by $ 5. 6 billion over fy03 - 07 ). even if oil prices fall and foreign inflows are restored, sustainability of external account will remain under stress as export growth may be impacted by the global slowdown. containing both the external and the fiscal account imbalances is one of the challenges for the government. solutions, strategy and structural reforms : future agenda. so what is the solution in this situation? the answer is to conduct counter - cyclical policies to curb demand pressures by dealing with the root cause of deficits ; the sustainable and enduring solution is not only how to finance these deficits but more importantly how to introduce structural changes to reduce these deficit in a sustainable manner, while reflecting on approaches to meet the country ’ s development requirements. to resolve macroeconomic imbalances on a sustainable basis and meet the growing development requirements, there is need to as high priority focus on enhancing national saving rate, which is a basic ingredient to increase the productive capacity ( possible only through well sequenced structural reforms