will have to be sorted out to avoid unwarranted fears and suspicions. more importantly, while basel 2 advances the platform for risk management more comprehensively than ever before, it is not free from some practical problems that need to be addressed. we have to be realistic and patient. given the increasingly complex transactions in which banks are continuously engaging in search of markets, a risk management system like basel 2 is consistent with the primary objective of the bank regulator, which is to incorporate those risks into capital regulation with a view to making the whole banking system safer and more stable. we cannot expect a huge system like basel 2 to be implemented without the normal teething problems. the difficulties of adaptation of the model to the practical situation prevailing on the ground in different environments are expected to spin off solutions. these solutions should not thwart financial sector development or introduce excess compliance costs out of keeping with the expected benefits. i repeat therefore that it would be reasonable for mauritius to join the mainstream of basel 2 implementation provided that, as a positive spin off for adopting basel 2 in an acceptable form, banking practices over here become more solidly entrenched and bankers find full expression in their primary job of risk taking through a hands - on approach to their activities rather than outsourcing judgment to third parties. the judgment of the seasoned banker, capable of identifying and quantifying the risk he is taking on, is a significant value addition that we should not jettison by moving on to a purely ratings based assessment of risks as advocated in the simple approach. this is why the bank of mauritius and banks are discussing in detail the practicalities of basel 2 implementation since last year and progressing the agenda on a concensual basis. finally, i would like to state that we have adopted an open attitude in this respect in mauritius. no specific basel 2 approach is mandated to any bank, irrespective of its size and complexity of its transactions. inevitably, banks will need to invest in more risk management systems responding to their present and foreseeable needs. nothing is, in my opinion, more precious and worthwhile for a bank than maintaining and developing a deep and intimate in - house knowledge of its customers for the purpose of identifying the distinct risk each one of the customers represents. with basel 2, this kind of knowledge has to be objective and systematic, and drawn up into a reliable database so that the information can be utilized, to the satisfaction of the regulator, for mitigating risks and defining the capital requirement on

##mic. of course, the pandemic has also held productivity back for a variety of reasons. disruptions to global supply chains have made it harder for businesses to get critical inputs, limiting the productivity of labour and capital. public health restrictions have necessitated more people and space to do the same work. and rapidly changing circumstances have made it hard to plan and operate efficiently. as the pandemic fades, these forces should dissipate, creating the opportunity to increase productivity. there are two fundamental sources of growth in gross domestic product — more workers and more output per worker. we call output per worker productivity. 2 we measure workers by total hours worked, which is the product of employment and average hours worked. we call this labour input. and we measure productivity as output divided by labour input. comparing canada and the united states through the pandemic and recovery, we can see that canada ’ s rebound in employment has been considerably stronger. but workers in the united states increased their hours of work by much more than workers did in canada. so the recovery in labour input has been quite similar in both countries. the difference lies in productivity. productivity growth has been considerably stronger in the united states, so with roughly the same recovery in labour inputs, the united states has seen a larger increase in output ( chart 1 ). the question is why? chart 1 : canada ’ s labour productivity lags the united states index : 2019q4 = 100 index real gross domestic product labour input productivity canada employment average hours worked united states sources : statistics canada, us bureau of labor statistics via haver analytics and bank of canada calculations last observation : 2021q3 1 see t. mehdi and r. morisette “ working from home in canada : what have we learned so far? ” statistics canada economics and social reports 1, no. 10 ( october 2021 ). 2 true underlying productivity or efficiency cannot be directly observed, and it can be volatile in the short run. that ’ s especially valid now because of the stops and starts of the pandemic lockdowns. - 3there appear to be two related factors. public health restrictions have been more comprehensive in canada, causing temporary restraints on economic activity. 3 as we emerge from the pandemic, we should make up this difference. but the second reason could have more lasting consequences : business investment through the pandemic has been considerably stronger in the united states than in canada. indeed, us businesses have long been investing in more capital per