incentivize farmers not to be distracted by other options. similarly on rice, efforts are underway to ensure adequate availability of domestic supplies without disrupting the private sector initiatives to export. proper availability of commercial financing for key products and curbs on hoarding through borrowings is being controlled through central bank measures. ( iii ) on its part the central bank has benefited from its continued pursuance of monetary tightening which had yielded visible results in may 2007 when core inflation fell much below the fy07 target of 6. 5 %. however this trend has been now disrupted by an unabated rise in government borrowings from the central bank which has magnified risks for inflation. some short term measures are being contemplated to lower these borrowings to ensure that the end year results show less sbp borrowings by federal government. the impact of the high borrowings has however permeated and penetrated in inflation and it will take stronger measures to unwind it and results will emerge with lag. ( iv ) on its part central bank has continued pursuance of a managed floating exchange rate regime. sbp has been quite transparent in its exchange rate management and has underscored the mechanics on how the exchange rate is determined. since the central bank does not target a specific level, the exchange rate is market determined reflecting the demand and supply dynamics. to avoid spikes and excessive volatility on a day to day basis, central bank has been supporting upto 100 % of oil payments between november 04 to the third quarter of 07 but has since only supported 80 % of the oil payments with 20 % being handled by private sector. beyond this, the interventions are minimal. in recent days, the central bank has enhanced its vigilance in markets given the broadening of band between inter - bank and kerb rate and this has been narrowed with improved liquidity in kerb markets and other measures. all market participants have been advised that speculators and others who violate market ethics will be dealt with appropriate actions. exchange rate of pakistan has enjoyed a high degree of stability as evident from the foreign inflows and will continue to do so. sbp will take strict measures to combat any excessive build up of speculative tendencies among banks and exchange companies as warranted. ( v ) reserve build up will be a continued priority of this new government and central bank. the reserve build up achieved during fy07 was a conscious decision to ensure that pakistan has adequate reserves to provide cushion for any eventual

shamshad akhtar : pakistan – selected perspective on economic challenges and outlook speech by dr shamshad akhtar, governor of the state bank of pakistan, at a roundtable discussion at receiving the “ best central bank governor of the year 2008 for asia ”, arranged by the banker, karachi, 30 april 2008. * * * irrespective of changes on political front, economic liberalization and reforms have helped pakistan emerge as an open and liberal economy. foreign investment enjoys equal treatment with domestic players and often assigned preferential treatment to ensure swift entry. as a result of these policies pakistan has managed to attract a number of global players and significant investment offering a stable and fertile return environment. to quote few success stories, though not an exhaustive list by any means, today over half of the banking assets are with global banks but interestingly they operate as local subsidiaries. telecom operators are now managing virtually bulk of the mobile businesses and growth of mobile subscribers has risen substantially. pakistan has managed to unbundle its power sector, privatized its electric company operating in the port and industrial city of karachi. incentive regime has been made conducive for energy operators and both generation and distribution sectors have been offered to the private sector. free entry in manufacturing sector now for quite some time has helped multinationals to operate freely. the process of economic liberalization has been facilitated by the smooth privatization of public enterprises that has been a key agenda of all the three to four successive governments. this will continue to unleash the potential of companies under good management with new investments to yield better results. economic potential of the country can be judged based on fairly good trends observed in all critical economic variables ranging from real gdp growth that averaged above 7 percent over last few years to the narrowing of macroeconomic imbalances. most of all given opportunities and high risk premium on all businesses, in recent years, pakistan did attract substantial foreign inflows – foreign direct investment cumulatively was around $ 11. 9 billion and portfolio flows averaged annually $ 1. 04 billion. today, pakistan has to be judged in the context of the challenging political and international economic environment it operates in. despite growing political challenges as the election drew closer, fy07 ended with realization of most critical economic targets. real gdp growth turned out to be reasonable and slippages in fiscal and external current deficit were manageable. outstanding was the flow of fdi which reached over $ 5. 14 billion, portfolio flows were $