State Bank of Pakistan Governor Dr Ishrat Husain on Friday described the further sharp increase in oil prices as a key risk to global economic outlook. "Upward trend in oil prices coupled with continued fiscal and current imbalances in United States and sluggish demand in the European Union (EU) and Japan are a source of concern across the world," he pointed out. The SBP governor was speaking at the inaugural session of 2-day South Asian Federation of Accountants (SAFA) conference. The theme of this year''s conference is "Transformation of Accounting Profession."
Dr Ishrat said that non-oil producing emerging markets would have to watch the movements in oil prices and they are likely to forego some buoyancy if the prices continued to remain tight in the foreseeable future.
"The volatility in oil markets and risk premium prevailing do not permit us at this stage to make any helpful prognosis, he added.
The SBP governor said that growth in industrial countries has fallen short of expectations and the chances for an upturn remain weak in Europe and Japan. "Structural reforms have to be undertaken in the EU countries, sooner than later, to remove rigidities in goods and labour markets," he urged.
On the international trade front, Dr Ishrat said that agriculture and improved markets access for developing countries remain critical to sustain growth and for South Asian countries the transition from Multi-Fiber Agreement (MAF) to Agreement on Cotton and Textile (ACT) would have serious consequences in the coming years.
About the economic growth in the region, he stated "We remain extremely optimistic about the economic prospects and outlook in sub-region of South Asia and as a whole in Asia".
"High savings and investment rates, competitiveness of exports, growing domestic market size, favourable business environment and sound economic management have reinforced the strengths of these economies to take full advantage of the opportunities provided by the globalisation, Dr Ishrat added.
The SBP governor, however, pointed out that despite economic robust in South Asian countries, they are still way behind the East Asian countries on almost every economic and social indicator.
For instance, our region, he said, has almost the same number of people as East Asia, but foreign direct investment (FDI) flow to East Asia in 2004 was about ten times as high as those to South Asia.
However the paradigm shift, Dr Ishrat hoped, that is taking place in the South Asian region would be able to meet the emerging challenges successfully, provided we strive hard to bring about the results.
He urged for managing carefully the higher oil prices and said inflationary pressure arising from these shocks have to be moderated. "Bringing down fiscal deficits, improvement in business climate by removing bureaucratic controls and irritants are must to allow private sector to operate in a healthy competitive environment," the SBP governor stressed.
Dr Ishrat underlined the need for intra-regional trade, capital flows, technology transfer and dissemination, exchange of teachers and students at the top universities and research institutions and opening of bank branches among the countries of the region and observed that it would have tremendous externalities and spillover effects over the long run.
"The changed perception of South Asian countries living at peace with each other, facilitated flow of goods, services and people easily and integrating them in the global economy actively would not only reduce the risk premium but pay higher dividends," he mentioned.
Speaking on accounting field of the region, the SBP governor said that the high quality of professionals from this region has endeared the South Asians among the employees in the advanced countries.
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