State Bank Governor says “no short cuts” to sustained economic development

Karachi: Governor, State Bank of Pakistan Yaseen Anwar says there are “no shortcuts” to sustained economic development. “We need to develop right strategies and then translate these into action.”

In keynote address at 12th Management Association of Pakistan MAP Convention on Leadership Challenges for Business Success at local hotel on Wednesday, he said “our economic and political leadership is faced with multiple challenges of trade imbalance, inflation, unemployment, power crises, security. Challenges for making good decisions on these fronts require political will and a clear long term vision.”

He said similarly challenges for business leaders, though at a micro level, are by no means less critical. They range from survival of businesses in a stagnant business environment to developing strategies for further growth through developing new business models, new products or restructuring, re-engineering.

Effective leadership must also include skills to manage people and teams. “Management of human resources is extremely critical to success of any business across the globe,” he emphasized.

He underscored importance of women representation in work force. Women represent almost half of population and a significant talent pool that is ignored. “How can we progress if 50% of our work force is in non-productive capacity.” He urged corporate leaders to take into account their corporate social responsibility so that profit seeking is balanced against objective of social service, well being of society.

Anwar said SBP desires more active role of Board of Directors in setting strategic direction of a bank as well as to bring it under accountability. To be effective, concern, tone for risk management must start at the top. “You would agree that while management may get influenced by business targets and short term profitability, Board, representing owner’s perspective, always targets for long term viability and sustained growth of bank.

By virtue of this different perspective and its legal powers, Board is better positioned to enhance role of risk management. That is why SBP always emphasized Board’s involvement and made it accountable for establishing enterprise wide risk management framework.”

He said formulation of policies relating to risk management only would not solve purpose unless these were clear, effectively communicated down the line. CEO as leader must ensure these policies are embedded in culture of organization. Value of risk management to be realized, integration is essential. Emphasis should be on integrating risk management into existing management structure, processes, rather than operating as an appendage.

“Today we meet at challenging time with many headwinds going forward. Global economy is on downhill path, financial turbulence continues to affect masses across the globe. All this started in 2007/2008 as private debt subprime crises related to the US housing market transformed into a systemic financial crisis that spread from the US to Euro area,’ he observed.

“More recently, this has turned into a sovereign debt crisis. The crisis, now in its fifth year, has morphed into a new phase of a political crisis. In Euro region, important steps have been taken to address current problems. However, political differences within economies undergoing adjustment and among economies providing support have impeded achievement of lasting solution. What we have seen is a complete transformation resulting from worst crisis of modern times.”

Anwar said four key areas contributed to crisis and remain relevant for both financial, non-financial firms; weaknesses in corporate governance arrangements; excessive risk taking for short term gains, inadequate Accounting standards and regulatory requirements in some areas, mismatch between remuneration systems, strategy, risk appetite of company.

Most of multilateral agencies and financial regulators have now increased focus on building more resilient financial framework including developing new standards for addressing above challenges.

He felt elevating corporate governance should not be confined to banks, but commercial concerns must also do same. “We all know pace of globalization has accelerated, resulting in increased domestic, global economic integration. Our visionary business and political leaders must be alert to challenges they face now and are likely to face in future due to developments in other parts of globe.”

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