increase in private investment in the traded goods sectors of the economy, because the future viability of these sectors is also uncertain. as a result, we can expect the uncertainty about future global oil prices to have a negative impact on private investment, which in turn will cause real economic growth rates to be lower than they would otherwise have been. bis central bankers ’ speeches the uncertainty about oil prices also has implications for the exchange rate. increased national income and expenditure as a result of the exploitation of natural resources leads to real exchange rate appreciation. economic agents will, therefore, expect that the exchange rate will be more appreciated in real terms in the future, when the country begins to spend its oil revenue. if the exchange rate is expected to appreciate in the future, it will actually start to appreciate now, as rational investors purchase assets valued in the domestic currency. the more uncertain outlook for oil prices has almost certainly led economic agents to revise their expectations about the path of the real exchange rate in the long term, which in turn will affect the exchange rate now. i think that it is very likely that this is one of the reasons why our exchange rate came under strong pressure in the final quarter of 2014 and in january of this year. 3. fiscal policy finally, i want to discuss the implications of oil price uncertainty for fiscal policy, which is crucial for macroeconomic stability. as i have noted, most of the national income earned from oil accrues to the government in the form of public revenue. the secretary to the treasury has already spoken on this issue so i will keep my remarks brief. we have to be honest and recognize that it has become more likely that public revenues from oil over the long term will be lower than we had previously expected. the uncertainty of future oil prices will affect public revenues through two channels. first, it is possible that oil production volumes will be lower if irreversible capital investments in the oil industry are delayed, as i discussed earlier. secondly, the public revenue earned from each barrel of oil pumped out of the ground will probably be lower. the latter effect could be very significant given that the government bears most of the risk of price volatility. of course oil prices could recover strongly over the long term thereby yielding substantial revenues for the government. but there is also a probability, which cannot be dismissed as negligible, that oil prices will not be high enough to enable government to earn much revenue from oil. as a consequence, there is a huge amount of

interventions by the bank of uganda have ensured that the interests of depositors have been fully protected, as was the case with the resolution of crane bank. this is in line with the mandate given to the bou under the financial institutions act, which priorities the safety of deposits. in that regard i do not understand why the economic update should have concluded that there are “ low levels of public confidence in formal financial institutions ” which discourage the public from holding bank deposits. this conclusion is not borne out by the rapid growth in both the number of bank accounts and the real value of bank deposits over the last 10 years. notwithstanding the strides made by the banking industry, it still faces major challenges. the cost of doing banking business is high, partly because the industry has not yet realised optimal economies of scale. page 4 of 8 as a result, annual operating costs average approximately 11 percent of income earning assets, which accounts for a major share of the large interest rate spread. spreads will only be reduced when banks can become more efficient and reduce their operating costs. i believe that automation and new technologies to deliver financial services will offer avenues for banks to reduce their operating costs over the medium to long term, although this will also expose banks to new forms of operating risks. banks may also be able to exploit synergies with other financial services, such as insurance, to improve efficiency. the economic update argues that the “ high cost and limited access to credit has become a binding constraint on uganda ’ s economy ”. while i do not dispute that bank lending rates are too high and need to be reduced in a sustainable manner over the long term, i do not think that this claim is really tenable. it implies that, if only banks and other financial institutions could lower their lending rates and expand the volume of their lending, substantial numbers of businesses in the real sector of the economy would be able to borrow money for page 5 of 8 investment in order to expand their output and thereby both service their debt and increase their incomes. unfortunately the conclusion that access to credit is the binding constraint on economic growth is premised on a rather over - optimistic view of the real sector and its borrowing capacities. formal sector, creditworthy businesses, which are the main business clients of the commercial banks, comprise a small share of the ugandan economy. there is a much larger pool of informal businesses and micro - enterprises, but the capacity of this sector to utilise credit effectively is constrained by a raft of problems, including scarcities