the sector to avoid a decline in output. moreover, they also find that investments which raise productivity in agriculture also boost manufacturing growth, because agriculture is an important source of intermediate inputs for manufacturing. 2 uganda currently only allocates about 3. 5 percent of the government budget directly to agriculture. raising budgetary allocations to agriculture and for investment in rural areas should be a strategic priority. whether or not public spending on agriculture actually contributes to improving agricultural productivity depends on the nature of the spending. there is strong empirical evidence from around the world to indicate that the provision of public goods and services, which are defined as goods and services which because of their character cannot be supplied optimally by the market, have a large positive impact on agriculture with potentially very high social rates of return, if well designed and implemented. 3 examples of the type of public goods and services which are relevant for agricultural development in uganda include : i ) agricultural research and development, to produce improved farm technologies such as high yield seeds and to determine the optimal farm technologies for the conditions prevailing in uganda ; ii ) agricultural extension services to provide information and technical advice to farmers to adopt good agricultural practises and to use appropriate purchased inputs ; this can help farmers raise their yields ; iii ) the construction and especially the maintenance of rural feeder roads to reduce the cost of transporting agricultural produce to markets and raise farm gate prices ; in the data are from “ agriculture for inclusive growth in uganda ” inclusive growth policy note 2, world bank, 2012. lawrence bategeka and john matovu ( 2011 ), “ oil wealth and potential dutch disease effects in uganda ”, economic policy research centre. the evidence is surveyed in enrique blanco armas, camilo gomez osorio, blanca moreno dodson and dwi endah abriningrum ( 2012 ), “ agriculture public spending and growth in indonesia ”, policy research working paper 5977 world bank. bis central bankers ’ speeches terms of encouraging farmers to produce more output for their market, investment in rural feeder roads is more important than investment in main roads ; iv ) the provision of veterinary services and the control of plant diseases ; controlling animal and plant disease is an activity with very large positive externalities ; v ) the provision of market information, for example price information, to help farmers make more informed decisions about which crops to grow and to strengthen their ability to negotiate prices with traders. vi ) clarifying and strengthening land rights and the security of land tenure, to improve incentives for farmers to invest

such as treasury bills and bonds through regular auctions. issuing local currency instruments on the domestic market is the optimal vehicle for raising private sector finance for the budget. with such instruments auctioned in competitive market and actively traded in the secondary market, their pricing is relatively cheaper than other forms of debt such as commercial bank loans. the main investors in local currency denominated government bonds are pension funds, insurance companies, commercial banks and, to a lesser extent, offshore portfolio investors. all of these investors are acutely aware of the need to balance risk with competitive rates of return. the main risk facing investors in local currency bonds is that the government ’ s fiscal position becomes unsustainable, such that it either defaults on its debt or has to resort to inflationary finance to service its debt, which would then erode the real value of the debt. hence to mitigate these risks, government must be able to demonstrate, in a credible manner, that it will not allow its fiscal position to become unsustainable. to generate confidence in the sustainability of public finances, governments should formulate their budgets within a medium term fiscal framework which clearly shows the path of the fiscal deficit over at least the next five years and the associated path of public debt. a fiscal framework in which fiscal deficits are so large as to require continuously rising public debt to gdp ratios will be perceived as being unsustainable and is, therefore, not conducive bis central bankers ’ speeches to mobilising long term finance from the private sector except at very high interest rates. therefore, the prerequisite for mobilising long term finance for infrastructure projects is a prudent fiscal framework, in which the future path of public debt remains comfortably within sustainable levels. the most important message which i want you to take from my remarks this morning is that any consideration of mobilising finance for infrastructure by governments must take place within a framework of fiscal sustainability. the second category of infrastructure project is that of commercial projects. these are projects for which it is feasible, and usually optimal, to sell the services produced by the infrastructure directly to the users, with the tariffs charged covering the full cost of producing the service, including its debt servicing. they include electric power generation and port facilities. such projects are usually owned by separate legal entities from government ; e. g. limited liability corporations. increasingly in east africa, as elsewhere in the world, the corporations which own and manage these projects are owned by the private