##rbates the fiscal constraint and adversely impacts on the growth potential, especially for poor and developing economies. 6 krugman, p. 1988. financing vs forgiving a debt overhang. journal of development economics. p253 - 268. 6 ajayi, r, 1991, on the simultaneous interactions of external debt, exchange rates, and other macroeconomic variables : the case of nigeria, available at https : / / msuweb. montclair. edu / ~ lebelp / cerafrm026ajayi1991. pdf. page 4 of 11 second, does the level of indebtedness matter for economic growth? reinhart and rogoff7 argue that growth rates decline significantly when public debt ratios exceed 90 % of gdp. this assertion set in motion the ‘ threshold debate ’, with some critics pointing out that reinhart and rogoff ’ s findings were modestly inflated 8, 9. a decade later, concerns about rising debt metrics have resuscitated the ‘ threshold debate ’. the imf10 and later papers by reinhart and rogoff have concluded that increased debt does indeed lower the level of economic growth, albeit with a somewhat lower impact than was stated in earlier studies. 11 as claessens et al. point out, large external debt and its associated service obligations can affect economic performance through the ‘ crowding out ’ effect, the impact on a country ’ s ability to access international financial markets, and its impact on confidence levels. 12 it is worth pointing out that the ‘ crowding out ’ effect also applies to localcurrency public debt, especially where banks end up recycling depositors ’ money into government bonds rather than on - lending for productive investment purposes. finally, it would be remiss of me not to highlight that high indebtedness also presents risks to the implementation of monetary policy and financial stability. a high level of public debt also raises the risk of fiscal dominance. this is where monetary policy is subordinated to keeping the debt servicing burden manageable, at the expense of price and financial stability. we are faced with a myriad of challenges that require a delicate balance between novel ideas and solutions on the one hand, and the prudence required for sustainability on the other hand. 7 reinhart, c m and rogoff, k s, 2010, ‘ growth in a time of debt ’, american economic review, 100 ( 2 ) : 573 – 78

mandated to negotiate the eamu protocol. the east african monetary union is currently being negotiated by the partner states. the hltf is preoccupied with negotiating policy issues of the monetary union integration, especially the creation of common frameworks across the member countries in order to facilitate the institutional arrangement envisaged in the process towards the eamu. ladies and gentlemen : it is within this context that two separate studies were identified under the “ analytical and harmonization platforms ” of mac ’ s priority activities. the first study is on the “ harmonization of the monetary policy framework for the eac partner states ” being undertaken by the international monetary fund ( imf ) and the second study is on the “ exchange rate arrangements in the eac ” being undertaken by the international growth centre ( igc ). the two institutions have undertaken the studies in collaboration with partner states central banks, and we are really grateful for this technical support. bis central bankers ’ speeches since the inception reports, the final report of the two studies we are reviewing today is a culmination of a lot of work at the technical level. there was a meeting held in august 2011 here in nairobi to review the progress, besides the various presentations and feedback during the different ordinary and extra - ordinary mac meetings. this attests to the quality of output expected from these two studies. distinguished delegates : i believe that there is a great wealth of experiences and ideas to be shared in this workshop given the diversity in the knowledge base of participants gathered here. by the end of this workshop, we shall have a better understanding of how the region ’ s exchange rate arrangements can be aligned to a common regime and how monetary policy frameworks can be harmonized in the process of the envisaged east african community. with these few remarks, ladies and gentlemen, i declare this workshop open and wish you fruitful discussions. thank you. bis central bankers ’ speeches