caleb m fundanga : the mdg - consistent monetary policies talking notes by dr caleb m fundanga, governor of the bank of zambia, at the official opening of the undp organised workshop on macroeconomic analysis and modelling in support of millenium development goals - based planning, lusaka, 29 october 2007. * * * introduction first and foremost, i would like to thank the undp through the resident representative, mr aeneas c. chuma, for inviting me to say a few remarks at the opening of this important international workshop on “ macroeconomic analysis and modelling in support of millennium development goal ( mdg ) - based planning ”. let me also welcome you all, especially those who have traveled from other countries to come and attend this workshop. i understand that the aim of this workshop is to strengthen the foundation laid for mdgbased planning processes in africa on the issues of pro - poor polices and macroeconomic modelling and to explain what an mdg - consistent medium - term expenditure framework ( mtef ) is all about. the workshop is also intended to sensitise and enhance your knowledge of pro - poor policies in the context of mdg - based planning and strengthen understanding and skills in mdg - consistent macroeconomic modelling and mtef. furthermore, at the end of the workshop, participants should be able to : • better understand the linkages between macroeconomic programming and strategic planning ; • plan steps to be taken with respect to sustainable capacity development for macroeconomic modelling and strategic budgeting at various country levels ; and • strengthen the national ownership and leadership in mdg - based planning and implementation process. mr chairman, central banks the world over have a critical role to play in a country ’ s economic development. as you may all be aware, central banks ’ monetary and supervisory policies are implemented to ensure that there is price and financial system stability to promote macroeconomic development. in this regard, monetary policies or any other policy for that matter that are not consistent with the mdgs in the current macroeconomic dispensation should be considered irrelevant to the welfare of our countries. it is for this reason that, without exception, monetary policies in the developing countries have to be mdg - consistent. price stability the primary objective of most central banks is price stability, which is achieved through the implementation of appropriate monetary policy. high inflation is a major source of concern to any country as it poses a threat to economic development. it is in this context that a central bank ’ s

economy. therefore, there is an intimate relationship between capital on one hand, and economic development on the other. in order to promote economic growth, financial institutions have the primary responsibility of ensuring that capital is allocated to the most productive projects which assure the highest return possible. thus, the main mechanisms of growth stem from the improvements in the functioning of financial markets, and the effect this has on transforming risks and maturity of assets and liabilities of which capital markets development plays an important role. ladies and gentlemen, even as the private sector takes centre stage in this process, the government also has an important role to play. the absence of government means that financial markets operate without proper regulatory structures. without a formally regulated financial system, informal financial markets tend to fill in the gap but at sub - optimal levels with high transactions and other related costs. as a result, there is less efficient allocation of capital which in turn translates into low levels of economic growth as investment funding is limited by the cost of transactions. therefore, efficient capital allocation relies chiefly on a properly functioning financial system, which enables firms and households to share risks and also facilitates the transformation of more liquid liabilities into illiquid but productive investments. instruments and the structure of capital markets distinguished ladies and gentlemen : looking at the objective of every economy, it is clear that all countries develop the depth and breadth of their financial markets to meet the needs of the real economy. this includes making a wide range of choices available to investors and issuers of securities in fixed - income and equity markets. bond issuers, for example, would ideally be able to issue a variety of maturities with both variable and fixed rates. money markets : the market for securities of less than one year includes government and central bank bills, repurchase agreements of government paper ( repos ), commercial bank certificates of deposit, corporate commercial paper and trade finance instruments such as bankers ’ acceptances. these markets, in their inter - bank or over - the - counter ( otc ) form, have been in existence for a long time in many countries. a newer phenomenon, however, has been for these instruments to be listed on organized stock exchanges and for central banks to increasingly conduct monetary policy through open market operations in these instruments. ladies and gentlemen, in developing economies debt markets which include public entities ( ministries of finance, central banks and specialized government agencies for housing, agriculture, export and industry ), are the most creditworthy borrowers and generally dominate the issue of local currency debt.