themselves from borrowing from abroad, to borrowing from the domestic banks. the limited capacity for domestic banks to meet the new domestic credit demands suggests a threat to maximum growth of africa ’ s trade. accordingly, this suggests a need for mdbs to provide lines credits to domestic financial institutions, to increase their capacity to deal with this new development. capital inflows the global crisis is reversing the recent upward trend in capital inflows to africa. the stagnation and in some cases, decline in private foreign capital inflows a need for the mdbs and the g20 to increase development assistance to africa in amounts that should be adequate to offset the projected shortfalls in the balance of payments in both the short -, medium - and long - run. shortage of infrastructure financing the severe shortage of key infrastructure in africa is a key constraint to supporting high productivity and economic growth in the continent, as well as increased access to markets. this suggests a critical need for mdbs and the g20 group of countries to increase access to investment finance for african economies by scaling up and targeting development assistance to bridge the infrastructure gap. access to finance for smes many smes in africa lack access to long - term finance to support large - scale activities. mdbs could assist local domestic banks to build capacity by providing lines of credits aimed at addressing the financing needs of smes, especially during this time of tight access to international credit markets following the global crisis. measures to support domestic savings mobilization mdbs need to support domestic efforts aimed at increasing and strengthening domestic resource mobilization to augment the aid and other development efforts. accordingly, it is important that mdbs support the development of the domestic financial sector is to enhance domestic resource mobilization, with a focus on promoting its efficiency and deepening. stabilization funds the persistent swings in commodity prices as well as terms of trade for many african economies, and the global recession, suggest a need for mdgs to put in place stabilization funds to finance countercyclical measures. additional policy measures need to be tailor - made to address the downward risks to growth as discussed above. key among these include external sector policy measures aimed mitigating the decline in the demand for exports of africa and other developing countries, especially from industrial countries. it also requires measures to address the adverse effects of the terms of trade. in the case of uganda, the government has decided to consolidate its public infrastructure investments in roads and energy to increase productivity by reducing the costs of doing business and to increase exports

bank, as has occurred in uganda. a second aspect of the institutional arrangements for monetary policy which is critical for the efficacy of an itl framework is the absence of fiscal dominance. what does “ fiscal dominance ” mean in this context? for an inflation targeting central bank it is imperative that the government does not systematically borrow from it to finance the budget, because this risks undermining monetary policy. hence if government is to support the introduction of itl, it must be prepared to fully fund its domestic borrowing from the market, and avoid borrowing from the central bank. preferably there should be constraints on government borrowing from the central bank set out in legislation. in uganda we have such an agreement in principle to this effect with the ministry of finance, but in practice it has not always been fully complied with. bis central bankers ’ speeches policy objectives the monetary policy anchor in an itl framework is a publicly announced inflation target. consequently inflation must be the primary objective of monetary policy if the anchor is to play a meaningful role in monetary policy and to ensure that monetary policy has credibility with the public. our primary objective in uganda is to hold annual core inflation to an average of 5 percent over the medium term, which we interpret as being over a period of 1 – 2 years. having inflation as the primary objective of monetary policy means that controlling inflation must take precedence over any other objectives, but it does not rule out the central bank having secondary objectives for its monetary policy, provided that the secondary objectives are subordinate to the primary objectives. the secondary objective of the bou ’ s monetary policy is to align real output as close as possible with the estimated potential output of the economy, although there are practical difficulties with estimating potential output. why does the bou target core inflation, a measure of inflation derived from a basket which excludes food crops, fuel, energy and utilities, instead of headline inflation which includes all of the items in the consumer basket? of course, the consumer cares more about headline inflation than core inflation. the reason why we target core inflation is that we have potentially better control over core inflation than headline inflation. the goods and services whose prices are excluded from core inflation are generally more volatile and more subject to supply price shocks than are other prices in the consumer basket. because the prices of food crops and fuel are mainly determined by developments on the supply side of the market, such as the abundance of the harvest, they are largely outside of the control of monetary policy. this was articulated very succi