directives. this case also highlights the link that must exist between deposit insurance and the lolr function. part of the rationale is to prevent and stop runs. but at the end of the day, that only works if bank liabilities are flowing to a central bank that has the mandate, willingness, and capacity to recycle them against collateral and expand its balance sheet as needed. this means that, in the absence of arrangements for currency swaps, it must take place mostly in the same currency in order to work. so the bottom line is that a sovereign default was avoided in spite of an almost unprecedented financial collapse and the worst economic recession since the interwar years. a key to that result was the attempt to ring - fence the sovereign from the collapse of these three cross - border private banks. however, the avoidance of default during such a severe crisis does require the willingness to use the means available to avoid that outcome and the ability to endure the temporary hardship that might come with it. even if the icelandic authorities tried to avoid the socialisation of private sector losses in the case of the collapse of the three - cross border banks, the direct fiscal costs of the financial crisis were enormous. in this case, it is difficult to distinguish between the cost of the banking crisis and the recession that would nevertheless have occurred in iceland in 2009, as a result of the unavoidable macroeconomic adjustment following the serious overheating of the economy in 2005 – 2007. be that as it may, the direct fiscal costs of capital injections into domestic banks, losses on government guarantees, the blanket guarantee of domestic deposits, and the refinancing of the central bank are estimated to have amounted to onethird of year - 2010 gdp. the net might turn out to be somewhat lower, however ; for instance, there will be some recovery on the collateral of cb lending to failed banks. gross government debt went from under a third of gdp before the crisis to a peak of one gdp, and net debt rose from around a tenth to two - thirds. as a result, there was no fiscal space to save banks 10 times gdp, and attempting to do so would have bankrupted the country. indeed, iceland had to embark on a medium - term fiscal consolidation programme even as output was still contracting, in order to stop government debt from reaching an unsustainable level and to rebuild the external confidence needed for the sovereign to regain market access. the overall fiscal effort ( measured by changes in

and credit recovery. the latest stress tests indicate that the banking system can withstand shocks. as the current credit expansion cycle gains momentum, bou remains focused on maintaining strong supervision to ensure that banking sector loans and advances do not drastically worsen if the economic growth momentum unexpectedly slows down. although bank supervision and regulatory structures broadly follow international best practices, bou has stepped up the strengthening of commercial banks ’ financial reporting, internal controls, and governance. weaknesses in page 3 of 5 these areas were at the core of the most recent commercial bank failures. despite strong economic performance since the early 1990s, uganda ’ s financial sector remains shallow. private sector credit could play a bigger role in supporting growth that is the case at this moment. private sector credit remains low at 12 per cent of gdp. although large corporates have access to credit on more favourable terms, smaller firms in need of financing have limited options. they often do not meet financial accounting standards that would facilitate access to long - term capital. a law to allow movable assets as collateral has been passed. however, legal uncertainty over property rights and lengthy proceedings to recover collateral continue to weigh down on banks ’ credit risks. the stock market remains largely untapped with only 9 listings of domestic companies and rather limited trading in the shares of those that are listed. on a more positive note, around 85 per cent of ugandans have access to financial services, including through mobile money. the bou together with other stakeholders is implementing a five - year financial inclusion strategy so as to improve financial literacy, develop the credit infrastructure and promote formal savings, investment, and insurance while ensuring consumer protection. in 2018, access to financial services benefited from the introduction of agency banking. uganda has recently issued regulations for islamic banking and preparations are underway for the introduction of the first islamic financial products. the bou in collaboration with page 4 of 5 other stakeholders is working towards adopting the national payments system act, which will provide a legal basis for bou to supervise the mobile money sector and support modernise of the financial system. in conclusion, uganda has made impressive development gains over the last 3 decades, while maintaining macroeconomic stability. the prudent approach to fiscal and monetary policy has served the country well. the challenge is to build on this momentum so as to achieve economic take - off in the next few years. page 5 of 5