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.

gentlemen, the design of prudential regulation plays an important role from a growth perspective. supervision is the guardian of financial stability, which in turn crucially determines the capability of the financial system to allocate resources efficiently and absorb liquidity shocks. financial crises can have a deep and protracted impact on economic growth, as illustrated by several episodes of financial instability that occurred in many countries. the contribution of prudential supervision to economic growth proceeds along two dimensions. from a preventive perspective, supervision has to ensure a continuous and comprehensive monitoring of all the potential threats to financial stability. the role of supervision is also crucial after the emergence of a crisis, in order to provide for a swift and ordered resolution. supervisors can only be effective in these two respects if they are able to pay sufficient attention to systemic issues, namely the risk of contagion effects. policy measures aimed at development of capital markets ladies and gentlemen, despite the threat of the recent global financial crisis, the zambian financial sector is currently resilient. the level of liquidity is also high, spurred largely by tighter lending conditions as banks slowed down on lending to the private sector. however, these developments also project the improvements in regulatory and supervisory oversight which continues to be updated. distinguished ladies and gentlemen, for zambia the vision is to become a prosperous middle income country by the year 2030. in order for us to attain this vision, there is need to improve the financial infrastructure in zambia. since 2004, the government has been implementing the financial sector development plan with the view to improve the functioning of financial markets and increase accessibility to financial services by a majority of zambians. the second phase of the fsdp is currently underway after the initial five - year plan lapsed. we cannot deny that an improved financial infrastructure will result in efficient capital and money markets which in turn will attract domestic and foreign investment in the economy. conclusion in conclusion ladies and gentlemen i would just want to emphasise that zambia and many of our regional counterparts are small countries in need of investment. however, the high cost of capital has hampered the increase in investment, particularly among the smes which continue to face enormous financing challenges. therefore provision of appropriate financing to this category of firms is likely to lead to higher investment opportunities and more efficient methods of production. in turn, this will translate into poverty alleviation due to employment creation. ladies and gentlemen you will agree with me that we have come a long way since the time when many viewed the financial system