njuguna ndung ’ u : launch of the reconstituted market leaders forum talking notes by prof njuguna ndung ’ u, governor of the central bank of kenya, at the launch of the reconstituted market leaders forum, nairobi, 6 july 2011. * * * distinguished chief executives ; directors ; members ; ladies and gentlemen : 1. thank you all for finding time to attend this inaugural meeting of the reconstituted market leaders forum. 2. as background information to our meeting today, i wish to mention that the market leaders forum, popularly known as mlf, was formed in 2001 to promote and support the development of the government bonds program. the membership of the forum was drawn from stakeholders in the government securities market that included commercial banks, fund managers, stockbrokers, investment banks and capital markets authority. 3. the forum meets monthly and is chaired by the governor, central bank of kenya. the meetings of the forum are purely consultative. the bank takes into account the recommendations of the mlf in making decisions on bonds issuance, pricing and tenors and on other issues relating to the financial markets, and more specifically government securities market. but it is also a good meeting to discuss macroeconomic situation policy issues. achievements 4. since its inception, the forum has contributed significantly to the deepening and development of the financial markets in kenya. through the cooperation and support of the forum the financial market has realized great milestones including : i. lengthening of debt maturity profile : the initial objective of the mlf was to lengthen the maturity profile of securities in the domestic debt portfolio in order to minimize refinancing risks associated with short term debt and to also deepen the local financial markets. this has successfully been achieved with the ratio of treasury bills to bonds in the portfolio currently at 23 : 77 from 70 : 30 in 2001 and average maturity of all securities standing at 5 years 11 months up from 8 months in 2001. the average maturity for bonds alone is 8 years so far. in 2008, cbk issued the first long - dated paper of 20 - years maturity. this was followed by successful issuance of a 25 - year bond in 2010 and a debut 30 - year savings development bond in 2011. ii. secondary market infrastructure development : in 2008, the cbk in partnership with the nairobi stock exchange adopted the automated trading system ( ats ) for treasury bonds. the adoption of ats has improved efficiency and confidence in the secondary bond market with

and the requirements of competition on an increasingly demanding international market. at first glance, there are few connections between the changeover to the euro and labour market flexibility. in fact, the connection is strong, even essential, i would say. before proceeding to a more in - depth analysis of the topic, allow me to clarify an issue that was subject to previous public debate. the national bank of romania has nothing against wage hikes. quite the opposite, we might say. the romanian economy could only benefit from an increasingly fast rise in wages, in order to enjoy a higher living standard, surmount the historical disparities that separate us from the western economies and put a stop to labour force migration. nonetheless, we must analyse with a clear mind and assert bluntly that a mismatch between pay rises and labour productivity gains is unsustainable. wage hikes in excess of labour productivity are not likely to bring about a higher living standard, but on the contrary, they may lead to a lower living standard, given that, sooner or later, the disparity between the two fundamental indicators will entail a fast - paced rise in prices, the weakening of domestic currency, external indebtedness. all this has a negative influence on investment and delays the achievement of real convergence of the economy rather than speed it up. over the past few years, annual productivity gains came in at impressive 10 % and beyond each year. multiple factors stood behind this performance, such as the initial low level, the significant decline – even if not always illustrated by statistical indicators – in the population working in agriculture and, highly important, the strong increase in investment. however, this increase was exceeded by far by the wage hikes, which explains the sizeable widening of the external deficit, as well as the increasing inflationary pressures over the past year and a half. so, we embark upon this path, carrying a serious burden on our shoulders. i wonder what will happen the moment the increase in labour productivity slows down. such a trend is closely connected to economic rigidities, the infrastructure - related issues, the slowdown in economic restructuring. in view of all these issues, the nbr does not embrace the idea of slowing down wage increases, but rather it advocates the creation of conditions likely to render this hike sustainable and maintain its actual nature. after all, from a nominal point of view, there is no limit to increasing wages. however, the market will admit only pay rises matched by labour