emmanuel tumusiime - mutebile : bank of uganda highlights its board ’ s achievements speech by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the farewell dinner for board members, kampala, 1 june 2012. * * * distinguished board members and your families, the deputy governor, senior management of the bank, ladies and gentlemen on behalf of the management and staff of the bank of uganda, i wish to welcome you all to this occasion to bid farewell to our board members whose term of service comes to an end in june 2012. for the last five years, the bank has been blessed with a formidable board of directors who has carried out its mandate of providing oversight of, and guidance to, the management of the bank with integrity, intelligence, wisdom and an unwavering commitment to the public interest. the vision and stewardship provided by the board has enabled the bank to strengthen the implementation of its core mandate of macroeconomic management and financial sector regulation and to implement many projects which have enhanced the capacity of the bank to serve the people of uganda. i would like to take a few minutes to highlight some of the board ’ s achievements. strategic planning and management the board approved the bank of uganda strategic plan for 2012 – 2017, which guides the long term policies and direction of the bank. it is based on the balanced scorecard approach which is at the cutting edge of international best practice. monetary policy under the board ’ s leadership, the bank has modernised its monetary policy operating framework. this has entailed the introduction of an inflation targeting lite monetary policy framework, the centrepiece of which is the policy rate – the central bank rate – which i now announce at the start of every month. over the past 11 months, we have successfully used our new monetary policy framework to bring inflation under control. our monetary policy operations have also been made much more transparent, to enhance public understanding of our actions and objectives. financial system regulation and supervision with the guidance of the board, the bank has modernised its approach to the prudential supervision of banks, in particular through the introduction of risk based supervision. the bank has also upgraded many aspects of the banking laws, including by raising minimum capital requirements and strengthening the regulations pertaining to the corporate governance of banks. bis central bankers ’ speeches human resource policies and staff welfare the board has prompted the bank to introduce progressive human resource and staff welfare policies. in particular, the bank has established a merit driven

and security policy. so far, there have been no severe functional disruptions in the financial system. but the situation on financial markets has certainly changed : financial conditions are tightening, risk aversion is increasing, and uncertainty is high. the sources of risks have shifted as well. risks in commodity markets, for example, and vulnerabilities with regard to interest rate risk require monitoring. hence, we cannot rule out the possibility that markets are underestimating the impact of geopolitical risks. severe tail events may not be fully reflected in market valuations. fundamental uncertainty is high, and this uncertainty cannot be priced in objectively. sufficient buffers against unexpected losses must be available within the financial system. the relatively good state of the financial system to date is partly the result of expansionary public policies during the pandemic. but the adjustment to geopolitical risks will be different from adjustment to the coronavirus shock. fiscal space and the potential for monetary accommodation will both be more limited going forward. [ 13 ] appropriate micro - and macroprudential buffers thus need to be available within the financial system to account for higher risks and fundamental uncertainty. iii. the financial system needs preparation for a period of accelerated structural change. structural change in the real economy is likely to accelerate in response to the current geopolitical situation. there have been three de - globalisation shocks in a row over the past five years : intensified trade disputes between the us ( united states ) and china ; the coronavirus pandemic, which has exposed vulnerabilities in global value chains ; and, more recently, the russian war against ukraine as well as lockdown measures in china. these shocks are changing the nature of globalisation and of international cooperation, with potentially severe implications for the real economy. one important driver of structural change is climate change. internalizing climate - related externalities requires an adjustment of relative prices. eventually, implicit subsidies to the real economy arising from the underpricing of climate externalities and of energy security need to be withdrawn. moreover, according to the international panel for climate change ( ipcc ), an increase of today ’ s annual investment by a factor of three to six would be needed to limit global warming to 2°c or 1. 5°c. all this places demands on the financial sector. raising funds and allocating them across investment projects is more challenging in a period of structural change and high uncertainty than during tranquil times. and, if the transition