njuguna ndung ’ u : public debt, fiscal policy and forward looking monetary policy keynote address by professor njuguna ndung ’ u, governor of the central bank of kenya, at the 2nd annual research seminar of the kenya school of monetary studies research centre, kenya school of monetary studies, nairobi, 18 november 2014. * * * invited guests ; chairman of the central bank of kenya board of directors ; members of the monetary policy committee ; researchers ; distinguished guests ; ladies and gentlemen : good morning. it gives me great pleasure to be here this morning at the official opening of the research seminar on “ public debt, fiscal policy and forward looking monetary policy ” organized by the research centre at ksms. as you are aware this is the second time we are gathered here to discuss the research findings of our researchers. a look at the papers in today ’ s program shows that they are as a result of collaborative effort of researchers in the bank and other esteemed institutions. collaborative and comprehensive research is key to good policy advice work. ladies and gentlemen, the title of this research seminar touches on a very important and current topic. looking globally, a number of countries are going through a time of hardship. public debt is a real economy problem when not sustainable. when public debt is unsustainable, it creates a debt overhang problem with the effect that the private sector believes the government will raise taxes in future to pay the public debt. the effect is on private investment since the private sector acquires a waiting option and finally, these effects slow down growth. thus, the most important challenge to debt sustainability and this will restore growth trajectory to dislodge the market from this waiting option. to achieve this objective many difficult and far - reaching decisions have to be taken. against this backdrop, forums such as this one are essential for sharing ideas. after all, scientific research is a central pillar of good decision - making. therefore, i would like to thank the kenya school of monetary studies for organising this event. why public debt, fiscal policy and forward looking monetary policy? my starting point is to draw our attention to the principal objective of macroeconomic policy, which is to achieve sustainable economic growth in a context of macro stability. to achieve this, monetary and fiscal policies have to play their roles and their success is largely dependent on how they anchor public expectations. ladies and gentlemen, there are interesting studies on fiscal policy and economy growing with debt ; and monetary policy and fiscal dominance. they

a single market act ii will follow by the end of this year. but there are many other ongoing initiatives, some of which had been started even before the outbreak of the financial crisis. europe ’ s new supervisory structure has been developed in acknowledgement of the fact that the financial system of the eu is now very much interconnected, and the externalities arising from it are no longer confined to the national level. there is also a comprehensive set of new legislation which aims to reform financial market regulation, covering not only the trading level, but also – for the first time – the infrastructure for clearing and settlement. bis central bankers ’ speeches all these initiatives aim to create a level playing field in europe, to remove barriers to competition, to facilitate cross - border business, and ultimately to strengthen the process of financial market integration. however, we should not forget that financial market integration needs to be complemented and supported by the integration of the underlying infrastructure. the eurosystem ’ s most fundamental contribution to integration in this field is the creation of t2s. t2s is therefore part of this important integration process. it brings to it an operational dimension. it provides the integrated infrastructure necessary for creating a single market for settlement services in europe. for this reason, the european authorities, and in particular the ecofin council, have expressed their support for this project on more than one occasion. today ’ s event is therefore not only important for the market participants involved, but also for europe. i would like to warmly congratulate the csds that are here with us today and have signed the t2s framework agreement. without your valued support and active participation, t2s would simply not have been possible. i would also like to congratulate all those involved in the governance of t2s. it is thanks to the combined efforts of all the t2s governing bodies that we have been able to reach this milestone in the project. today ’ s signing of the t2s framework agreement will mark the start of an entirely new phase of the project. from now on, the eurosystem and the csds will be even more closely united in this mutual enterprise. the staff of our respective organisations will increasingly need to work together – like a single team – for the success of t2s. the time between now and the launch of t2s will pass by quickly. much has already been achieved, but much of the hard work still lies ahead. i am confident that our common t