##ible capital projects than would have been the case before the fall in global oil prices. it is likely, therefore, that the pace of capital investment in oil production and the associated infrastructure will be slower than had been anticipated before the global oil price fall. the uncertainty about the future path of oil prices will also have implications for private investment decisions in the non oil sectors of the economy. oil revenues expand the national income of a country. an increase in national income raises demand for consumption and investment goods. the demand for traded consumption and investment goods can be met through higher imports, but the demand for non traded goods, such as most services and housing, can only be met from domestic production. hence to enable the economy to maintain internal balance, between supply and demand, the structure of production within the economy must shift in favour of industries which produce non traded goods. the larger is the increase in national income derived from oil revenues, the greater the shift in the structure of production from the traded goods sectors to the non traded goods sectors. to bring about this shift in the structure of the economy, there must be capital investment in the non traded sectors, together with a reduction of investment, or even disinvestment, in the traded goods sectors. this shift in the production structure of the economy is facilitated by an appreciation of the real exchange rate, entailing a rise in the prices of non traded goods relative to those of traded goods, thereby making non traded goods production more profitable and traded goods production less so. private investors have incentives to invest in the non traded goods sectors because they expect demand for non traded goods to increase in the future when the country begins to spend its oil revenue. the global price of oil has important consequences for national income. in essence the bulk of the national income derived from oil takes the form of public revenues, because the oil companies themselves are foreign. production sharing agreements in the oil industry are structured so that most of the risk of price volatility is borne by public revenues. a fall in global oil prices translates directly into a fall in public revenue and hence a fall in national income. consequently, the uncertainty about the level of future global oil prices also translates into uncertainty about the amount of national income that will be derived from oil and hence the magnitude of any future rise in demand for non traded goods in the ugandan economy. with future demand being more uncertain, private investors have incentives to delay irreversible investments in these sectors. this will not be offset by any

increase in private investment in the traded goods sectors of the economy, because the future viability of these sectors is also uncertain. as a result, we can expect the uncertainty about future global oil prices to have a negative impact on private investment, which in turn will cause real economic growth rates to be lower than they would otherwise have been. bis central bankers ’ speeches the uncertainty about oil prices also has implications for the exchange rate. increased national income and expenditure as a result of the exploitation of natural resources leads to real exchange rate appreciation. economic agents will, therefore, expect that the exchange rate will be more appreciated in real terms in the future, when the country begins to spend its oil revenue. if the exchange rate is expected to appreciate in the future, it will actually start to appreciate now, as rational investors purchase assets valued in the domestic currency. the more uncertain outlook for oil prices has almost certainly led economic agents to revise their expectations about the path of the real exchange rate in the long term, which in turn will affect the exchange rate now. i think that it is very likely that this is one of the reasons why our exchange rate came under strong pressure in the final quarter of 2014 and in january of this year. 3. fiscal policy finally, i want to discuss the implications of oil price uncertainty for fiscal policy, which is crucial for macroeconomic stability. as i have noted, most of the national income earned from oil accrues to the government in the form of public revenue. the secretary to the treasury has already spoken on this issue so i will keep my remarks brief. we have to be honest and recognize that it has become more likely that public revenues from oil over the long term will be lower than we had previously expected. the uncertainty of future oil prices will affect public revenues through two channels. first, it is possible that oil production volumes will be lower if irreversible capital investments in the oil industry are delayed, as i discussed earlier. secondly, the public revenue earned from each barrel of oil pumped out of the ground will probably be lower. the latter effect could be very significant given that the government bears most of the risk of price volatility. of course oil prices could recover strongly over the long term thereby yielding substantial revenues for the government. but there is also a probability, which cannot be dismissed as negligible, that oil prices will not be high enough to enable government to earn much revenue from oil. as a consequence, there is a huge amount of