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National Economy Committee queries UGX 1.2 Trillion BoU loan request

Legislators are questioning continued BoU capitalization and management

Nakaseke, Uganda | THE INDEPENDENT | The National Economy Committee of Parliament has raised concern over the management and credibility issues at Bank of Uganda in light of a fresh loan request of USD 491 million.

The International Monetary Fund loan will see the Bank of Uganda (BoU) take US Dollars 340 million, (1.2 trillion Shillings) to maintain stability in the foreign exchange market by bridging the gap in the balance of payments position.

Another USD 31.5 million (19.68 billion Shillings) will be used as Budget support to finance government’s response plan to the COVID-19 pandemic including purchase of health supplies and supporting the vulnerable population while USD 120 million (455.9 billion Shillings) is to support the private sector that has been affected by the adverse effects of COVID-19 by boosting the lending capacity of Uganda Development Bank (UDB).

According to State Minister of Finance David Bahati, the balance of payments position is likely to deteriorate leading to a likely depreciation of the Shilling and increase in inflation. He added that COVID-19 is also expected to have an impact on the banking system with non-performing loans expected to increase from 4.7 percent to 5.9 percent.

The Minister says that COVID-19 has affected the country’s foreign exchange earnings following reductions in exports, tourism, remittances, foreign direct investments and portfolio investments.

Dr Jacob Opolot, the Director of Research in the Bank of Uganda told legislators that the interest-free loan with a grace period of 5 years and 6 months will help achieve stability in the foreign exchange reserves. He warned that failure to intervene due to lack of sufficient reserves would result in high depreciation of the Uganda Shilling, high inflation, increased cost of production for manufacturers and loss of confidence in the economy.

However, several MPs have noted that the Central Bank has continuously been recapitalized with enormous amounts of money for which they demanded to know how the funds were previously utilized.

Mwenge County MP Aston Kajara observed that the next financial year 2020/2021 budget already has 490 billion Shillings capitalization money for the Central Bank. He noted that it would be much more prudent to place the resources in the Uganda Development Bank.

Ruhinda North MP Thomas Tayebwa said that the Central Bank keeps making requests for hundreds of billions of Shillings in capitalization and is now using the pandemic to make another exorbitant request for funds ostensibly meant for economic stabilization.

These were supported by the Aswa County MP Reagan Okumu who argued that much as the justification of the loan was understood, the professionalism and management credibility at the Central Bank was lacking. Okumu said he was concerned about what he called recklessness at the BoU considering previous scandals at the institution.

Bahati assured MPs that the government had taken note of the management issues raised by a select committee of Parliament and revealed the government will be implementing structural changes at the Central Bank. However, he said that this would take time and should not be demanded as a condition to approve the loan.



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