Uganda needs to create 600,000 jobs for economic growth to be felt

In the recent past, BoU has had a few challenges, has this affected the financial sector?

The latest data we have for September 2018 shows that the financial sector is healthy. Banks are well capitalised, they are liquid, and they are profitable. We have some small banks that make losses and get capital injections. Non Performing Loans (NPLs) have declined and banks have become less averse to lending.We are starting another cycle of credit growth after a few years of it being sluggish. What is more important is that Bank of Uganda maintains strong regulation and supervision.

In 2018, we had a team from IMF that worked with Bank of Uganda to conduct a financial sector stability review and they found out that Bank of Uganda supervision and regulatory structures broadly follow international best practices. May be the key issue that they highlighted in terms of what needs to be improved is regulatory forbearance so that some kind of enforcement policy has to be strengthened. Another key recommendation is that BoU improves stress testing and BoU is already working on this. We also think they should continue working with banks to strengthen banks’ financial reporting and internal controls. This is because some of these factors had to do with the most recent bank failure. All in all, Bank of Uganda is doing a good job in ensuring financial sector stability.

Uganda has not had the Policy Support Instrument (PSI) programme for a few years now, why?

Uganda had been on our programme for a very long time. Since 2006 it was a non-financing programme. It was a programme where we would agree on a fiscal framework, macroeconomic objectives and work together discussing progress towards these objectives in light of how the macroeconomic picture was evolving. The PSI ended in summer 2017. The following year we engaged and discussed the principles of a successor programme. But at the time, we didn’t have much clarity on the intentions of the authorities. We decided to concentrate on the Article IV, and for the time being we are engaging closely with the authorities through the dialogues like the one we had recently.

There is this impression that that programme was critical signal to international lenders that they could lend Uganda. Did the programme have that value?

While it is mostly for these other international lenders to say, IMF programmes can traditionally help in that sense. But there are many other ways in which the IMF can help. It is true that we are saying there is no efficient fiscal anchor, and the IMF programme can be used as fiscal anchor (and it has been used as fiscal anchor in the past) but that is not only the fiscal anchor available. There are others.

When the Mobile money tax was introduced, the IMF and other development partners had concerns. What has been its impact and what lessons have we learnt?

Our concerns come from the fact that our thinking is that mobile money has been a game changer for Uganda. Mobile money has brought financial inclusion to Uganda. It has expanded access to financial services to rural areas and to populations that otherwise wouldn’t have it. Therefore we thought that taxing that would curtail financial inclusion, and that maybe there could be other ways to raise taxes. While the revision of the mobile money in the middle of the year to reduce the rate to 0.5 percent and only to cash withdrawals was positive, we still worry that the tax is likely to hit the rural poor disproportionally hard.

Do you foresee any pressures on the economy ahead of the 2021 elections?

In the report we note that we are already seeing more excitement. Uganda is not the only country in the world in which when there is an election, more resources are spent. These are some of the risks that come out and that the following year also might see more spending due to the elections.

Looking at the impact on the economy caused by spending that went into elections in 2011 and 2016, what is your advice to the managers of the economy?

It is important to plan well, prioritise, and make sure you mobilise all resources available. It is also very important to stick to that plan because if there are many surprises that come, that can have an impact in terms of increasing the cost of government debt, private sector loans becoming more expensive and then that can have an impact on local economy. So plan well and follow the plan. What is realistic, what is necessary, what are the priorities and what cannot be touched? From what we are seeing, social sector spending is something that should always be protected. You can always delay a road or a bridge but you shouldn’t be delaying health and education because if you do, it will be too late for young and sick Ugandans.

In the report, you project that first oil could come in 2023, what are the implications if we do not produce oil then?

The best place to look at that is the debt sustainability analysis. If oil is not produced, indeed the debt dynamics don’t look as nice. The whole macro-economic framework will look different. We always do the historical scenario, which is to ask what will happen if nothing new happens? If there is no oil, the situation will be more difficult. If oil comes late and we have a delay in exports, this could result in some liquidity pressures, as the current investments for the oil sector do rely on the enhanced repayment capacity that oil exports will bring.

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