Bank of Uganda losses worry MPs

By Edwin Muhumuza

The parliamentary Finance committee has expressed concern as to why Bank of Uganda is making losses , a trend that is affecting the national reserves.

The committee heard that the central bank had invested Uganda’s reserves in Europe ,a move which did not yield any profits following the negative interest rates.

The revelation was made by officials led by Dr. Adam Mugume, Executive Director of Research, at Bank of Uganda while appearing before legislators to account for another 450bn shillings for re-capitalization.

Mugume told the committee that currently Uganda’s reserves have been invested in the United states of America,whose market offers an interest rate of 2%.

This though did not go well with members of the committee chaired by Hon.Paul Musasizi ,Member of Parliament, Rubanda County East Kigezi Sub Region amid concerns stemming from the conservative investment approach of the central bank with eyes on overseas financial markets.

Uganda has reserves now amounting to US $32billion but these could be swept away in a blink of an eye following poor investment decisions, warned the director of research.

During the interface, Amos Lugolobi ,a member of the committee and chair of the budget committee of parliament wondered why the central bank was adding to Uganda’s debt burden with such demands even after over 200bn was advanced to the bank in the previous financial year for re-capitalization.

Among the central bank’s expenses include monitory policy infrastructure, increased use of garnish orders, and high costs of currency infrastructure.

The Auditor General’s report 2018 notes that Uganda’s debt to GDP ratio of 41 per cent is still below the International Monetary Fund (IMF) risky threshold of 50 per cent and compares well with other East African countries. However economic analysts challenge that figure stating that the country is already well above the threshold with estimates at 55% which they say is unfavourable compared to national revenue collected which is the highest in the region at 54 percent”.

Concerns have always been about the sustainability of debt, taking in more commercial loans, whose conditionalities are probably not very conducive for Uganda as a developing country.

Meanwhile Parliament has resolved to have a national dialogue with officials from Bank of Uganda and the ministry of finance about the fate of Uganda’s economy more so over the ever increasing national debt as a result of multi-year programs that need constant funding as well as supplementary expenditure.

UDB scores highly in Fitch rating

By Edwin Muhumuza

Uganda Development Bank (UDB) ranks ‘B+’ according to the latest credit rating by Fitch, a top international credit rating agency.

A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.

The state owned development Bank and its issuer default ratings are driven by its support rating floor of ‘4’ and ‘B+’, respectively, which reflects Fitch’s view of a high propensity of government to support the bank when need arises especially due to its policy of financing Uganda’s priority areas, full-state ownership, significant funding guarantees and ordinary capital contributions from the state.

The managing Director, UDB, Patricia Ojangole notes that they intend to use the credit rating to increase funders’ confidence in the bank and thereby increase the banks chances of raising capital.

Currently the authorized capital contribution to the bank stands at shs.500 billion but so far government has put in 274 billion shillings, Ojangole said.

The head of Risk and Compliance Moses Ebitu, said the credit rating is good in that it raises the horizon of borrowing but also lowers the cost of borrowing which translates to the cost of facilities they offer and so they look to borrow from multinationals and then extend it to clients.

‘This rating speaks to a lot of things, a combination of different factors including how the bank is run and managed. Regardless of how good UDB may be, they can only be ranked to the extent of the support that government offers.’added Ebitu.

The bank has operations covering the entire country but without retail branches because they finance their own operations without government support for operating costs according to the officials.Government had committed to fund the bank up to 2022 but they hope that government fast tracks funding before then.

‘When the bank’s capital base significantly increases then they will be able to increase their nation-wide reach with time, and Ugandans will be able to access the money they want’, according to Ojangole.

Fitch Ratings of B+ on Uganda. cites the country’s high levels of infrastructure spending and its sound macroeconomic policy framework and a stable outlook on Uganda.
The Bank continues to focus on agriculture; the entire value chain, manufacturing, tourism, human capital development that is health and education plus infrastructure development

KACITA worried about growing debt burden

By Daudi Zirimala

The Kampala City Traders Association, Kacita is concerned about the high debt burden Uganda is having saying this has affected their businesses and exchange rate Volatility.

According to KACITA Spokesperson Issa Ssekitto, the indebtedness of the country has forced commercial banks to increase borrowing terms for traders which later affect their businesses.

Ssekitto says the only way the government can reduce on the debt burden is by reducing on the administrative costs because this alone has consumed a lot of money borrowed from different banks.

Uganda’s public debt has been sporadically rising from only $1.9b in the 2008/09 financial year to over $11b currently.

Taking the rate at which Uganda is paying off its debt, it will take 94 years to repay the existing stock of debt. This is according to a report by the Parliament’s Committee on National Economy for the 2016/17 financial year.

The report puts the stock of external debt for both the public and private sector at 41.4 per cent of gross domestic product (GDP), up from 40.2 per cent in the preceding financial year.

It warns that the risk of Uganda rolling over external debt is increasing, just like the cost of attracting debt as the government continues to source for external debt on less concessional terms.

Kenya agrees to pay former Uchumi workers and suppliers

The governments of Uganda and Kenya have formed a committee to spearhead the clearance of debts left behind by Uchumi Supermarket.

Trade and Industry Minister, Amelia Kyambadde, says the ten-man committee is led by Julius Onen, the Trade Ministry, Permanent Secretary and Kenya’s Principle Secretary of Foreign Affairs and International Trade, Dr. Monica Juma.

According to Kyambadde, the committee will develop a framework for settling financial claims left behind by Uchumi. Uchumi closed its operations in Uganda in October 2015 due to financial constraints leaving hundreds of its employees unpaid and suppliers demanding over Shillings 8 billion in arrears.

Kyambadde told the media in Kampala today that the inter-governmental committee has been tasked to negotiate with the suppliers and workers to withdraw their suits against Uchumi to allow for the settlement of their arrears.

In December, Zebu Emporium and Trinity Textiles Uganda dragged Uchumi to court over failure to honour payment agreements for supplies made between 2012 and 2015.

Kyambadde says though some of the suppliers still want to pursue the court cases, the government of Kenya has given assurance that it will recover all monies owed to the Uganda suppliers. She says though the debt figures are estimated at 8 billion Shillings, some suppliers have not made claims.

Fred Ahimbisibwe, the Principle Commercial Officer at the Ministry of Trade says the ministry is working with the Private Sector Foundation Unit (PSFU) to compile a list of all suppliers and what is owed. The committee is expected to start work on February 12.

-URN