BoU Opposes Gov’t Proposal to Borrow from Domestic Market

The Central Bank has rejected the Government’s plan to borrow up to 4.3 trillion Shillings from the domestic market to fund the supplementary budget expenditure of 6.5 trillion Shillings.

The matter came up when officials from BoU, the Private Sector Foundation and Uganda Bankers Association appeared before the National Economy Committee to present views on the loan request to finance a budget deficit for the 2020/2021 financial year. 

Domestic Borrowing is done through the issuance of government securities like treasury bills which are short term debt instruments with tenures ranging from 91, 182 and 364 days and treasury bonds with a maturity period of more than a year. The government intends to borrow 2.2 trillion Shillings from the International Monetary Fund-IMF.

The BoU Deputy Governor, Michael Atingi Ego says that borrowing from the domestic market will lead to a decline in private sector credit extension and cause a decline in private sector credit growth by about 3 per cent by the end of the 2020/2021 financial year. 

Atingi Ego says in this case, the private sector will be constrained to access resources for investment.  He advised that if the Government is to borrow, the money should be spent on productive sectors of the economy as opposed to consumption. 

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Atingi Ego proposes a syndicated borrowing arrangement between local commercial banks that can arrange loans from their parent banks since Uganda's financial market is shallow.

Gideon Badagawa, the Executive Director of Private Sector Foundation-PSF is outrightly opposed to the government’s decision to during these hard times. He instead called on the government to scale down on its expenditure.  

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Wilbroad Owor, the Executive Director Uganda Bankers Association also emphasized that once the money is borrowed, it should be used to stimulate the economy. He, however, said the reasons advanced for the loans in question are questionable. 

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The Committee Vice-Chairperson, Lawrence Bategeka, said Uganda will be paying almost 2 billion Shillings daily as interest pm the domestic loans they are planning to borrow.   

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The committee is expected to meet the Ministry of Finance on Thursday to deliberate the matter further before compiling its report.