The BoU Executive Director for Policy and Research, Dr Adam Mugume, says although private sector credit at one point in 2016 dropped to negative two percent, it has since rebound to 6.4 percent with their prediction that it will hit the eight percent mark by end of fiscal year 2016/17.
The Bank of Uganda is optimistic that private sector credit will rebound by end of this financial year, oscillating at about eight percent.
Dr Adam Mugume, the BoU Executive Director for Policy and Research says that although private sector credit at one point in 2016 dropped to negative two percent, it has since rebound to 6.4 percent with their prediction that it will hit the eight percent mark by end of fiscal year 2016/17.
According to Dr Mugume, in addition to other factors, the high percentage of non-performing loans also impacted negatively on lending to the private sector. He said as the economy recovers, the central bank believes private sector credit will also increase.
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Dr. Mugume was responding to comments by Axel Schimmelpfennid, the head of a IMF review mission that has been in Uganda for the last two weeks holding consultations on the state of the economy.
In the preliminary report, Schimmelpfennid said although the banking sector is well-capitalized with most banks meeting or exceeding their base capital requirements and confirming with the liquidity coverage ratio, private sector credit growth remains subdued.
Schimmelpfennid said there is a need to enhance the potential of the private sector to access credit and do business.
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Growth of private sector credit is one of the indications or signs of economic growth, development and prosperity of a country. The higher financial institutions lend to the private sector in a country, the greater the opportunity and space for them to develop and grow.
As the private sector grows, the bigger the economy grows. Ideally, the bigger the economy grows the easier and better the government should provide services to the citizens, ultimately leading to improved human and physical development.
The situation in Uganda is, however, otherwise, meaning the growth of the economy is defying economic principles.
Uganda's national budget has been growing year-on-year for over two decades now. In 2017/18, the envelope will be 28 trillion shillings, up from 26 trillion shillings this financial year.
A recent report by the Economic Policy Research Centre indicated that while the resource envelope, budgetary appropriations and utilization keep increasing, they are not translating into value for money and improvement in delivery of services and projects for the citizens.
According to economist Dr. Fred Muhumuza, in Uganda where economics stops, politics takes over.