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Domestic Borrowing Will Not Hurt Economy –Bahati

According to Bahati, if the whole 6.5 trillion was being borrowed domestically, that would have been a problem, but they have decided to borrow money domestically and Internationally.
Bank of Uganda Building in Kampala

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 The State Minister for Finance David Bahati has convinced the National Economy committee of Parliament to allow Government to borrow domestically saying the economy will be minimally hurt.

Bahati was appearing before the committee led by Syda Bbumba to respond to queries raised by Members of Parliament over the proposal to borrow up to 4.3 trillion shillings from the domestic market and 2.2 trillion shillings from the International Monetary Fund -IMF to supplement the 45 trillion shilling budget.

Although Bank of Uganda (BoU) Deputy Governor, Michael Atingi told the committee 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, Bahati says that this will not be so harmful to the economy. 

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.

According to Bahati, although they will be borrowing domestically, it will have some impact on the private sector, but not at the level that is being said. He says that on the one side, they have invested 1 trillion shillings Uganda Development Bank (UDB) and over 300 billion in microfinance support center, and 430 billion have been invested to pay domestic arrears. 

He says for instance the pay on domestic arrears will be for areas that impact on economy directly, like those who supplied food to Government and they have not been paid. He says Government’s priority is not court awards for instance.   

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According to Bahati, if the whole 6.5 trillion was being borrowed domestically, that was going to be a problem, but they have decided to borrow money domestically and Internationally. He says there will be a negative impact truly, but not at the rate people are expecting. 

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Committee chairperson Bbumba asked if indeed of the supplementary request a bigger part is going to support the economy.

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Cue out:….related domestic arrears”// 

Of the supplementary, 1.5 trillion is classified expenditure for State House and Ministry of Defence. 615 billion is for Uganda Development Bank. Ministry of Health will get 189 Billion. Others beneficiaries are; 100 billion is needed for Ministry of Trade through Uganda Development Corporation to support businesses affected by COVID-19; Also needed is 223 Billion shillings for recurrent domestic arrears for rent, land, cooperatives, payment to coffee and tea seedlings suppliers and other votes under the central Government.   

Another 220 Billion shillings is needed for the bilateral road infrastructure project between Uganda and the Democratic Republic of Congo (DRC). 336 billion shillings is for the learner’s radios to be distributed all over the country.

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