Patrick Mweheire, the Regional chief executive for Standard Bank Group in East Africa Patrick Mweheire, the Regional chief executive for Standard Bank Group in East Africa, has proposed discussions between Uganda and its lenders to have them grant a debt freeze which would generate the liquidity required to support businesses at the bottom of the economic pyramid.
Uganda’s GDP growth is expected to fall by half from an earlier projected 6% to 2-3%, as a result of the impact of the coronavirus pandemic.
“We expect sectors like trade, tourism, transportation and construction which is half of the credit available, to suffer massive distress. We think Non Performing Loans (NPLs) in banking sector will double from 4.5 to 10% with pockets of tourism, trade and hospitality suffering much more than that,” Mweheire said.
He was speaking during a virtual forum on what should be done to stimulate Uganda’s economy. The discussion was organized by the Private Sector Foundation Uganda (PSFU) in partnership with UN Women in Uganda and NBS TV.
Mweheire said advanced economies have done well with easing monetary policy, but cited challenges in the emerging economies many of which are already reeling from drops in commodity prices. Others have suffered capital outflows of about $100bn by the end of January, three times higher than the outflows in the 2008 financial crisis.
“That’s going to bring some potential sovereign debt distress situations,” he said.
For the commodity and tourism-led economies, their credit ratings have been downgraded. This cuts out their ability to borrow, he said.
Uganda’s exports, remittances, FDIs, tourism are likely to suffer 50 to 70% decline year-on-year for the next 12 months.
The former chief executive of Stanbic Bank Ugansa proposed some interventions including; exceptional liquidity assistance for banks, pumping additional liquidity, deferred tax payments to businesses, banks reduced transactional charges on digital channels, BoU guidelines on credit relief to borrowers and loan repayment suspension for 12 months.
Post-Covid, Mweheire says it is critical that government discusses with the multiple lenders to grant a debt standstill – a 2-year moratorium.
Uganda spends about Shs 5 trillion annually on servicing debt.“That would provide about Shs 10 trillion which is about half of what we collect in taxes annually. We would then get that liquidity and start pumping it into the bottom of the pyramid. One of the areas we think has great promise is working with Saacos,” he said.“We’ve got about 306,000 Saccos and village loan savings associations […]
