Traders at a market in Uganda’s capital Kampala in 2016. Uganda’s economy got positive reviews from the Central Bank and some economists in 2019. PHOTO | FILE | NATION MEDIA GROUP Despite Uganda’s economy getting positive reviews from the Central Bank and some economists in 2019, the limited impact of loose monetary actions on business activity, significant tax collection challenges and huge monies owed to local suppliers by government institutions dominated public conversations.
The Bank of Uganda (BoU) projected a growth rate of 5.5 to six per cent for the 2019/2020 financial year based on steady monetary easing by the bank. However, observers warn that widespread signs of distress in many sectors point to a lower growth rate.
Consistent soft monetary policy actions have left the Central Bank Rate (CBR) at a record low of nine per cent since October while average lending rates and overall credit growth patterns have picked up since May amid massive liquidity levels experienced in the interbank market — a trading and borrowing window used by commercial banks to fulfil temporary financial needs.
CREDIT FLOWS
Lending rates charged on shilling-denominated loans averaged 20.2 per cent between June and August compared with 19.7 per cent recorded between March and May, according to BoU data. In comparison, average lending rates charged on dollar-denominated loans fell slightly from 7.4 per cent to 6.7 per cent during the same period.
Overall private sector credit flows increased by 13.9 per cent between June and August compared with 14.8 per cent growth registered between March and May. Total private sector credit expanded by eight per cent in December 2018, the data shows.
Despite the strong credit growth, fairly high borrowing rates and banks’ unwillingness to lend large sums of money have left many businesses unable to tap into increased bank lending activity, creating a mismatch between credit growth patterns and overall business activity.
However, economists appear reluctant to explain this scenario after several months of reduced interest rates, declining loan default rates and diminished inflation levels.
“The agricultural sector is still the largest employer in the economy but contributes much less to total output and that means growth remains less inclusive. The services sector is still the biggest contributor to the GDP at 49 per cent compared with the industrial sector at 26 per cent,” said Mira Clara, the International Monetary Fund resident representative in Uganda.
Total revenue collections for the first quarter of 2019/2020 fell by […]
