Mr Moses Bekabye, the macroeconomic advisor in the ministry of Finance
Kampala. Government cannot
completely stop borrowing from the domestic money market because it
helps in the growth of the capital markets industry, a senior official
in the ministry of Finance has said.
Due to high fiscal deficit, Uganda government borrows externally from multilateral institutions such as the World Bank, African Development Bank, European Union among others. Domestically, government, through the Central Bank, issues government securities such as Treasury bills of 91, 182 and 364 days and Treasury bonds of two, five, 10 and 15 years to generate revenues needed for fiscal operations.
In some, cases government also borrows bilaterally from international financial institutions and countries as well.
Talking about government borrowing during the launch of the 8th edition of Uganda’s Economic Update by the World Bank in Kampala, the macroeconomic advisor in the ministry of Finance, Mr Moses Bekabye, said: “Domestic borrowing by government will not stop because it helps in the growth and development of the capital markets industry,” he said.
Due to high fiscal deficit, Uganda government borrows externally from multilateral institutions such as the World Bank, African Development Bank, European Union among others. Domestically, government, through the Central Bank, issues government securities such as Treasury bills of 91, 182 and 364 days and Treasury bonds of two, five, 10 and 15 years to generate revenues needed for fiscal operations.
In some, cases government also borrows bilaterally from international financial institutions and countries as well.
Talking about government borrowing during the launch of the 8th edition of Uganda’s Economic Update by the World Bank in Kampala, the macroeconomic advisor in the ministry of Finance, Mr Moses Bekabye, said: “Domestic borrowing by government will not stop because it helps in the growth and development of the capital markets industry,” he said.
High interest rates
Mr Bekabye also said even if government stopped borrowing, the interest rates in Uganda would not come down to 10 or 12 per cent.
In Uganda government securities are auctioned in the primary market to six primary dealers who are commercial banks.
The Treasury bills and bonds are later traded in the secondary market in the capital markets; this helps in domestic capital mobilization and price discovery of securities being issued in the market.
Currently, there are over government bonds listed on Uganda Securities Exchange with different maturity periods.
Over the past five years, government has expanded its borrowing programme in response to difficult economic circumstances. Revenue collection has continued to underperform due to weak economic growth, leading to increased debt accumulation to support the fiscal stance.
Mr Bekabye also said even if government stopped borrowing, the interest rates in Uganda would not come down to 10 or 12 per cent.
In Uganda government securities are auctioned in the primary market to six primary dealers who are commercial banks.
The Treasury bills and bonds are later traded in the secondary market in the capital markets; this helps in domestic capital mobilization and price discovery of securities being issued in the market.
Currently, there are over government bonds listed on Uganda Securities Exchange with different maturity periods.
Over the past five years, government has expanded its borrowing programme in response to difficult economic circumstances. Revenue collection has continued to underperform due to weak economic growth, leading to increased debt accumulation to support the fiscal stance.
Mr
Bekabye said Uganda’s debt has not gone out of hand because currently
the country’s debt has calculated in terms of net presence value is
still sustainable.
“Our debt ratio to the GDP is 27 per cent in terms of Net Present Value (PV) is below the 50 per cent which is the limit for sustainable debt. Public debt in nominal terms is at 34 per cent of the GDP,” he said at Kampala Serena Hotel early in the week. Accessing to affordable financial services for enterprise development still remains a big challenge in Uganda.
Going forward, Mr Bekabye said improving domestic borrowing, leveraging donor financing and completing the financial sector reforms/ improving on financial inclusion will lead to improved accesses to financial system and accessibility by the general public.
“Our debt ratio to the GDP is 27 per cent in terms of Net Present Value (PV) is below the 50 per cent which is the limit for sustainable debt. Public debt in nominal terms is at 34 per cent of the GDP,” he said at Kampala Serena Hotel early in the week. Accessing to affordable financial services for enterprise development still remains a big challenge in Uganda.
Going forward, Mr Bekabye said improving domestic borrowing, leveraging donor financing and completing the financial sector reforms/ improving on financial inclusion will lead to improved accesses to financial system and accessibility by the general public.
Dr Fred Muhumuza, a researcher
and an economist, said the rate which Uganda’s debt is increasing is
not right. “Interest rate payment on debts in the current financial is
Shs2.2 trillion and in the next budget is Shs2.7 trillion,” he said.
The executive director of Private Sector Foundation Uganda, Mr Gideon Badagawa, said government over-borrowing from the domestic market is crowding out the private sector credit and banks are busy investing government securities and lending minimally to the private sector at high interest rates.
The executive director of Private Sector Foundation Uganda, Mr Gideon Badagawa, said government over-borrowing from the domestic market is crowding out the private sector credit and banks are busy investing government securities and lending minimally to the private sector at high interest rates.
Mr Badagwa said banks need to
shift from being purely commercial to development. Getting banks to
understand the development roles is necessary in Uganda adding that as
longer as banks continue being purely commercially driven imperfection
in the market will continue,” he said.
From the fiscal policy side he said there is rigidity from the fiscal policy side due to lack of discipline leading to high no wage and high spending in infrastructure.
Due to high interest charged on government securities and high returns on equity investment at Uganda Securities Exchange there was growing participation by international investors in the local government bond market and equity market.
From the fiscal policy side he said there is rigidity from the fiscal policy side due to lack of discipline leading to high no wage and high spending in infrastructure.
Due to high interest charged on government securities and high returns on equity investment at Uganda Securities Exchange there was growing participation by international investors in the local government bond market and equity market.
mmuhumuza@ug.nationmedia.com
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