Bank of Uganda, the Private Sector Foundation and Uganda Bankers Association have opposed plans by government to borrow up to Shs 4.3 trillion from the locally market to fund the budget shortfalls.
The government last week tabled before Parliament a supplementary budget request of Shs 6.5 trillion, with Planning minister David Bahati saying Shs 4.3 tn of the money will come from issuance of government securities like treasury bills while the remaining Shs 2.2 trillion will be borrowed from the International Monetary Fund (IMF).
But appearing before Parliament’s Committee on National Economy on Tuesday, BoU Deputy Governor, Dr Michael Atingi Ego, said 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.
Atingi said in this case, the private sector will be constrained to access resources for investment.
He advised that if the Government is to borrow, the money should be spent on productive sectors of the economy as opposed to consumption.
Atingi proposed a syndicated borrowing arrangement between local commercial banks that can arrange loans from their parent banks since Uganda’s financial market is shallow.
Mr Gideon Badagawa, the Executive Director of Private Sector Foundation-PSF is outrightly opposed to the government’s decision to during these hard times. He instead called on the government to scale down on its expenditure.
Wilbrod Owor, the Executive Director Uganda Bankers Association, also emphasized that once the money is borrowed, it should be used to stimulate the economy.
He, however, said the reasons advanced for the loans in question are questionable.
The Committee Vice-Chairperson, Lawrence Bategeka, said Uganda will be paying almost 2 billion Shillings daily as interest pm the domestic loans they are planning to borrow.
The committee is expected to meet the Ministry of Finance on Thursday to deliberate the matter further before compiling its report.