Gov’t Injects Over Shs 700bn in Clearing Domestic Arrears, Local Companies Prioritised

In a bid to create effective demand while addressing impacts of COVID-19 on businesses, Government has injected over shs 700b in clearing domestic arrears, with a major focus on local companies, Ministry of Finance Director Budgets, Kenneth Mugambe has said.

He said this during the Post Budget e- Conference that took place at UBOS House in Kampala on June 23, 2020.

“The main area of focus is to the business people who have supplied goods to the Government. So, ministries which are owing business people money should use these funds that we have put in the FY 2020/21 National Budget to clear their debts,” said Mugambe.

Utility companies

The other categories whose arrears are to be expedited according to Mugambe include utility companies such as UMEME and National water.

“COVID 19 has impacted businesses on account of lock down. By clearing this money, we shall make sure that businesses have capital to re-ignite their businesses. That’s the whole point behind this kind of intervention,” said Mugambe.

Julius Mukunda, the Executive Director Civil Society Budget Advocacy Group (CSBAG) backed governmentt on domestic arrears, focusing on businesses that have supplied goods and services. On the source of money to finance FY 2020/21, he explained that limited coordination between Government agencies have led to loss of public funds, hence saying that a lot needs to be done in addressing the issue.

Why have domestic arrears?


Dr. Adam Mugume, the Ag. Deputy Governor Bank of Uganda wondered why domestic arrears have to be there in the first place. “Domestic arrears should not be there in the first place. It is actually an abuse to have domestic arrears; to pay domestic arrears as a way of injecting liquidity, I think that’s fundamentally correct,” he said.

Central Bank to name and shame commercial banks over high interest rates

Dr. Mugume, speaking to media on the sidelines of the conference, noted that much as the Bank of Uganda has continuously reduced the Central Bank Rate (CBR) to enhance access to credit, some commercial banks have been hesitant to reduce their interest rates.  This, he said, may prompt Bank of Uganda to name and shame such commercial banks.

“We even have a clause on capping the interest rates but we have been skeptical about applying it. However, if they continue defying, we can use this provision as the last resort towards enforcing reduction in bank lending rates.”

When asked to comment on the naming and shaming of commercial banks, Mukunda said this has been long overdue because even in this COVID-19 situation, there are some banks that have deliberately kept their interest rates high.

“We need that list so that even us as Ugandans, we are able to support those who can support us during a crisis. This goes to those who are paying taxes, why should I drink water from a company that is not paying taxes, leaving out the on which is tax compliant?” he asked.

‘Be strategic on import substation’

President Yoweri Museveni has on several occasions emphasized the need to focus on import substation to reduce the huge import bill that has taken a toll on Uganda’s economy. However, the Chairperson Kampala City Traders Association (KACITA) Evaristo Kayondo said Government needs to have a strategic focus on areas where it has comparative advantage, citing agricultural raw materials.

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