By Our Reporters
President Museveni has been defended against criticisms that his government hasn’t done enough to force down interest rates commercial banks charge private sector businesses when they borrow money.
Defending the NRM government earlier in the week was Finance Ministry’s Director Budgeting Kenneth Mugambe who enumerated to journalists deliberate interventions that have been undertaken to bring down the cost of borrowing for private businesses. Mugambe also clarified government has no intention to fix interest rates but will gradually bring it down through a number of ongoing strategic interventions.
First intervention, Mugambe said, is the political decision the President took to recapitalize Uganda Development Bank (UDB) to enhance its capacity to avail businesses with long term financing. Mugambe said the government decision to invest Shs500bn in UDB over a period of 5 years has been on course and the intention is to galvanize capabilities for the Development Bank to begin lending at 12% interest rate compared to the average 28% at which commercial banks currently lend.
The other intervention is the Agriculture Credit Facility being administered by Bank of Uganda in close collaboration with commercial banks. Tripartite MoUs are often signed between BoU, the commercial bank and the borrower stipulating respective obligations. This, Mugambe disclosed, has enabled commercial farmers to borrow for purchase of the required equipment and agro-processing at less than 12% interest rate.
Closely related to this are the insurance schemes that are being spearheaded by BoU to diminish risks banks associate with agricultural lending. The insurance intervention is meant to diminish risks so that banks can become attracted to lending agricultural investors at lower interest rates. “All these interventions by government are reducing the cost of lending to the private sector,” explained Mugambe who was flanked by other Finance Ministry officials who converged at the Finance Ministry board room to witness the launching of activities aimed at marking the budgeting month for the FY2019/2020. The aim for these budget-related engagements is to deepen citizens’ interest in participating in budgeting processes and consequently demand inclusion, accountability and transparency in implementation of government social service delivery programs.
Yet that isn’t all. Mugambe said that, working with commercial banks, the Central Bank was also involved in popularizing agency banking as a strategy to deepen access to banking services and gradually diminish the unbanked population. That increased access to financial services, through agency banking, has the effect of reducing operating expenses or costs for the commercial banks, ideally leading to lowering of interest rates.
Introduction of Credit Reference Bureau (CRB) is another government intervention ultimately aimed at impacting on the interest rates. The CRB enables the credit-rating of potential borrowers feeding into the commercial banks’ KYC (Know Your Customer) initiatives aimed at availing adequate accurate information about their potential borrowers. Mugambe said that by investing in the mass issuance of national IDs, the government was indirectly boosting the KYC initiative by the banks because issuance national IDs has significantly reduced the borrower identification-related challenges.
AJEDRA ON DEBTS
Other officials at the media event spoke about Uganda’s debt assuring citizens that at less than 43% of the GDP, our national debt is still sustainable. And Minister Gabriel Ajedra explained steps being taken to diminish on the contraction of new debts. Ajedra explained the inevitability of contracting debts to finance the all-important oil roads saying this was extremely important to have the oil production-related infrastructure in place. He revealed that going forward, concessional financing from agencies like World Bank and AfDB will be prioritized leaving non-concessional loans only for big projects with well guaranteed high return to investment. On failure to realize the middle income status (growing per capita income to $1,200), a political promise President has loudly been pronouncing himself on for a number of years, Ajedra said failure to tame population growth had prevented the realization of the middle income status. But the politician from West Nile said that all wasn’t lost; there is still hope and the objective could be realized by 2022.
The decision to hold month-long budget awareness creation activities was arrived at after realization that the one week period for last year wasn’t sufficient. The public responded with enthusiasm in large numbers and one clear feedback was there was need to prolong this to a full month. And this year, a range of activities are being earmarked including Friday 24th May’s tree planting; Thursday 30th May’s visit to East Kololo P/S to donate scholastic materials; Tuesday 4thJune’s national budget march from City Square to Kololo Ceremonial Grounds; 4th-6th June’s service excellence exhibition at Kololo Ceremonial Grounds; 13thJune’s budget speech day and Thursday 20th June’s post-budget dialogue at Serena Conference Center.
There will also be budget breakfast meetings to be simultaneously held in different parts of the country. These will give an opportunity to the public and SMEs sub sector players to have direct engagement with policy makers and implementers of the budget. Date will be Friday 21st June and breakfast meetings will be simultaneously held in Lira (for northern Uganda), Arua (for West Nile), Soroti (for Eastern region), Hotel Africana (for Kampala), Hoima (for Mid-Western region) and Kabale (for South Western region). For comments, call, text or whatsapp us on 0703164755.
