20 February 2013

Uganda: Oil Money Could Hurt Economy - Bank Chief

Uganda should spend its anticipated oil revenue on projects that can spur the economy and create employment for its young and fastgrowing population if it is to avoid the pitfalls of other countries where oil revenues have ended up funding "white elephants," the Central Bank Deputy Governor, Dr. Louis Kasekende, has warned.

He says considerable investment of oil revenue in infrastructure, ICT, modernisation of agriculture and human resource will guarantee what he called "inter-generation equity and sustainable absorption" for a finite resource like oil. This, he said, will ensure that the proceeds from the lucrative sector go beyond the current generation.

"The focus should be to invest oil revenue in areas that can reduce the cost of doing business," Kasekende told the committee on national economy Tuesday, warning that Uganda's economy cannot absorb the expected $1b revenue per year.

Reacting to questions about the likely impact of petrol dollars on the economy, Kasekende said the revenue windfall, as it has happened in other countries like Nigeria, might be a double edged sword with capacity to negatively impact other sectors. "We neither have the tools nor the capacity to mop up excess dollars that will be injected in the economy. In such a scenario, even agricultural exports from an economy with a strengthened foreign exchange rate will take a battering," he said.

He also cautioned against linking the country's expenditure to oil revenue, saying it will expose the economy to the volatility that comes with fl uctuations in the international oil prices.

The government has drafted the Petroleum Revenue Management Bill, 2012, which provides for an elaborate legal framework to manage revenues accruing from the oil and gas sector. The Bill provides for the establishment of a petroleum investment reserve into which money shall be paid every fi nancial year, to support future generations.

The Bill also gives Parliament the mandate to authorise withdraw of funds from the reserve for transparency and accountability. "There will be no conspicuous consumption with oil money. It will be for infrastructure," finance state minister, Fred Omach said.

Uganda has an estimated 3.5 billion barrels of crude oil of which, according to deputy Director National Planning Authority, Dr. Abel Rwendeire, only 40% will be extracted.

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