8 June 2014

Uganda: Businesses to Borrow More - BoU

Private businesses are expected to be stronger in the 2014/15 financial year, after they went through a dismal period over the last 12 months, EmmanuelTumusiime-Mutebile, the Bank of Uganda governor, has said.

Presenting the June monetary policy statement at BOU offices last week, Mutebile said the private sector had started to borrow more.

"Credit growth for the private sector has picked up a little and is expected to increase over the remaining part of this year and next two years," he said.

"Growth in economic activity is expected to pick up gradually but it is likely to take some time before the economy returns to the historical growth trajectory of seven per cent."

BOU forecasts a reduction in inflation. The central bank eased the central bank rate (CBR) to 11 per cent amidst renewed confidence in the economy. It was the first time BOU was changing the CBR, which influences interest rates in the market, since December.

Government's domestic borrowing, according to Dr Adam Mugume, BOU executive director for research, is likely to be lower than it was in financial yea 2013/14. Government borrowed Shs 1.7tn, far higher than the anticipated Shs 1.1tn at the beginning of the fiscal year.

"Government borrowed a lot to cover up for the revenue shortfall. We want this to be less so as not to crowd out private sector borrowing," Mugume said.

Uganda revenue authority is expected to register a shortfall of Shs 400bn. The key uncertainty, BOU said, was that it expected a further drop in exports, mainly due to a crisis in South Sudan.

Nonetheless, BOU projects a growth of 6-7 per cent for the 2014/15 financial year.

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