Bank of Uganda this week revealed that Uganda’s provisional public debt as of August 2023, was Shs88.807 trillion, representing a 2.8% increase compared to June 2023.
While appearing before Parliament’s National Economy Committee, Michael Atingi-Ego, the Deputy Governor of the Bank of Uganda, asked the government to tame its huge borrowing appetite from commercial banks, as this has increased the cost of credit for the private sector.
“The Government borrowing appetite is very huge. If you are borrowing through a 1-year treasury bill, at 12%, why would you bother lending to the guy on the street at 9% or a farmer at 10% yet the Government can pay you 12%?” he noted.
“So, we need to have a conversation on how can the government reduce its borrowing appetite. The Bank of Uganda doesn’t have control over this. We can only advise, but I think you (MPs) wield more power.”
Atingi-Ego who had been summoned to update Parliament on the performance of Uganda’s economy and indebtedness, said the rise in debt was primarily driven by a 19.1% increase in domestic debt.
When asked about the high cost of credit in Uganda compared to other regional markets and why banks are lending at an interest almost double the central bank rate, Atingi-Ego told lawmakers that when the Bank of Uganda lowers the Central Bank Rate, this doesn’t automatically influence the entire interest rate structure.
He blamed the high-interest rates on the risk borne by financial institutions in lending to the private sector.
He also revealed that banks are grappling with cases in court, valued at Shs5 trillion that were filed by borrowers who sue banks after failing to pay their loans, saying this could explain their hesitancy to lend to the private sector.
“Some borrowers when they take money from banks, instead of repaying, they run to court. The court puts a court injunction. The latest numbers I got from the Uganda Bankers’ Association is that the amount of resources locked up in court is over Shs5Trn,” he noted.
He added: “It takes a long time to resolve a borrowing case in court and these are depositors’ money and the banks have to honour their obligations. So, the commercial banks have to look for a way to provide for that money locked up in the courts.”
According to Atingi-Ego, following the pronouncement by the World Bank to stop approval of any new loans to Uganda after the passing of the Anti-Homosexuality Act 2023, the Uganda shilling depreciated within two days and the depreciation has remained stagnant to date.
“…the pronouncement by the World Bank regarding new financing because of the Anti-Homosexuality Act that they wouldn’t be funding any new loans in Uganda had an impact on the exchange rate. We saw the exchange rate depreciating from about 3650 to nearly 3750 in two days. So, it has…remained there, so there are all those pressures and uncertainties regarding the currency [because of] the passing of the Anti-Homosexuality Act,” he told the committee.