KAMPALA – The Governor Bank of Uganda, Mr Emmanuel Tumusiime-Mutebile has warned the government against continued accumulation of foreign debt, saying the Central Bank is being strained by the need to obtain foreign exchange to service the loans.
“The biggest challenge for Bank of Uganda (BoU) is how to accumulate foreign exchange reserves to service external debt. The forex reserves have to be purchased from the domestic market, without causing sharp exchange rate depreciation pressures that would ultimately pass through to domestic inflation, thereby warranting tightening of monetary policy, and subsequently impacting on economic growth,” Mr Mutebile said during a conference organised by the International Monetary Fund (IMF) and African Development Bank at Kampala Serena Conference Centre on Friday 4 October 2019.
The conference was held under the theme “Infrastructure and Human Capital Investment for Growth and Development in Uganda.”
Mr Mutebile revealed that for instance, in FY 2019/20, BoU has to purchase about $1 billion to cater for servicing of external debt, debt repayment, and other government imports of goods and services, if the international reserve level has to be maintained at the current level of 4.1 months of imports of goods and services.
“The required foreign currency purchases are estimated to rise in the next 5 years before oil proceeds start flowing in. Buying these amounts without causing sharp exchange rate depreciation pressures in a shallow foreign currency market is a real challenge,” he added.
He added that Uganda is confronted with extensive demand for public spending. “Therefore, it is necessary to examine the trade-offs of our public expenditure choices as well as the sustainability of the outcomes at this point so that we can undertake the necessary pivoting away from suboptimal policy options, or indeed, to consolidate the progressive initiatives for equitable development as we go forward,” he said.