Emmanuel Tumusiime-Mutebile: Overview of Uganda's growth and
stability in 2013/2014
Statement by Mr Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda, at the
Ministry of Finance Planning and Economic Development Press Conference, Kampala,
15 January 2015.
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I would like to say something about the significance of fiscal discipline in the country's growth
and stability. Prudent management of public financing is very critical to macroeconomic
stability. The Government has a medium term fiscal program which sets out clearly the path
of revenues, expenditures and government borrowing for the next five years. The fiscal
program is absolutely consistent with ensuring that public debt remains sustainable and that
domestic borrowing will remain within levels which will not threaten to crowd out private
sector borrowing. We will ensure that all Government borrowing is fully funded from the
market by issuance of Government Securities through primary auctions. Therefore I want to
state clearly that the Bank of Uganda fully endorses the Government's fiscal stance and
absolutely has no problem with fiscal management.
Central bank rate
As you all know the Central Bank raised its Central Bank Rate (CBR) in September 2013 to
12% to avert the second effects of food prices but also to counter any rise in inflation
expectations. Consequent upon the threat of high inflation being reduced, BoU reduced
CBR 11.5 in December 2013 and further to 11 percent in June 2014. The annual core
inflation rate has fallen in 2014 but is forecast to edge over 5 percent over the next
12 months due to exchange rate depreciation which has occurred in 2014 and early 2015
due to domestic demand. As a result of this, we have retained the CBR at 11 percent and we
will watch carefully the next few weeks to see where things move.
Developments in the foreign exchange market
The shilling has been depreciating against the US dollar over the last few weeks. Since
February 2014, the shilling has depreciated by about 14 percent against the US dollar. This
followed sustained appreciation during 2013 and the first months of 2014. The depreciation
of the exchange rate since February 2014 reflects several factors. First, there has been a
correction of the exchange rate which had become over valued in 2013. Secondly there has
been strong demand for foreign exchange from the real sectors of the economy especially
manufacturing and oil sectors. Thirdly, there has been weakening of global sentiment
towards emerging markets with the currencies of these markets coming under persistent
depreciation. Finally, recently, the dollar has strengthened against the major currencies as a
result of expectations that America will be the first among the industrialized countries to raise
interest rates.
Financial sector
The latest quarterly data available is for September 2014 and this indicates that the banking
system is financially very sound and well capitalized. Asset quality has improved. The
NonPerforming loan ratio has declined from 6.2 percent of the loans in March 2014 to 5.3 percent
of the loans in September 2014. Banks' profitability has reduced partly as a result of loan
provisioning and a slight drop in the net interest margin. The banks' total regulatory capital
position remains very strong at 22.5 percent of risk weighted assets as at end of September
2014 which is almost double the statutory minimum of 12 percent. The banking systems'
average return on assets and equity declined to 2.2 percent and 13.1 percent respectively in
the year to September 2014 from 3.1 percent and 18.8 percent in the previous 12 months.
Private sector credit
With regard to private sector credit growth, since the start of 2014, Private Sector credit has
recovered with annual growth increasing to 13 percent as of end of September 2014. The
building and construction sector, trade and household loans continued to account for the bulk
of the PS credit. The three sectors together (building and construction sector, trade and
household) accounted for over 55% of banking systems' outstanding credit to the Private
Sector since February 2014. Annual growth of PS credit during 2014/15 is projected at
15 percent.