Government borrowing is worsening interest rates

There is need for fiscal discipline on the side of the government to reduce on the high interest rates from commercial banks. Wilbrod Owor, the Executive Director of Uganda Bank's Association, an umbrella organization that brings together 24 commercial banks and one development bank says that     as long as the government continues to borrow heavily from commercial banks, the interest rates will remain high.

"When the government borrows heavily from the commercial banks, it curves out the private sector from credit access as well as credit cost," Owor says.

"And this has been happening because of the various priorities from the government, and the shortage of domestic tax revenue, and is very good business for commercial banks, because lending to the government is very secure, you lend them and sit back and wait for your interest," he explains.

Owor however adds that this has an effect of bringing a shortage of credit to the private sector, and raising the cost of credit and the only solution to this is stringent fiscal discipline on the side of the government.

"We are having discussions and dialogues with different stakeholders in a bid to persuade the government from impulsive borrowing. There is need for fiscal discipline on the side of the government so that spending is on priority areas and that when they have to borrow, there is a minimum and directed to the right sectors to multiply growth," said Owor.

Owor was speaking at the launch of the first Annual Bankers Conference scheduled for July this year, whose key objective will be to take stock of and gain insights from global, regional & country specific issues, trends & drivers in the banking & financial services sector and discuss the dynamics that are increasingly shaping sustainability strategies in banking & finance.

At the same event, MasterCard signed a strategic partnership agreement with the Uganda Bankers Association to develop a framework that will strengthen the local financial services sector.

In the partnership, focus will be put on anti- fraud and counterfeit initiatives including cyber security, migration of payment cards to EMV, promotion of financial inclusion via capacity building initiatives and financial literacy and awareness programmes.  The partnership will also allow for research and policy development initiatives to further boost the sectors growth.