Business
Central Bank governor reassures on economy
Publish Date: Apr 03, 2014
Central Bank governor reassures on economy
Central bank governor Tumusiime Mutebile has reassured investors of a stable macroeconomic environment
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By David Mugabe

KAMPALA - Central bank governor Tumusiime Mutebile has reassured investors of a stable macroeconomic environment backed by predictable information flow to enable them decide on where and when to invest in Uganda.

In a key note presentation at the Uganda Investment Summit at the Speke Resort Munyonyo on Thursday Mutebile said the country is undergoing rapid transformation in it financial sector with 25 banks most of which are integrated in the global market. Thus he said has elevated the Ugandan economy to the status of a “frontier market.”

“The Bank of Uganda makes public its forecast for inflation one year ahead, we believe that the better the public and the markets understand our monetary policy, the more effective it will be,” noted Mutebile.

Inflation, a core macroeconomic factor is critical to investors because high and unstable  inflation wipes away the value of investments which may scare away investors.

Current inflation has fallen to 7.1% from a high of over 30% over two years ago. Speaking to a hall packed with global and local investors, Mutebile pointed out that the loan to deposit ratio has risen from 54% in 2003 to 78% today.

Mutebile noted that though the economy is liberalized, the central bank keeps an eye on the movements in the exchange rate when these threaten macroeconomic stability.

“The exchange rate is an important price for investors, especially investors in firms which export their output, import production inputs or which borrow in foreign currency,” said Mutebille.

Mutebile also sounded optimistic that more competition would help reign in the high cost of borrowing that has to some extent strangled private sector expansion because of lack of cheap expansion capital.

“I have also complained about the high interest rates, (but) as I speak now, Stanbic bank has agreed to base their interest on the Central Bank Rate, I am sure you will see the cost of loans go down,” said Mutebile.

Opening the summit, state minister for finance Fred Omach promised that the Public Private Partnership (PPP) bill currently awaiting a second reading in parliament should be passed into law before the end of May. If passed and assented to by the president, the PPP law would make the grossly lacking infrastructure across the country an attractive investment hotspot through structured modes where investors can partner with government and each other.

Omach is also hopeful that liberalizing the pensions sector which boasts a hugh cash trough of about sh4 trillion in NSSF will help lower interest rates through availing more cash for lending to the economy. Currently banks and government also borrow from NSSF. Omach listed ICT, mining, tourism, power generation.

Stephen Asiimwe, Uganda Tourism Board chief executive asked investors to look at the fast growing population as a huge opportunity and not a threat. He asked them to invest in the country’s diversity that is unmarched globally.

Uganda Investment Authority (UIA) chief Dr Frank Ssebowa highlighted the opportunities including a large work force with universities churning out 15,000 graduates annually, political stability and tax breaks for sectors like mineral exploration and scientific research. But he also pointed out challenges brought to his desk by investors including high cost of finance, lack of a national identity card that is now being rolled out however.

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