By Samuel Sanya
The Government plans to borrow sh2.5 trillion from the money markets in the financial year 2014/15, sh800b higher than last year.
Jared Osoro, an economist, notes that this may affect the exchange rate.
“When the fiscal deficit grows faster than the Gross Domestic Product growth, there is a depreciation bias on the shilling. At the moment, it is hard to differentiate between fiscal and monetary policy in Uganda as both are pulling in the same direction,’’ he noted.
“A very accommodative monetary policy may boost economic growth, but fail to anchor inflation,” Osoro added, while speaking at the Deloitte past budget breakfast at the Sheraton Hotel recently.
The exchange rate was relatively stable in 2013/14, with a marginal appreciation of the shilling by about 2% against the US dollar on the back of strong foreign direct investment.
Maria Kiwanuka, the finance minister, explained in the budget speech that the net domestic financing in 2014/15 will include a draw down of the energy fund to finance the Karuma and Isimba hydropower projects.
The Government borrowed sh1.75 trillion to supplement domestic revenues for the infrastructure investment projects, especially roads, in 2013/14, some sh750b higher than had originally been budgeted.
Osoro said government’s expenditure on infrastructure and investment has a multiplier effect on Uganda’s economic growth.
“Government has planned projects worth $40b (sh100 trillion), but they have not outlined a clear funding mechanism so as to assess Uganda’s debt sustainability,” he added.
Adam Mugume, the Bank of Uganda executive director for research, noted at separate event that the sh750b extra borrowing by government affected private sector activity last financial year.
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