COVID-19 shocks leave 25% of households in debt

COVID-19 | 

At least 27% of households in Uganda incurred more debt in the last three months to August as they struggled to cope with the impact of COVID-19 emergency situations.

Households in the eastern, northern (36%) and central (27%) indicated that they had to borrow money over: loss of jobs, low sales and closed businesses, among others, to fund their immediate needs. In the western region, only 8% said they had borrowed money in the same period.

The findings are recorded in the report after the second round of the Uganda High Frequency Phone Survey (HFPS) conducted by the Uganda Bureau of Statistics (UBOS), with support from the World Bank.

The study aims at establishing the evolving social economic effects of COVID-19 and its related restrictions at the household level. In June, UBOS officially launched the HFPS to track the impacts of the pandemic on social well-being.

The 12-month study assesses household employment and livelihood situations, coping strategies and the status of agriculture, among others, with the aim of informing policy direction.

Of the 2,421 households targeted, 2,227 were interviewed in round one — conducted in June —  and of those, 2,199 were interviewed in round two, most important in the western region among urban residents. In the eastern region, the major reason was failure to obtain money from family," he said. 

In April, the Government distributed maize flour and beans to the  "vulnerable or urban poor" affected by the COVID-19 lockdown in the central region. Kampala and the central region, which dominate urban centres, comprise almost 30% of Uganda's 38 million people, according to the 2016 national household survey.

Since March, the Government has taken several interventions to mitigate the spread of the coronavirus, including a nationwide night curfew and instituted strict guidelines for the operations of businesses.

Households shun banks

About 10% of the surveyed households borrowed money from regulated financial institutions, such as commercial banks and credit institutions, to meet emergency situations.

The households that borrowed money from commercial banks were more in the urban areas than in rural.

Mubiru said households in rural areas borrowed mostly from savings groups, loan associations and friends. He added that households that borrowed money from banks were worried "about repaying the borrowed money on time."

Commercial banks' average interest rates for shilling denominated loans rose to 19.3% during the period under review, reflecting risk averseness in the banking industry.

This is despite the Bank of Uganda (BOU) maintaining the central bank rate (CBR) — the rate at which commercial banks borrow money from the central bank — at 7%.  

In a statement, BOU governor Prof. Emmanuel Tumusiime Mutebile said the "downward stickiness in lending rates despite BOU's accommodative monetary policy" stance could leave more businesses and households suffering from the effects of COVID-19.

According to BOU, the decision to lower the CBR in April and June was premised on the need to enhance economic growth and ameliorate the deteriorating macroeconomic conditions due to COVID-19 and, to ensure the normal functioning of adequate access to credit by households and businesses.

 Asked about the possible recommendations from the study, acting director in the directorate of social-economics at UBOS Stephen Baryahirwa said: "We do not know what will come out in the third round of the survey. We share this information with the different stakeholders to take action. They might be thinking they are getting better, yet there is no change."