How effective have the Bank of Uganda’s relief measures against Covid-19 been?
The impact of coronavirus (Covid-19) on the economy has been very severe. If you look at the cost in terms of health, livelihood, in terms of economic performance, there have been many people who have lost their lives, others nursing the adverse impact of the disease.
The Bank of Uganda has put a number of measures to mitigate the effects of Covid-19 and to date, we believe that to a larger extent, we have achieved the objectives of these measures. We have been able to maintain financial sector stability and given relief to some borrowers who are under distress as a result of the weakened economy performance.
However, we note that there are still a number of commercial banks and financial institutions who remain risk averse in terms of extending new credit to the borrowers because of the uncertainty surrounding the macroeconomic performance.
We have also seen that some borrowers who had received the relief are again asking for additional relief. So we are not yet out of the woods.
Going forward, Bank of Uganda is working with commercial banks to collect information and will assess the extent to which Covid-19 might impact the relief measures come end of March 2021 when the relief come to an end. The idea is to ascertain the extent to which the borrowers will be able to gradually be able to service their loans.
In your assessment, has the government’s measures to help companies especially SMEs been effective?
The SMEs play an important role in terms of job creation, driving growth and like any other sector; the SMEs have not been spared by Covid-19. Government has put up measures to save SMEs like payment of domestic arrears, increasing capitalisation at Uganda Development Bank (UDB), Microfinance Support Centre to assist the SMEs so long as the SMEs are eligible.
We have been innovative through the Agricultural Credit Facility, extending credit to SMEs. To date, we have extended close to Shs3b to youth, women and regions that had not initially benefited from our facility.
We have been creative in a manner in which we identify the collateral used against these loans such as movable property, like livestock, cash flow of the borrower and it’s also character based. This has helped us support those who would not get loans from commercial institutions especially in agriculture.
Having said that value addition and participation in agriculture has gone up as a result of extension of the credit facility and also we have increased the equity in terms of allocation across sectors.
But a lot needs to be done; the financial sector deepening units together with Ministry of Finance conducted a study to ascertain the implication of the lockdown. That survey showed that close to 57 per cent of the households and SMEs could not go beyond one day of the lockdown because they did not have the capacity to deal with risks management tools to deal with the lockdown.
The study also finds out that 81 per cent of households and SMEs could not go beyond the 15 days of the lockdown so it shows the extent of effects of the lockdown, the only fear is that they have limited access to credit.
The challenge is how do we bring these SMEs to access credit and financial inclusion. This can be done if we digitalise our financial services; we need to get infrastructure, phones, data, legislation and up-skill the skill on the market.
We also need to address challenges that come with electronic money, for instance, cyber security.
Give us a general picture of how 2020 has been in terms of the economy’s growth.
When you look at the growth rate in 2019/20, it was only 2.9 per cent compared to 6.8 per cent in 2018/19. This was caused by the efforts of the government and the global community.
Not all was really lost in terms of growth. If you look at some sub-sectors like information and communication, they recorded a growth of 22 per cent in 2019/2020 driven by one component of data because people wanted to communicate.
As the government relaxes the lockdown, we will see the activities gradually picking up. But importantly, Government policies have played a key role in the recovery of the economy.
The Central Bank lowered the CBR to levels I have not seen and yet banks did not respond in tandem leading the Governor to threaten to take action. Are you happy with the response of the banks up to this point?
You may recall that the time the Governor made the statement the lending rates were at 20.9 per cent but as recently as November, the average lending rates had come down to 19.3 per cent that is a reduction of 1.6 per cent.
So the commercial banks have lowered their prime lending rates but I want to believe that the proportion of the lowering may not be commensurate to the reduction of the CBR. I attribute that to other issues such as the cost of doing business that commercial banks have been struggling with.
Does the government have the space and money to finance the measures designed to combat Covid-19?
Government has space to increase its borrowing from the domestic economy. With Covid-19, banks have become averse in lending to the market so they are not lending as strongly as they used to. That means there is room for the government to increase its borrowing.
Signs of recovery in private demand.
Our horizon for economic recovery has been moved forward because of the discovery of multiple Covid-19 vaccines so the tenure of this Covid-19 has been shortened. Therefore, we are likely to recover sooner than later provided we have the capacity to take care of those infected as we wait for the vaccine and how soon the vaccine is distributed.
The Bank of Uganda has tried to maintain price stability, the exchange rate has been stable.