Bank of Uganda to support banks against COVID-19 related complications; should they occur

A day after the ministry of finance warned that COVID-19 related complications could borrowers from trade, tourism, transportation, and construction sectors experience difficulties in repayments, thus worsening banking industry non-performing loans from the current 4.7% to 5.9%, today, the central bank has weighed in with a promise to prop up banks with liquidity support amongst many other measures, should they require it.

He, however, did not say where the central bank would be intervening to cut interest rates.

In a statement released today, March 20^th, 2020 by Prof. Emmanuel Tumusiime Mutebile, the Central Bank Governor, he said that although Uganda has no known single coronavirus case, the impact of COVID-19 outbreak on the economy is already visible, this the need to intervene against market volatilities.

“The volatility in the global financial markets has resulted in offshore investors exiting the frontier and emerging markets including Uganda, into safe havens. These factors pose a risk to financial stability and overall economic growth. Given the evolving situation, it is difficult to predict the extent and severity of the economic effect of the COVID-19 pandemic,”

He, however, said that in the meantime, in order to limit the impact of the COVID-19 on financial stability and economic growth, Bank of Uganda (BoU) will undertake the following measures:

1. Ensure that financial institutions supervised by BoU continue to operate effectively;
2. Ensure that contingency plans by financial institutions guarantee the safety of customers and staff;
3. Intervene in the foreign exchange market to: smoothen out excess volatility arising from the global financial markets;
4. Put in a place a mechanism to minimise the likelihood of sound business going into insolvency due to lack of credit;
5. Provide exceptional liquidity assistance for a period of up to one year to financial institutions supervised by BoU that may require it;
6. Waive limitations on the restructuring of credit facilities at financial institutions that may be at risk of going into distress due to the COVID-19 pandemic;
7. Continue to engage Mobile Network Operators (MNOs) and commercial banks to further reduce fees on mobile money transactions and other digital payment charges in order to limit the use of cash and bank branch visits and Increase daily transaction and wallet size limits for mobile money transactions.

Mutebile also said that BoU will continue monitoring the evolving impact of the COVID-19, and shall take additional measures as is necessary to mitigate the economic effects of this pandemic.

COVID-19 to hit Uganda economy hard

Matia Kasaija, in his statement to parliament yesterday warned of depressed global demand for Uganda’s exports and tourism services as well as a reduction in workers’ remittance and Foreign Direct Investments (FDIs) as well as foreign exchange distortions and revenue shortfalls would hurt Uganda’s growth prospects.

Overall, he revised government growth prospects for FY2019/20 from 6.0 percent to anywhere between 4.6% to 5.7% and said that in a worst-case scenario, this could see up to 2.6 million people relapse into poverty.

Government plans to borrow up to USD190 million (SHS725 billion) from the World Bank to plug budget gaps for FY2019/20 and FY202/21.