BoU asks govt to cut expenditure

Central Bank Rate. The CBR rate for Dec reduced from 12.5 per cent to 12 per cent.

The central bank yesterday asked the government to cut its fiscal expenditure, saying there is less money available to spend.
This comes on the back of aid suspension announced by development partners due to theft of donor funds.
The central bank also announced that Uganda’s economic growth is likely to slow to 4.3 per cent down from 5 per cent as focused in November this year.

This, Bank of Uganda said, results from reduced dollar inflows with supply constrained by the aid cuts announced by Britain, Norway, Germany and Denmark among others.

Speaking during the release of the December monetary policy, the governor BoU, Mr Emmanuel Tumusiime Mutebile, said since the last monetary policy statement, prospects for real economic growth in 2012/13 have weakened.

Hence, Mr Mutebile added: “I would like to advise the government to reduce on its fiscal expenditure in response to aid cuts.”

He said the main constraints to economic growth in the short-term are weaknesses on the demand side of the economy, lack of growth in private sector credit, the need to cut government expenditure and the
currently difficult global economic outlook.”

Bank of Uganda announced yesterday that it would cut the Central Bank Rate to 12 per cent for December from 12.5 per cent with a view of accelerating growth of private sector credit.

Mr Mutebile said the central bank would in the interim continue to focus on stimulating aggregate demand in order to boost economic growth without jeopardising inflation target of 5 per cent.

BoU director for research Adam Mugume said the aid that had been cut would reduce Uganda’s GDP by 1.3 per cent representing about $180 million.

In the 2012/13 Financial Year Ms Maria Kiwanuka, the Finance minister announced that the government would borrow $225 billion through domestic means including T-Bonds and T-Bills to finance government expenditure gap besides the revenues accruing from domestic and donor aid.

In an interview with Daily Monitor Mr Uthman Mayanja, a partner with PwC, said the central bank’s advice to the government is welcome because government cannot spend what it doesn’t have.

He said: “What the government needs to do is to review its expenditures and reallocation of the available fund among
ministries.”
moketch@ug.nationmedia.com