Regulated financial institutions in Uganda approved loans to the private sector amounting to 5.1 trillion Shillings in the three months leading up to December 2013, according to the quarterly State of the Economy report by the Bank of Uganda. The report indicates a growth in loan volume during this period, although the approval rate in value terms decreased from 64.1% to 58.6%. The increased demand for loans is attributed to inventory buildup for the anticipated festive season demand and educational institutions’ need for working capital and operational funds.
Parliament recently approved the Ministry of Finance’s proposal to borrow 3.1 trillion Shillings from local commercial banks to fund a 3.5 trillion Shilling supplementary budget. A significant portion of this loan is intended to repay the 2 trillion Shillings borrowed from the Bank of Uganda during the Covid-19 pandemic.
The report also notes that the World Bank’s decision to halt funding projects in Uganda following the passage of the Anti-Homosexuality Act led to a depreciation of the Uganda Shilling against the US dollar. The shilling depreciated by 8% to 3,825.33 per US dollar in September 2022. To support the shilling, the Bank of Uganda increased the cash reserve requirement by 2 percentage points to 10% in June 2022. Despite recent depreciation driven by various factors, the exchange rate has remained broadly stable.
The report highlights concerns about increasing public debt, noting that interest payments and external debt principal repayments put pressure on tax revenues. The report states, “For every 100 shillings collected in tax revenues, 32 goes to debt service, diminishing resources available for service delivery.”
