June 5, 2023

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Leader of opposition questions BoU continuous recapitalisation

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The Leader of Opposition in Parliament Betty Aol Ocan has questioned the continuous need to recapitalize Bank of Uganda saying that it could be a sign of financial indiscipline.

The query is carried in her response to the National Budget Framework Paper for the coming financial year 2020/2021. The government indicated in the framework paper, that up to 482 billion Shillings will be needed to recapitalize the Central Bank next financial year.

In the financial year 2017/2018, parliament approved an allocation of 210 billion Shillings to recapitalize the Bank. Another 200 billion Shillings was approved this year.

Aol says that it is worrying for the lender of last resort to seek bailouts on an annual basis, and adds that as the lead agency of monetary and fiscal discipline, Bank of Uganda must perform better than the banks it supervises.

She says that it is surprising that just within a year after recapitalizing the Central Bank, an additional 482 billion Shillings is being sought for recapitalization.

Aol argues that the requested amount is more than double the projected budgets of some sectors like Tourism, whose budget stands at 193.7 billion shillings, Social Development, with a budget of 172.5 billion Shillings, Lands, Housing and Urban Development standing at 172.3 billion Shillings and Trade and Industry, with an allocation of 172 billion Shillings.

She suggested that before requesting for recapitalization, as a means of controlling monetary policy or inflation, the Bank should consider utilization of savings on government accounts, a drawdown of General Reserve Funds and deposit auctions as well as repurchase agreements.

She says that as of June 30, 2019, General Reserves were amounting to 399.27 billion Shillings but the Bank indicated that it did not consider drawing down the general reserves before requesting for a recapitalization. Aol says that the Bank should exhaust all options before seeking any recapitalization.

Last year, Lawrence Ssemakula, the Accountant General told parliament that the Central Bank had suffered deficits since June 2013 and urgently needed money to avert an impending crisis.

The new request to recapitalize the Central Bank is currently before Parliament’s Finance Committee for scrutiny.

Section 14 (2) of the Bank of Uganda Act 2000 states that the authorized capital of the Bank of Uganda may be increased by a resolution of parliament to ensure adequate operations of the bank.

In his 2018/2019 financial year audit report, Auditor General John Muwanga queried the under-capitalization of Bank of Uganda to a tune of 671.71 billion Shillings. He noted that as per Section 14 (3) of the Central bank Act, the issued and paid-up capital of the Bank shall be a minimum of 2 trillion Shillings.


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