PSFU concerned over govt’s domestic borrowing strategy

Private Sector Foundation Uganda (PSFU) has said government’s domestic borrowing strategy to finance the National Budget will suffocate private sector growth.

Earlier in the month, the government secured parliament’s approval to a syndicated 1.7 trillion shilling credit facility arranged by Standard Chartered Bank.

But according to PSFU chairman Elly Karuhanga, government’s sale of Treasury Bills as part of the domestic refinancing strategies affects local growth.

“Consequently, commercial banks end up investing more in Treasury Bills and this does not only crowd out the private sector from the financial sector, but also undermines the import substitution strategy,” he says.

But the Finance ministry says that despite the approval of the budget by parliament, they want to make sure there is less reliance on the local market, the reason for the recent requests to get commercial loans.

The Ministry is also seeking to borrow another 500 million euros to finance the current budget (2022/23), and has notified interested lenders to apply to structure the credit facility.

“Consequently, commercial banks end up investing more in Treasury Bills and this does not only crowd out the private sector from the financial sector, but also undermines the import substitution strategy,”

Elly Karuhanga, PSFU chairman

Permanent Secretary and Secretary to the Treasury, Ramathan Ggoobi says while these might be commercial loans, they have set terms that ensure they will have appropriate repayment terms.

“This financing will offset the equivalent of the Net Domestic Financing (NDF) requirement that was approved for the FY 2022/2023,” says the statement from the ministry, adding that this excludes the dreaded Eurobond option.

The statement says the credit should be for a minimum of a minimum of 10 years tenor, a competitive interest margin and a grace period of not less than four years, among others.

According to Ggoobi, these arrangements will ensure that the government reduces on how much it goes to the domestic financial market to borrow.

“Government of Uganda, in a comparatively smarter way is supporting private sector recovery by…reducing domestic borrowing, which would’ve become more expensive if it went ahead and borrowed as it had planned prior to the current global crisis,” he said.