CHANGING CURRENCY AND STRICTLY REGULATING THE AMOUNT IN CIRCULATION CAN HELP UGANDA
It is simply panic now in Uganda as no body ids sure of what next. As the shilling keeps depreciating as reflected in the ever increasing prices, there is real concern. As Cabinet prepares to sit, Thursday 4th August 2011, I wish to advise that, one strategy Government can use as of now is to get back into the banking system much of the currency in circulation. This is against the background that many people seem to be holding a lot of money which they are not depositing onto their accounts which is greatly affecting the stability of the currency as its regulation is impossible. In the circumstances, Government may have the option as giving a limited time say a month to see a new currency operational. Prior to operationalizing the new currency, Government could advise all those with big sums of money to have the money into their bank accounts to avoid the inconvenience at the time of exchange. On exchanging the money, one would have to take a fixed amount and have the balance into his/her bank account. The arrangement could be that people are categorized depending on what they have to exchange, those with big sums alone, and those with small amounts so as not to inconvenience the small balance holders, given that the sinners are those with big sums of money. Government would then ensure that people observe payments using cheques for most transactions and the use of travellers’ cheques . This strategy if religiously observed will create an artificial shortage of currency in circulation and stabilization of prices may be realized. Government at the same time ought to ensure discipline on its part as it is because of the sins of the NRM Government that everybody is paying the price, hence making all fixed earners have their income useless. It is very easy to put measures in place and have Government violate them. The schemes like purchase of cars by MPs should be suspended so that they use the cars they have at hand until the situation improves. Also expenditures by Government in the 2011/12 Budget which are not a priority should be halted. Government must also ensure that it has a window for Foreign currency where a fixed rate rules for a time more so for what Government has to procure that is basic including medicines among others.
William Kituuka Kiwanuka
Rising inflation: Central bank predicts slowed economic growth
TOUGH TIMES: Central Bank chief Mutebile expects economic slump owing to the weakening Shilling. Photo BY STEPHEN WANDERA
By Martin Luther Oketch
Posted Wednesday, August 3 2011 at 00:00
Despite Bank of Uganda’s continued pursuance of a tight monetary policy in July to rein in the second round effects of the supply side-induced inflationary pressures and mitigate depreciation without compromising growth, Martin Luther Oketch writes that the economists expect slow growth.
The Central Bank yesterday predicted Uganda’s economic growth rate will slow down by about 2 per cent as a direct consequence of the ongoing inflation and volatility in the foreign exchange market.
With the economy suffering under a 10-year high 18.7 per cent inflation rate, a continually depreciating Shilling and high fuel prices, BoU has now projected economic growth to slump to 5 per cent down from the 7 per cent projected earlier.
The Central Bank said high inflationary pressures and foreign exchange instabilities has forced it to keep tightening monetary policy, which ultimately will reduce on the level of aggregate demand in the economy.
At a news conference yesterday where he announced the new Central Bank Rate (CBR), Bank of Uganda Governor Emmanuel Tumusiime Mutebile said ongoing policy operations are aimed at curbing the growth in the aggregate demand by hiking CBR in the interbank market.
It is hoped that this will lead to reduction in the aggregate demand in the economy that is causing an economic slowdown. “As we raise the Central Bank Rate, it may affect the output in the economy. So we expect the output growth rate to be at 5 per cent for this fiscal year,” Mr Mutebile said. The expected output Mr Mutebile underscores is the Growth Domestic Product (GDP).
By yesterday afternoon, the official central bank exchange rate saw the Shilling trading at 2,634.2 against the dollar and selling at 2,660.66. The central bank said average monthly exchange rate for July 2011 stood at Shs2,588 per dollar, representing a depreciation of 5.1 per cent on monthly basis and 14.6 per cent on annual basis. The central bank said this was higher than the monthly depreciation of 3.1 per cent recorded in June 2011.
Uganda’s GDP rebounded 6.3 per cent compared to 5.5 per cent in FY 2009/10 – and this was largely attributed to the recovery in construction and increased trade activities, and strong performance in the telecommunications, financial services, mining and quarrying sub-sectors.
Services continue to be the major drivers for economic growth, contributing about 50 per cent of the total annual national output. The industrial sector contributes about 27 per cent and agriculture 24 per cent.
In June, government projected economic growth at between 6.5 per cent to 7 per cent. However, BoU says due to price instabilities in the economy leading to monetary policy adjustments by the central bank, the likely impact lead to low output in the economy. Consistent with global outlook, domestic inflation forecasts, output gap, and exchange rate forecasts, Mr Mutebile said BoU continued to pursue a tight monetary policy in July.
“The objective was to rein in the second round effects of the supply side-induced inflationary pressures, anchor medium term to-long term inflation expectations, and mitigate depreciation pressure without compromising growth,” he said.
On the question of volatilities in the foreign exchange market, the governor said the Shilling will continue trading against the dollar between Shs2,550 to Shs2,670 for some time. “It is a difficult for any central banker in the world to know exactly where the currency of a country is going to stabilise against other currencies,” he said.
In its monthly monetary policy report for August, central bank said: “This depreciation should encourage substantial structural adjustment in the economy. Adjustment is inevitable with depreciation and it should not be frustrated, but rather be facilitated by policies that enhance economic flexibility.”
Euro Zone crisis
The Director Research at Bank of Uganda, Dr Jacob Opolot, said the depreciation pressures were driven by offshore players constituting 28 per cent, manufacturing sector constituting 19 per cent and energy sector 29 per cent. By yesterday afternoon, in open markets (forex bureaux) the Shilling was trading in the range of Shs2,630 buying per dollar and selling Shs2,670 per dollar.
Mr Syed Jafar ALi Jaffari, a branch manager at Stanhope told Daily Monitor that due to Euro Zone crisis, coupled with US debt crisis, the demand for US dollars has increased. “We have seen instabilities cropping up again in Uganda because of high demand for the dollar internally. especially from the energy sector,” he said.
ECONOMIC HARDSHIPS REQUIRE RESPONSIBLE, ACTIVE LEADERS
27 July 2011
AS we continue to grapple with the biggest economic challenge of our time, leaders in the public and private sector are increasingly under pressure to offer solutions.
Uganda National Chamber of Commerce and Industry (UNNCI) as a membership organisation representing trade and manufacturing sectors in the country is no exception. In the last couple of weeks, I have been overwhelmed by calls from our membership demanding to be reassured about their safety, and that of their businesses, following calls for businesses to go on strike, which the majority do not support.
They also want to be assured that the Government is putting in place measures to address policy bottlenecks that will bring relief to current economic challenges. Some of them, who choose to operate their businesses, have been threatened with burning of their businesses and even physical harm. This calls for Government intervention in managing the voices that claim to speak on behalf of the business community.
We all know there is an economic crisis the world-over. It continues to challenge even established economies in Europe, America with the strength of the Euro under tremendous pressure to survive, and the American economy at the brink of a recession.
The prevailing challenges have exposed the laxity in regulation and accreditation of private associations that represent the collective business sector. With multiple voices claiming to represent the interests of the business community, some end up manipulating the situation to advance their own agendas. It is important, therefore, to define and agree on who, for example, has the mandate to speak on behalf of a critical sector such as the business community.
At UNCCI we have advanced some ideas to the Government for action on some of the critical and contentious issues. For example, on the issue of foreign nationals engaging in 'petty' business, we called for a comprehensive review of all work permits issued to foreigners. This review should however not be used to target Ugandans of Asian origin or other East Africans who enjoy special residence privileges under the EAC treaty.
On the issue of trading licenses, the relevant ministry needs to review the trade licensing regime and also evaluate the contribution of trade license revenue to the Kampala City Council Authority (KCCA) budget. If the KCCA budget is significantly financed by central Government the trading license contribution will be marginal, perhaps then the Government could consider abolishing them altogether.
Seizure of substandard goods by the Uganda National Bureau of Standards (UNBS) after payment of taxes, is deplorable. Preventative measure need to be put in place to prevent such good from entering the country in the first place.
UNBS and URA need to coordinate and use the ASCYUDA tracking system to ensure that substandard goods do not enter at all. Indeed the Pre-Import Verification Scheme should by now be effective in checking such discrepancies in the quality of shipped goods. UNBS should also work with private sector bodies like UNCCI and the Private Sector Foundation (PSF) and others to sensitise the business community on the importance of quality and standardisation.
On high taxes of essential commodities like sugar and rice, there is need to expand the tax base through formalisation of many informal businesses which need to be supported to meet tax obligations and therefore fit within the tax bracket. We believe the Government needs to consider subsidising such activities, as is the case in other countries. To address the current rice shortages the Government should promote local production in order to increase output capable of meeting both local demand and export needs.
Contradictions in the sugar policy need urgent attention. The Government should balance the liberalisation of the sector with protection of domestic production. Sugar can potentially become one of our main exports. Also out grower schemes need to be deliberately supported to boost local participation in production.
Lastly, the Government should consider signing the Free Trade Agreement with COMESA in order to rationalise the competition within the region.
On volatile exchange rates which make imports expensive, we urge the central bank to remain pro active and continue stabilising the situation as and when it occurs. However, going forward there is a need for improved communication between the public, and private sector on currency issues.
The Ministry of Finance, Bank of Uganda, Ministry of Internal Affairs, and the Ministry of Trade and Industry should have regular dialogue with private sector key stakeholders like UNCCI, PSF, and Uganda National Farmers Association among others. This will be a good platform for updating the private sector on development efforts being made by the Government to solve issues. This would pre-empt unnecessary scenarios like strikes.
Finally, we all need to come of age, to re-focus interests towards more export for more foreign exchange, towards increased and diversified economic activity. This is a win-win situation for everyone. Of course, government can do more to interest a larger section of the business community to re-orient their interests towards exports and less towards imports.
President of the Uganda National Chamber of Commerce and Industry