"Deepening East Africa's Regional Economic Integration Will Be Crucial"

Article excerpt

Professor Emmanuel Tumusiime-Mutebile (right) has been at the helm of the Bank of Uganda as Governor for over a decade, and has presided over some of the most pivotal moments in Uganda's modern economic history. He talks frankly to Darren Moore about some of the challenges and his vision for the Bank of Uganda as the country reaches its 50th year of independence.

Q Under your tenure as governor what would you say has constituted the Bank of Uganda's most critical challenges?

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The first major challenge was reforming the prudential regulatory framework for the banking system in the first half of the 2000s. These reforms were necessary to strengthen the framework in response to several bank failures that had taken place in the late 1990s. The banking laws were revised with the enactment of a new banking act, the Financial Institutions Act (FIA), in 2004, which raised the minimum capital requirements for commercial banks.

The Bank of Uganda's (BOU's) authority to intervene and force failing banks to implement remedial measures or be closed were greatly enhanced with the inclusion in the FIA of mandatory "prompt corrective action" provisions. The BOU also reformed its approach to bank supervision by implementing "risk based supervision", which emphasises analysis of the risk profile of each bank and the quality of its risk management.

The strengthening of the prudential regulatory framework has paid dividends in that the banking system has been able to expand rapidly since the turn of the millennium, to increase the ratio of loans to deposits from 43% in 2002 to 71% in 2012 and has also become more competitive with several new entrants while at the same time remaining in a very sound financial condition.

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The second major challenge has been to maintain macroeconomic stability, particularly in the face of a series of major external shocks over the last four years, shocks which include: The steep rise in global fuel and food prices in 2008; the global financial crisis, and subsequent great recession in the advanced economies; and a second food price spike in 2011. The global economic environment has become much less benign and this has adversely affected Uganda's balance of payments and increased the volatility of the exchange rate.

Nevertheless, Uganda has been able to navigate its economy through these storms and has maintained positive real GDP growth of 4-6% each year since the onset of the global financial crisis.

Q What procedures have been put in place to manage Uganda's external debt?

External public debt is managed in accord with the External Debt Strategy of the Ministry of Finance, Planning and Economic Development (MFPED). MI proposals for external borrowing must be first approved by the MFPED and all external loans must be approved by parliament before the government can contract them. The external debt strategy has so far restricted external borrowing to concessional loans, although this may be relaxed to allow very modest amounts of commercial borrowing in future, in a manner that is consistent with maintaining debt sustainability. The details of all external borrowing are kept on a central database to ensure that the stock of debt and its composition can be properly monitored at all times. The MFPED, with the assistance of the BOU, undertakes an external debt sustainability analysis on an annual basis. The net present value of Uganda's public and publicly guaranteed debt in 2011 was only 13% of GDP and 59% of exports, which is well within the applicable sustainability thresholds of the IDA/IMF low-income countries debt sustainability framework of 50% and 200% respectively.

Q What inflation-combating measures have been implemented in the bank, and how effective have these been? …