Uganda prone to financial crisis

Uganda prone to financial crisis

Martin Luther Oketch

Kampala

An index on the global crisis by the World Bank shows that Uganda is vulnerable to the global financial crisis. The vulnerability index shows the figures have moved from 0 per cent to 0.6 per cent - an indication that the crisis is spilling over.

This was revealed during a dialogue between the World Bank and Makerere University Statistics and Development Economic students held at the World Bank head office at Rwenzori House on January 22.

Ms Rachel Kaggwa Sebudde, an economist with the World Bank who made the presentation said: “We have seen that Uganda’s vulnerability index of being affected by the financial crisis has moved from 0 per cent last year to 0.6 per cent now.”

As the crisis looms, it is likely that the country will begin facing lower prices and demand of its exports and the end results will be lower fiscal revenue as trade slows down. “Likely channels of transmission of the global financial crisis into Uganda is being observed through global slow down, lower prices and demands for Uganda’s exports and lower fiscal revenue as trade slows down,” Ms Sebudde said.

She however noted that the financial sector in Uganda is well-capitalised and at comfortable levels of internal reserves and covering approximately months of exports. “Uganda is a small open economy and effects on the economy will depend on the severity on the international environment,” she said.

Ms Sebudde further explained that the performance indicators of the developing countries are worsening. “The World Bank has lowered its growth for developing country economies to 4.5 per cent in 2009 compared to the previous projection of 6.4 per cent,” she said. The index shows that Kenya’s vulnerability now stands at 0.4 per cent, Rwanda 1.4 per cent, Burundi 0.8 per cent and it does not show any thing for Tanzania as yet.

Ms Kaggwa said that the net out-flow of capital depreciated a number of African currencies, particularly in the last quarter of 2008. Kenya, Senegal, Tanzania, and Ghana have put on hold plans to access international capital markets. Ghana and Kenya postponed sovereign issues worth about $800 million. The current financial crisis has evolved differently from other major crises that have hit the developing world in recent decades. Virtually no country, developing or industrial, has escaped the impact of the widening crisis.

Governments around the world are trying to contain the crisis, but many suggest the worst is not yet over. On how they are preparing for the crisis, Ms Kaggwa said World Bank is to increase its International Bank for Reconstruction and Development lending $100 billion over the next three years, fast tracking up to $42 billion in International Development Association grants and long term interest-free loans to the world’s 78 poorest countries, 39 of which are in Africa.

Ms Kaggwa said that an initial $2 billion is available to the hardest- hit countries to finance expenditures needed to maintain economic stability and sustain growth, address volatility, and protect the poor.

However, Ms Kaggwa said: “So far, the government of Uganda has not indicated they will be needing emergency help in the face of the global financial crisis. World Bank remains ready to adjust programme appropriately using instruments already mentioned in case Uganda requires help.”