Uncertainty continues as global financial crisis takes toll on Uganda

Uncertainty continues as global financial crisis takes toll on Uganda


www.chinaview.cn 2009-02-11 01:42:35

KAMPALA, Feb. 10 (Xinhua) -- Financial experts here are still unsure of what magnitude the global financial down turn will have on the country's economy, but what is certainly clear is that crisis has started taking its toll.

According to the International Monetary Fund (IMF), though the country's economy has continued to thrive, the current global financial crisis and economic downturn threatens to reduce its growth prospects.

The global financial body, which predicted a fall in the country's economic growth from 9 percent to 7 percent this year, urged authorities to be vigilant to reduce the impact.

AIG Investments on Tuesday predicted that the country is not likely to achieve the projected 7 percent economic growth this year. It instead predicted that the economic growth would range between 5 to 5.5 percent because of the effects of the financial crisis.

Ugandan President Yoweri Museveni told reporters here on Tuesday that government is still studying what impact the crisis will have on the economy and what measures will be taken to minimize the effects.

While at a local church on Sunday, Ezra Suruma, the minister of

finance told his congregation that these were difficult times and it was hard to predict how the crisis is going to affect the country.

The abrupt closure of Gateway Broadcast Services, a London-based cable TV, last weekend due to lack of funding amid the financial crisis, has sent a panic wave among Ugandans, especially amid reports that other international companies will also close.

Barclays Bank Uganda was last week reported to be closing after it laid off over 200 of its employees.

The bank's parent company Barclays Bank Group in the United Kingdom has been forced to go through a restructuring process, which has seen more than 4,200 employees laid off mainly in the UK.

This has created panic among the banks' customers here with some closing their accounts, making the bank and Uganda's central bank, Bank of Uganda (BOU), come out to clarify that the bank is not closing.

The impact of the financial crisis has also partly reduced the country's tax collection by 108 billion shillings (about 55 million U.S. dollars) in the first half of the financial year 2008/2009.

"The global financial crisis partly contributed to the shortfall as some businesses were affected," Uganda Revenue Authority said in a statement recently.

According to the tax body, the collections realized during the period under review were less the targeted 1,827.95 billion shillings (about 904 million dollars) by about 5.9 percent.

Emmanuel Tumusiime Mutebile, Governor of BOU, believes that the country is well cushioned against any financial danger that would lead to economic disaster, noting that the effect will be minimal and may be felt in the second half of this year.

According to experts, the country will have a reduction in foreign direct investment, export earnings, donor funding and remittances from Ugandans in the Diaspora.

"We are seeing recessionary conditions setting in and affecting emerging markets including Uganda who will have to revise their economic projections to reflect the reality," Nicholas Malaki, AIG Investment Manager and Country Representative told reporters here on Tuesday.

Mutebile said that the country's economists have prepared well for these imminent external shocks.

The bank has established a Credit Reference Bureau that will have the whole history of borrowers and will help commercial banks in risk management.

Despites these assurances many political managers and experts still have doubt whether the crisis will affect the country severely or not.

Takatoshi Kato, the IMF deputy managing director last month said that the authorities here need to be vigilant and avoid drastic actions that may increase the effects of the economic downturn.

"The fiscal stance underlying the 2008/09 budget provides an appropriate modest stimulus but in the event of revenue shortfalls from budget targets, immediate cuts in current expenditures should be avoided. These may exacerbate the economic downturn and lead to domestic arrears," he said.

He said though the current global environment could make raising foreign financing difficult, investing in infrastructure is still critical if the country is to achieve the medium term growth potential.

According to Malaki, Uganda and other African countries do not need to panic because they will not go into recession. He said the countries just need to reduce their expenditure on nonessential factors and also come up with strong polices.

"We don't think Africa is going into recession, we will grow but at a lower rate," he asserted.


Editor: Yan