In his presentation on Tuesday evening, the Finance Committee Chairperson, Henry Musasizi explained that the Bank of Uganda Act, 2000 provides that government is authorized to issue securities for recapitalising BOU where its capital impaired.
The Finance Committee
of parliament has approved a request to recapitalise Bank of Uganda with Shillings
481billion in the 2020/2021 financial year.
This is part of the recommendations in
the Committee report on the National Budget
Framework Paper on votes in the finance sector.
his presentation on Tuesday evening, the Finance Committee Chairperson, Henry Musasizi explained that the Bank of Uganda Act,
2000 provides that government is authorized to issue securities for recapitalising
BOU where its capital impaired.
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Musasizi also noted that recapitalising BOU wouldn’t be done
through appropriation of cash from the Consolidated Fund but rather
from the securities issued by the treasury.
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He revealed that both the Finance Ministry and
BOU informed his Committee that the capital impairment arises from income that
is substantially lower than expenditure. Most of BOU's capital is
from interest earned on international reserves, which have been low since the
2007/2008 global financial meltdown.
“To raise international interest income while limiting risk
exposure, the bank holds most reserves in the USA where interest rates are
positive compared to Europe or Japan where they are currently negative,” reads
the committee report.
BOU is mandated to among others, maintain price stability,
ensure a sound financial system, issue notes and coins as well as maintain an
efficient payment system so as to create a stable economic environment that
promotes economic growth.
The finance committee noted that in order for BOU to
effectively fulfill its mandate, it incurred operating costs amounting to Shillings
686.4 billion in the 2018/2019 financial year.
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proposal to recapitalise the BoU has been a subject of contention in the Budget
Committee. On Monday, the Committee halted discussion on the matter citing the need for top management to justify the
request. The Committee summoned the BOU Governor, Professor
Emmanuel Tumusiime Mutebile and other top managers to appear on Tuesday to
explain their request.
the BoU officials were no show. The Committee
now says it will look into the explanation of
the Finance committee and consider other views on the same. Last year, the
Accountant General, Lawrence Ssemakula told Parliament that BOU had suffered
deficits since June 2013 and thereby needs money urgently to
avert an impending crisis.
This was further supported by the Auditor General’s 2018/2019
report, which showed that BOU is under capitalised to a tune of Shillings 671.7
billion. The Auditor General, John Muwanga explains that Section
14 (3) of the BOU Act, 2000 provides that the issued and paid-up capital of the
Bank shall be a minimum of Shillings 2 trillion.
However, the Leader of Opposition in Parliament, Betty
Aol Ocan has since urged the Budget Committee to reject the proposal for
recapitalising BOU. While presenting an alternative National Budget
Framework Paper on Tuesday, Ocan expressed concern that BoU has been
seeking financial bailouts annually yet it expected to perform better since it
is the lead agency of the monetary and fiscal discipline.
Parliament approved Shillings 210 billion to recapitalise BOU
in 2017/2018 and another Shillings 200 billion in the 2019/2020 financial year.
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The options include among others using savings on government
accounts, repurchasing agreements and drawing down General Reserve Funds which
stood at shillings 399.2 billion by June 30, 2019. Ocan also noted that the recapitalization request of Shillings
481.7 billion for the next financial year is double that of the projected
amounts for sectors of tourism, lands, trade and also ICT and national
The above sectors are expected to receive under shillings 190
billion next financial year. The Bank of Uganda Act 2000 states
that the authorised capital of the Bank of Uganda may be increased by a
resolution of parliament to ensure adequate operations of the bank.