By eastafrican gazette
Days after reading the Uganda’s shs72Trillion Budget for the FY2024/2025, the Secretary to the Treasury of the country has clarified that a significant portion of the allocated budget, amounting to shs7.8 trillion, will be dedicated to addressing the debt of the Bank of Uganda.
Additionally, a substantial sum of nearly sh12 trillion will be utilized for domestic financing purposes.
“The shs12 trillion is domestic financing of maturing domestic debt. It is not money we are going to spend or borrow. So, about shs19.8 trillion is money on our budget, but is not for money we are going to spend,” Ramathan Goobi noted.
During a post budget dialogue session held in Kampala by Absa Uganda, the speaker emphasized that the government made a strategic decision to address the Bank of Uganda debt in order to enhance macroeconomic stability.
It was clarified that the funds allocated for this purpose will not be obtained through borrowing from the Central Bank.
Ggoobi further elaborated that the government has issued treasury bonds of different durations to the Bank of Uganda.
These bonds will be retained and utilized solely to absorb any surplus liquidity in the market, as and when required. Emphasizing the importance of this approach, he highlighted that the Bank of Uganda will retain the bonds and only liquidate them when there is an excess of liquidity in the market.
“It is not money we are going to spend or borrow. So, about shs19.8 trillion is money on our budget, but is not for money we are going to spend,” he added.
Julius Kateera, the Head of Financial Markets, stated that the debt has been increasing over time to support the budget, particularly during the COVID-19 pandemic when the government faced challenges in generating the necessary revenue.
“The commercial banks pay the investor and then they get reimbursed from tax collections. So, what has happened from time to time is that they pay the investor and then the collections from Uganda Revenue Authority are not enough. So, the draw from an overdraft from BOU,” he explained.
Kateera stated that the overdraft has gradually increased over time, and to address this, the Bank of Uganda (BOU) is taking measures to settle the debt by converting it into government bonds.
This strategic move will ensure that the debt is gradually paid off and eventually reduced to zero.
By doing so, Kateera said the government will be able to maintain a sustainable financial position and live within its means.
“This is a positive in the sense that investors are guaranteed that they will get their money,” he added.
Additionally, they clarified that the government’s upcoming fiscal year will focus on heightened domestic borrowing to uphold financial stability and bolster development initiatives.
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