The Bank of Uganda (BoU) has decried continued government borrowing from domestic banks, a thing that is crowding out private sector.
The remarks were made by Prof. Emmanuel Tumusiime-Mutebile, the BoU Governor on Wednesday while issuing the Monetary Policy Statement for December 2018.
Mutebile said the BoU’s Composite Index Economic Activity (CIEA) indicates stronger economic performance in the first 10 months of 2018, with an annualized growth rate of 7-8 percent.
“This is an indication that economic growth in FY 2018/19 could be higher than the previous projection of 6 percent,” Mutebile said.
He added the strong growth is in part supported by the accommodative monetary stance and the associated rebound in private sector credit extension, ensuing strong domestic demand conditions, multiplier effects of public infrastructure investments and improved agricultural productivity.
“The positive growth is expected to be sustained over the coming years, partly driven by public infrastructure investment,” he said.
Nonetheless, he said, there are risks to the projected economic growth momentum including the slow execution of public investment projects; unpredictable weather conditions, which could affect agricultural productivity; and the slowdown in global growth and global financial uncertainty, which could affect the external position.
“In addition, growth in Private Sector Credit, though on a recovery path, remains below its historical trend and its contribution to economic growth could be weighed down by increased public borrowing requirements and the associated further increase in lending interest rates,” he said.
Meanwhile, the BoU maintained the Central Bank Rate (CBR), a benchmark lending rate for commercial banks at 10 percent. This was after inflation remained subdued, with annual headline inflation remaining stable at 3.0 percent in November 2018, while Core inflation declined marginally to 3.4 percent.