Private Sector Credit (PSC) growth has continued to recover supported by Bank of Uganda’s monetary policy easing, Business Focus reports.
The Monetary Policy Report for December says that average annual PSC growth for Quarter to October 2017 was 6.2% relative to 5.6% in the previous quarter.
However, the report adds that “The increase in Non-Performing loans (NPLs) remains the biggest risk to PSC growth.”
Releasing the Monetary Policy Statement for December 2017 at BoU offices on Monday, Dr. Louis Kasekende, Deputy Governor, BoU said the cost of credit is high and NPLs remain relatively high with a possibility that this will constrain credit extension.
Justine Bagyenda, the Executive Director in charge of Supervision at Bank of Uganda says that industry NPLs have increased to 7.2% in September 2017, up from 6.2% in as at June30, 2017.
She however says that Uganda’s banking sector remains sound and solid.
“All banks are well capitalized,” Bagyenda said on Monday at the sidelines of the press conference.
BoU stayed the Central Bank Rate (CBR), a benchmark lending rate for commercial banks for the month of December at 9.5% on account that core inflation is projected to pick-up in 2018/19 to around 5% as spare capacity in the economy is reduced.
In November 2017, Headline and Core Inflation declined to 4.0% and 3.3% from 4.8% and 3.5% in October 2017 respectively.
Kasekende said Uganda’s GDP growth is projected to rise to 5% in 2017/18, up from 4% (revised) in 2016/17.
“In the medium term, the economy is expected to expand at a faster pace boosted by public investments, growth in consumption and the current stimulatory monetary policy.”
However, BoU says government expenditure in 2017 was lower than approved budget.
“Lower development expenditure could constrain economic activity growth in 2017/18,” BoU Monetary Policy report says.
It adds that Uganda’s Current Account Deficit (CAD) deteriorated from US$303.9million to US$520.1million during the Quarter-October 2017, largely driven by developments in the Goods account.
In the short term, BoU says current account deficit is likely to worsen driven by a rise in the import bill associated with the festive season. However, this could be moderated by increased personal transfers.
“The current account balance is likely to widen further as the import bill rises largely on account of the continued pickup in economic activity,” the report says.