Low interest earnings and increased expenditure forced the Central Bank into a loss of Shs500b, the Bank of Uganda (BoU), director for communications, has told Daily Monitor.
In an email exchange on Monday, Ms Charity Mugumya, said the Central Bank had sought recapitalisation from Parliament because of a loss that was particularly occasioned by low earnings on interest earned on foreign exchange reserves.
Parliament turned down the recapitalisation request and has since asked Bank of Uganda to explain the Shs500b loss.
“Interest rates on assets in which BoU invests its foreign exchange reserves are very low. BoU has not earned much revenue in recent years,” Ms Mugumya said, highlighting that this has not been helped by rising expenditures.
The loss comes at a time when economic fundamentals are not reading right, which, according to analysts, will further negatively impact the already weak economy.
Dr Fred Muhumuza an economist and lecturer at Makerere University, yesterday told Daily Monitor the Central Bank will now be funded through the mainstream budget as its incomes can nolonger fund its activities.
“The Central Bank has duties it does and has costs it incurs, which were being covered through its earnings. However, the money to fund these activities must now come from somewhere else,” he said.
However, Ms Mugumya insisted the loss will be mitigated as the Central Bank has a number of instruments at its disposal to correct the loss.
Key among the instruments, she said, include government papers such as Treasury Bills and Bonds.
The Central Bank’s revenues, she noted, had also been impacted by rising costs on monetary policy operations, printing money, staff salaries, maintenance, utilities and licenses for software, among other.
The bank also spent heavily on monetary policy costs, which had been occasioned by high interest rates on government papers that amounted to Shs270b.
Moping up excess liquidity (excess money) to control inflation, Ms Mugumya said, was another costly venture that the Central Bank has to put up with.
The Central Bank, according to Ms Mugumya, aslo spent Shs139b on printing money. However, she said, they were yet to ascertain the precise loss pending a full audit for the 2017/18 financial year.
“It will be known once the audited accounts for 2017/18 have been finalised,” she said.
Details tabled before Parliament recently had indicated that the Central Bank had posted a Shs500b loss.
It is the first time the, in as many years, that the Central Bank has registered a loss, which points to a tough economic environment.
Ms Charity Mugumya’s reaction to daily monitor questions
How did you make the loss?
We earn revenues mainly from the interest on foreign exchange reserves. However, because interest rates on assets are very low, we have not earned much revenue in recent years.
This has been the case amid heavy costs on monetary policy operations, printing currency, staff salaries, maintenance costs, utilities and licenses for software, among others.
In which activities did the central bank make losses?
Two of the main components of our expenditures which have contributed to the losses are monetary policy costs – the net interest which we pay on monetary policy operations such as issuing repos to mop up liquidity – which are forecast at nearly Shs270b and currency printing at Shs139b.
How much was the loss?
The precise amount is not yet known as the financial year is not yet over.
It will be known once the audited accounts for 2017/18 financial year have been finalised.
Does the loss affect the operations of BoU?
No. We have sufficient instruments to implement monetary policy.
Currently we have sufficient instruments for monetary policy in the form of repos and reverse repos, deposit auction facilities and recapitalisation bonds.
If we were unable to conduct monetary policy effectively, this would be reflected in interbank interest rates deviating from the Central Bank Rate.
For instance, we would not be able to control short term interest rates in the market. This is not the case.