Summary:
- Government plans to borrow Shs9 trillion domestically to support local banks amid liquidity challenges, aiming to stabilize the financial sector while managing risks of crowding out private sector lending.
KAMPALA, (Examiner) – Secretary to the Treasury Ramathan Ggoobi confirmed the government’s plan to secure Shs9 trillion through domestic borrowing for the upcoming fiscal year. This decision aims to bolster local banks facing liquidity challenges, with Mr. Ggoobi emphasizing that prudent considerations, including stimulating business growth, precede each borrowing initiative.
Highlighting the financial sector’s critical role, Mr. Ggoobi pointed out that despite local banks holding Shs27 trillion, they refrain from extensive lending to the public. He stressed the necessity of government intervention to prevent potential financial instability and ensure sustained sectoral health. The Treasury Secretary reassured stakeholders of a balanced borrowing approach to mitigate adverse market effects, noting, “We only take the excess.”
The discourse, hosted by NTV and Absa, underscored banks’ cautious stance on private sector lending due to rising default rates, favoring safer investments in government securities like treasury bills and bonds. This shift reflects banks’ perception of government as a reliable borrower offering guaranteed repayment, contrasting with uncertainties surrounding private sector creditworthiness.
Participants in the dialogue cautioned against excessive domestic borrowing, warning of its potential to crowd out private sector access to credit markets. Mr. Johnson Omolo of NTV advocated for reduced government reliance on domestic borrowing, urging clearer strategies to settle domestic arrears and stimulate private sector activity.
With domestic debt escalating to Shs38.1 trillion by December 2023, and projected to increase further, experts like Mr. Stephen Kaboyo of Alpha Capital stressed the need for cautious fiscal management. Concerns were raised over the sustainability of current debt levels and their impact on national economic stability, citing cautionary tales from countries with similar fiscal policies.
As government prepares for the 2024/25 budget, stakeholders urge a balanced approach to fiscal policy, emphasizing strategic investments and prudent financial management to sustain economic growth amidst evolving global economic challenges.
