Uganda’s financial sector posts mixed results as exports revenue continues to perform poorly

By George Mangula

During the month of May, the Uganda shilling slightly depreciated against the US Dollar by 0.15%, trading at an average midrate of Shs 3,791.46/USD compared to Shs 3,785.75/ USD the previous month reports the Ministry of Finance in its latest Performance of the Economy Report.

According to the report, the depreciation was largely on account of a reduction in foreign exchange inflows in the form of NGO transfers, remittances, tourism and export receipts. The shilling also weakened against the Euro, depreciating by 0.48 percent, but strengthened against the Pound Sterling, appreciating by 0.91 percent.

The Central Bank Rate (CBR), which was reduced from 9% to 8 percent in April, was maintained at that level in May. Bank of Uganda says the monetary easing is intended to bolster economic activity in the face of the COVID 19 shock.

The report says the Shilling denominated lending rates edged downwards in April, decreasing by 0.05 percentage points to 17.73 percent from 17.78 percent in March. Foreign currency lending rates followed a similar trend, decreasing to 6.20 percent from 6.57 percent over the same period.

Govt securities

The report says there were two treasury bill auctions and one treasury bond auction in the primary market. Shs535.55 billion was raised, of which Shs278.80 billion was from treasury bills and Shs 256.75 billion was from T-bonds. Of the amount raised, Shs 354.42 billion was issued for the refinancing of maturing debt whereas Shs 181.13 billion went towards financing other activities in the government budget.

“The primary market was characterized by a decline in yields across all tenors. The annualised yields for May were 8.97%, 11.15% and 12.39% for the 91, 182 and 364 day tenors, respectively. This compares with 9.58%, 11.80% and 12.86% in April 2020. The decrease in yields was partly explained an increase in demand for Government paper as shown by the increased average bid to cover ratio from 1.54 in April to 2.55 in May,” says the report.

Private sector credit

The report says the stock of private sector credit in the country grew by 1.8 percent from Shs. 15,940.64 billion in March to Shs 16,230.71 billion in April. “This is due to credit relief measures issued by the Central Bank which exempted borrowers from honoring their loan obligations falling due, in attempt to mitigate the adverse effects of the COVID-19 pandemic. These measures, which took effect on 1st April, 2020 include: repayment holidays for a maximum of 12 months, loan tenor extensions, and any other forms of debt restructuring covered in existing regulations.”

Value of loans

According to the report, the value of loans approved in April 2020 fell by 67.9 percent to Shs 490.8 billion from Shs 1,529.21 billion in March. The report attributes the reduction in new credit to a combination of reduced demand for credit and increased risk aversion by lenders in the face of subdued economic activity.

By sector categorization, manufacturing received the largest share of credit approved in April 2020 at 20.9 percent. Other notable sector recipients of new credit during the month were Trade (16.5 percent), Transport and Communication (16.3 percent), Agriculture (14.2 percent) and Personal loans and Household loans (11.6 percent).

Uganda’s merchandise trade balance

Uganda’s merchandise trade deficit narrowed for the third month in a row, says the report. The country registered a deficit of US$ 127.21 million in April 2020, compared to US$ 175.97 million in March 2020. “The reduction in the deficit follows a higher decline in the import bill that more than offset the drop in export receipts.”

Compared to April 2019, the merchandise trade deficit narrowed by 63 percent from US$ 343.57 million to US$ 127.21 million in April 2020. The narrowing of the deficit, year-on-year, is also explained by a greater decline in the import bill that more than offset the fall in export receipts.

Uganda’s exports

Just like in the recent months, the report says, export receipts continued to decline in the month of April 2020 (both on a monthly and annual basis); as Uganda continues to suffer from the effects of the COVID-19 pandemic.

Compared to the same month last year, export receipts declined by 33.8 percent from US$ 313.01 million to US$ 207.15 million in April 2020. Several export commodities such as cotton, oil re-exports, beans, fish, base metals & products registered declines. However, some export commodities like coffee, sim sim and tobacco grew during the month compared to April 2019.