MPs, Finance ministry in standoff

By George Mangula

Members of Parliament (MPs) are under pressure to approve Shs484.2 billion for the capitalisation of the Bank of Uganda (BoU). However, the process is taking longer than easrlier anticipated; a thing some legislators say is motivated by a damning report from the Auditor General John Muwanga. According to the report, the central bank is yet to account for Shs320bn out of Shs478 billion. This revelation came to the fore during the recent probe into the seven defunct banks that were closed by BoU between 1993 and October 2016. The banks closed due to non-performance were; Teefe Bank, International Credit Bank, Greenland Bank, Cooperative Bank, Global Trust Bank Ltd, National Bank of Commerce and Crane Bank Limited.

According to a legislator who spoke to the second opinion on condition of anonymity, legislators want the central bank to fits account for the missing monies before they can advance it more funds.

“BoU’s latest plea for capitalization fits is akin to a request to throw to it more money to waste,” the legislator said. Analysts say that whereas recapitalizing BoU is a strategic and urgent business for parliament, it should also be equally urgent and strategic to quickly implement the recommendations of parliament’s Committee on Commissions, State Authorities and State Enterprises (COSASE) which among others call for the restructuring of both the management and regulatory regime at the central bank.

“The people who are behind the mistakes that led to the need for recapitalisation, cannot be the same people to manage the recapitalised central bank. That would be equivalent to throwing good money at bad money,” an analyst said.

“Insanity is doing the same thing over and over again and expecting different results. BoU potentially faces up to Shs1 trillion in lawsuits as a result of the findings and recommendations of COSASE. Parliament should not put the proverbial cart before the horse; BoU needs overhauling first before anything else. You can’t just take a request to parliament to give you Shs484.2 billion before you account for Shs478 billion stolen in the name of Crane Bank Limited’s capitalisation,” another one adds.

Recapitalization critical

The MPs’ adamancy notwithstanding, Ministry of Finance officials recently told the legislators that Shs484.2b was urgently needed to cover BoU’s deficits and losses accumulated since June 2013. According to Lawrence Ssemakula, the accountant general Ministry of Finance, the money is needed to avert an impending crisis at BoU. “They have indicated that they have been impaired from June 2013. So as per the BoU Act, we have no option but to allocate the money in our budget since their operations are in deficits,” he says.

Shs484.2b capitalisation fund for BoU is expected to increase the budgetary allocation towards payment of domestic debt from Shs2.3 trillion in 2018/19 financial year to Shs3.2 trillion in Financial Year 2019/20. The latest BoU request for capitalisation first came to the attention of Parliament in May last year with a request for Shs474 billion.

The Finance ministry Permanent Secretary and Secretary to the Treasury Keith Muhakanizi had previously written to the Clerk of Parliament, explaining that BoU had registered a deficit of Shs17 billion and talked of operating losses of Shs457 billion on account of “monetary policy” and “currency costs”.

“This projected deficit in the core capital position, together with the required core capital position of Shs30b, puts the additional recapitalisation securities to the tune of Shs504bn,” read Muhakanizi’s letter in part.

In total government wants Shs620.7 billion for the planned recapitalisation of BoU and other five banks like; Uganda Development Bank (Shs103 billion), Housing Finance Bank (Shs30 billion), Post Bank (Shs4.7 billion), Trade and Development Bank (Shs2.5 billion) and African Development Bank (Shs1 billion)

However, MPs have rejected the request because it was presented at the tail end of the budgeting process and members needed time to scrutinise the request. The MPs last year accused the Finance ministry of undermining them as legislators insisted that the losses at BoU were not fully explained, and that the request recapitalisation came at the end of the budgeting process.

Some members on the budget committee, however, called for an investigation into the cause of losses and deficits at BoU before injecting the taxpayer’s money into the bank.

Post Bank in trouble over funds mismanagement

As for Post which needs Shs4.7 billion for capitalisation, things seems to be tough given that top executives there including the Managing Director Stephen Mukweli are under investigation by the Criminal Intelligence and Investigations Department (CIID) over mismanaging the Bank’s funds.

Mukweli, along with other senior officials the institution, have appeared at Kibuli (CIID) Headquarters in Kampala, for interrogation by the Police, allegedly for mismanaging the Bank’s funds.

Days ago, State House Anti-Corruption Unit, headed by Lt. Col. Edith Nakalema together with the CIID and the Auditor General’s Office, carried out a special investigation on Post Bank after receiving credible information from a whistle blower that officials in the Bank had mismanaged the institution’s funds. If proved guilty, the accused will be charged with abuse of office

BoU Transparency Under Scrutiny

According to Gayathry Venugopal, a Macroeconomics Research Analyst at the Economic Policy Research Centre (EPRC), transparency and fairness in decision-making within BoU has been and will continue to be under greater scrutiny.

“As more details of BoU’s mismanagement problems emerge, questions over the impact of mismanagement on core policy functions have been raised,” she says.

She says the full impact will be dependent on the extent of BoU’s conduct and mismanagement problems which, if discovered to be more extensive than previously thought, could even perhaps result in capital flight.

The researcher says the uncertainty surrounding the banking sector in Uganda is likely to generate negative implications but that if those responsible are held accountable with reforms put in place, it could lead to longer-term benefits to the sector, including more transparent management and decision-making, improved public confidence in the local financial sector.