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BoU defends recapitalisation request, says it suffered deficit after 2008 global financial crisis

Mulema Najib by Mulema Najib
6 years ago
in Business, Finance
4 0
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Lawrence Ssemakula, the Accountant General in the Ministry of Finance last week while appearing before the House Committee on Finance revealed that Bank of Uganda needed Shs484.2 billion urgently to cover for deficits and losses accumulated since 2013.

“They [BoU] 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,” Ssemakula said.

Previously, Keith Muhakanizi, the Finance Ministry Permanent Secretary had written to the Clerk of Parliament, explaining that BoU had registered a deficit of Shs17b and talked of operating losses of Shs457b on account of “monetary policy” and “currency costs”.

The Members of Parliament last year accused the Finance ministry of “stampeding Parliament” and insisted that the losses at BoU were not fully explained, and that the request recapitalisation came at the end of the budgeting process.

Some committee members, however, called for an investigation into the cause of losses and deficits at BoU before injecting the taxpayers money in the bank.

Now, the Central Bank has defended the Shs484.9 billion request for recapitalisation, saying it suffered the deficit as a result of the global financial crisis of 2007/2008.

The crisis began in 2007 in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008.

Massive bail-outs of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system. The crisis was nonetheless followed by a global economic downturn, the Great Recession.

Speaking to Daily Monitor over the weekend, Kelvin Kizito Kiyingi, the acting BoU director of communications, said the request for recapitalisation is lawful as per the BoU Act 2000.

“The Bank of Uganda (BoU) Act 2000 provides for recapitalisation by government when capital is eroded. Since the global financial crisis started in 2007/2008, BoU’s capital has been eroded to the tune of Shs448.9b as at June 30, 2018. Recapitalisation will allow BoU revert to the minimum authorised capital as prescribed by the BoU Act 2000.”

The Bank also denied reports that the withdrawal of Shs478b injected in Crane Bank Limited was to blame for the deficit. Part of the money BoU injected in the now defunct commercial bank, however, remains unaccounted for. BoU officials have since submitted the documents to the Auditor General’s office for verification.

Kiyingi further stated that money is needed to increase BoU assets and to boost the monetary policy.

“First the securities are assets and not cash. This means the assets of the Central Bank increase. As capital is equivalent to the difference between assets and liabilities, the Central Bank’s capital must increase by an amount equal to the value of the securities issued to it.”


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