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The East African : January 27th 2014
MONEY AND EQUITY MARKETS JANUARY 25-31,2014 NON-CONCESSIONAL BORROWING Uganda gets nod to raise debt limit to meet increasing budgetary demands It will be the thi≥d time the govt is ≥equesting a ≥aise in its debt limit f≥om the cu≥≥ent $1.5 billion to $2.2 billion By MARTIN LUTHER OKETCH Special Correspondent T he International Monetary Fund has accepted Uganda’s request to raise the debt limit on non-concessional borrowing from $1.5 billion to $2.2 billion, giving the country access to more funds to meet its rising budgetary demands. In response to an infrastruc- ture-driven increase in public sector spending, this will be the third time the government has expanded its non-concessional borrowing limit under the current Policy Support Instrument (PSI) — a funding arrangement between the IMF and low-income countries. In previous PSIs, Uganda start- ed with a borrowing limit of $500 million and then gradually raised it to $700 million; $1 billion and $1.5 billion as economic conditions improved. IMF senior resident representa- tive to Uganda Ana Lucia Coronel said, “Yes, the Fund has supported the request to increase the ceiling on non-concessional borrowing from $1.5 billion to $2.2 billion within its recently completed first review of the PSI.” Uganda’s bid comes only weeks after Kenya asked the IMF for an emergency loan it plans to use in response to looming economic shocks. The loan was discussed during the recent visit to Nairobi by IMF chief Christine Lagarde on January 6-8. In Uganda, increased borrowing will finance the new power generation projects that the country is currently undertaking. “The electricity projects are critical to close the acute infrastructure gap that makes Uganda one of the countries with the lowest levels of electrification in Africa. A more stable electricity supply would lower production costs and lead to job creation and poverty reduction,” said Ms Coronel. The IMF’s debt sustainabil- ity analysis shows that despite the projected increase in external debt, total public debt will remain sustainable and the risk of debt distress will continue to be low as the country’s economy has been growing and past borrowing has been prudent. Ms Coronel said that the projects, if well managed, look consistent with the absorptive capacity of the economy, and given their high import content, the impact of the spending on inflation or the real exchange rate is not expected to be significant. “It is important to emphasise that as with all large projects, they are subject to risks. Therefore, it is essential to ensure efficient use of the resources. This will require timely and transparent implementation of the projects, proper public financial management practices, adequate institutional arrangements, and cost recovery strategy,” said Ms Coronel. The IMF executive board ap- proved the new PSI for Uganda on June 28, 2013 and completed the first PSI review on December 18, 2013. Ms Coronel said that the country will have to balance new infrastructure spending with the need to avoid fuelling inflation or crowding out the private sector. “Fiscal policy should be co-or- dinated with monetary policy to contain any potential aggregate demand pressures. In this context, avoiding spending overruns or resorting to supplementary budgets that increase current spending is essential,” she said. Ms Coronel said that ongoing government efforts to reform tax policy and administration, without raising tax rates, are expected to alleviate constraints. She said that the new PSI has a strong focus on public financial management (PFM), pointing that an efficient and transparent PFM system will ensure a more efficient allocation of resources and prevent diversion of funds. “We hope that parliament will approve the Public Finance Management Bill soon. This will help improve the credibility, integrity and predictability Business watch Foreign investors’ stake in Equity bank almost at 50pc Foreign investors’ interest in Equity Bank has seen them increase their stake to just one per cent shy of the 50 per cent that could see the bank qualify for foreign lending. Regulatory filings show that foreign investors raised their stake in the bank to 49.36 per cent in November, up from 46 per cent in December 2012 and 40.82 per cent in October 2011. Analysts predict that the foreigners’ appetite could close the gap in the first quarter of 2014. EABL launches $63.5 million commercial paper East African Breweries Ltd (EABL) has launched a commercial paper —an unsecured money market instrument issued in the form of a promissory note — of Ksh5.4 billion ($63.5 million) which will be the largest in Kenya. Analysts said the regional brewer seeks to reduce the cost of its existing debt obligations. EABL has a five-year Ksh19.5b ($229 million) loan with Diageo. The paper will have unsecured obligations of not less than seven days and not more than 365 days, at a minimum amount of Ksh1 million ($11,764) with pricing being specified from time to time. The money will be used on key power projects. Picture: File IMF’S FIRST PSI REVIEW FOR UGANDA Uganda’s economic recovery is mainly driven by public investment, and supported by appropriate policies, GDP growth reached five per cent in 2012/13. Supported by the recovery of private sector activity and significant public investment in the construction of two large hydropower plants and road projects, growth is expected to rise to six per cent in 2013/14. Monetary policy responded to a of the budget. While progress has been made on strengthening PFM systems, challenges still remain and we look forward to further progress on some key areas, including the reinforcement of controls over unpaid bills,” she said. All central government entities are now covered by the Integrated Personnel and Payroll System (IPPS). Test runs are being undertaken on the functionality of the system, and it is expected that payment of salaries will be run through the IPPS starting in April. Information at the Ministry of Finance shows that the benchmark on rolling out the Integrated Financial Management System (IFMS) to cover all central government votes has been achieved ahead of schedule. The first phase of implementation of the Treasury Single Account (TSA) was completed in October 2013 by consolidating the central recent drought-related food price shock in a timely manner, keeping inflation within the expected path toward the five per cent mediumterm target. Aided by an improvement in the current account deficit, international reserves remained at a level equivalent to 3.9 months of imports, maintaining a welcome buffer against the uncertain global environment. government accounts. The next step will involve establishing cash and debt management units. Moody’s, the global credit rat- ing firm, on Friday raised concerns over Uganda’s rising domestic debt citing the relatively high repayment rates on the local borrowing. The firm, which placed a rating of B1 on the Ugandan economy, said the growing local debt component presents a risk to the local economy especially if it grows at a faster rate than currently envisaged and agreed on with the IMF. “The increase in domestic debt has important implications for the government’s borrowing costs: Over the past five years, the average nominal interest rate on domestic debt was close to 11 per cent,” said Moody’s. Additional reporting by Peterson Thiong’o Ten-year bond offered at Dar bourse oversubscribed Appetite for long-term securities at the Dar es Salaam Stock Exchange is growing. A 10-year Treasury bond offered last week was oversubscribed by over Tsh17 billion ($10.5 million) as investors flock back, reversing a slowdown registered at the end of 2013. The Bank of Tanzania (BoT) last week put on offer Tsh25 billion ($15.5 million) at 11.44 per cent attracting Tsh42 billion ($26 million) worth of bids but only Tsh40 billion ($24.8 million) was successful. BoT reported that the auction conducted on December 31, was undersubscribed, with only 39 bids out of 75 received succeeding. Low dollar demand, inflows shore up Uganda shilling 61 The Uganda traded at an average of Ush2,492 against the dollar. Picture: File Low demand for dollars strengthened the performance of the Ugandan shilling last week, helped by some inflows into the week’s Treasury bills auction. The Ugandan shilling inched up last week to trade at an average of Ush2,492 from Ush2,497 the previous week. Traders said the shilling could come under pressure in February and March as the impact of the war in neighbouring South Sudan takes a toll on Uganda’s exports and foreign owned companies buy up dollars to pay 2013 dividends.
January 20th 2014
February 3rd 2014