{"id":54183,"date":"2023-08-14T11:25:02","date_gmt":"2023-08-14T11:25:02","guid":{"rendered":"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker"},"modified":"2023-08-14T12:40:56","modified_gmt":"2023-08-14T12:40:56","slug":"shilling-slides-after-world-bank-shocker","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker","title":{"rendered":"Shilling slides after World Bank shocker"},"content":{"rendered":"<p><b>Reporting by Stephen Kafeero, Deogratius Wamala and Arthur Arnold Wadero<\/b><\/p>\n<p><span style=\"color: #ff6600\"><strong>Africa-Press &#8211; Uganda. <\/strong><\/span>The World Bank\u2019s decision this past week to halt new funding for Uganda after it green-lit anti-gay legislation in May has sent the country\u2019s shilling tumbling.<\/p>\n<p>The shilling appeared headed for its biggest drop since December of 2018 after plunging 1.76 percent to Shs3,725 per dollar on Friday morning. It also registered a fifth day of losses at the close of business on Thursday, with analysts warning that the worst is yet to come.<\/p>\n<p>\u201cThe situation is going to be worse. The move might influence other development partners and we don\u2019t have a cushion,\u201d Mr Julius Mukunda, the executive director of the Civil Society Budget Advocacy (CSBAG), said on Thursday, adding: \u201cWe could still maintain our culture without antagonising others. I am happy the President has signalled that he is willing to have a dialogue on this matter.\u201d<\/p>\n<p>President Museveni also made clear that while his government is \u201ccontinuing to talk with the World Bank &#8230; Uganda will develop with or without loans.\u201d<\/p>\n<p>His junior Finance minister, Mr Henry Musasizi, revealed on Thursday that Uganda is planning to adjust its budget for the 2023\/2024 fiscal year due to reduced funding caused by the World Bank\u2019s decision to halt fresh loans.<\/p>\n<p>The decision by the World Bank to suspend future financing to Uganda for its passage of anti-LGBTQ legislation upended the country\u2019s 2023\/2024 budget plans.<\/p>\n<p>Uganda\u2019s sizeable outstanding debt, including arrears from multilateral creditors, is predominantly owed to the World Bank, constituting 55 percent of the total according to the March 2023 Report on Public Debt, Grants, Guarantees, and Liabilities.<\/p>\n<p>Some of the facilities the government had lined up, include funding amounting to about Shs543 billion for Industrial Transformation and Employment Project. The loan was approved by the Cabinet but was yet to be cleared by Parliament.<\/p>\n<p>The government also planned to source more than Shs1.8 trillion to fund the Greater Kampala Metropolitan Area Project. The loan proposal awaits Cabinet approval. Other loan proposals include Shs1.2 trillion for financing the Climate Smart Agriculture Project, and the Shs1.6 trillion loan for the refurbishment of the Kampala-Kasese metre gauge integrated transport infrastructure and services.<\/p>\n<p>Before the suspension announcement by the World Bank, Parliament had greenlit two loans, including the Shs484 billion loan designated for the Uganda Digital Acceleration Project and the Shs555 billion Uganda Secondary Education Expansion Project.<\/p>\n<p><b>Shilling tumbles<\/b><\/p>\n<p>The move by the World Bank to suspend funding to Uganda is likely to be replicated by other donors and lenders, with observers fearing the worst for the country\u2019s shilling.<\/p>\n<p>The plunge means that the exchange rate between the Uganda shilling and the US dollar has weakened. This essentially means it now takes more shillings to buy one dollar. This has several implications, including a marked increase in import costs.<\/p>\n<p>Since Uganda relies on imports for various products, such as fuel and consumer goods, a weaker shilling can lead to higher costs for businesses and consumers. Higher import costs can also contribute to inflation, as businesses might pass on the increased costs to consumers by raising the prices of their products. This can erode purchasing power and impact the cost of living.<\/p>\n<p>A weaker shilling will push up debt-servicing costs on the portion of Uganda\u2019s sovereign debt denominated in foreign currency.<\/p>\n<p>Mr Stephen Kaboyo, a financial market analyst and the chief executive at Alpha Capital Partners, a local forex trading firm, who was also the director of Financial Markets at Bank of Uganda, said a sell off in the local currency gathered pace following the World Bank announcement halting new public finance projects on account of enactment of anti-homosexuality law.<\/p>\n<p>Mr Kaboyo said: \u201cThe currency flirted with the psychological key of 3,750. Outlook for the shilling point towards further weakening as market players scramble to cover short positions in anticipation of more pressure from donors restricting budget support.\u201d<\/p>\n<p>Mr Kaboyo told <b>Monitor <\/b>that the World Bank announcement \u201ccaught the markets off guard.\u201d This, he adds, saw market players rush \u201cto cover their short dollar positions.\u201d The sum total of this was the shilling being driven to \u201cits weakest territory seen in months.\u201d This comes on the back of the Finance Ministry showing cautious optimism about the country\u2019s debt stock.<\/p>\n<p>\u201cThe stock of external debt including arrears has been increasing over the years. As of December 31, 2022, it stood at $12.96 billion compared to $12.90 billion as of December 31, 2021 representing an increase of 0.4 percent,\u201d the Finance ministry noted in a report on public debt, grants, guarantees and other financial liabilities for Financial Year 2022\/2023, adding: \u201cMultilateral creditors accounted for 62 percent of external debt stock followed by the bilateral creditors at 28 percent and commercial banks at 10 percent as at December 31, 2022.\u201d<\/p>\n<p>In it all, the Finance ministry reveals in the report that was published this March that Uganda\u2019s \u201cexternal debt stock as of December 31, 2022 is denominated majorly by Special Drawing Rights (SDR), comprising 43 percent, United States Dollars with 33 percent and Euro 16 percent.\u201d<\/p>\n<p>The government is also grappling with a choking domestic debt stock that, as per the Finance ministry\u2019s debt statistical bulletin, \u201cincreased from Shs27.7 trillion at the backend of December 2021 to Shs33 trillion at the backend of December 2022, with treasury bills, amounting to Shs4 trillion and treasury bonds amounting to Shs28 trillion.\u201d<\/p>\n<p><b>Slippery slope<\/b><\/p>\n<p>Already, the National Social Security Fund (NSSF) has projected that a return on its investments is primed to drop on account of the government\u2019s failure to pay billions it borrowed from the Fund. NSSF invests about 75 percent of its funds in government securities, with the vast bulk locked in treasury bonds.<\/p>\n<p>A sharp drop in returns in securities and fading fortunes in real estate projects has squarely placed NSSF on a slippery slope. This, according to Mr Fred Muhumuza\u2014an economist, domiciled at Makerere University\u2019s School of Economics\u2014could potentially lower workers\u2019 earnings after the Fund\u2019s failure to hit its 12.98 percent gross target return on investment in 2022, much to the chagrin of its 1.2 million remitters.<\/p>\n<p>\u201cThe Fund needs to rethink and strategise its investment strategies before it gets worse for them. People will no longer want to save with the entity if returns make a turn,\u201d Mr Muhumuza told <b>Monitor<\/b>.<\/p>\n<p>The economist reckons that the backlash from the passing of an anti-gay legislation, low tax revenues and investments on the Congo war is primed to have a toxic impact. Mr Muhumuza now envisages a scenario where foreign lenders will demand that Uganda restructures its debt.<\/p>\n<p>\u201c[Multinational lenders] will demand the country to reduce its uptake on bills and bonds and ultimately want those who issue bonds to reduce their interest rates,\u201d the economist predicts, adding that in this event NSSF will be left with little choice but to reduce interest rates on government debt or forgive a portion of the government\u2019s debt, thus lowering its annual returns.<\/p>\n<p>The total amount of paper issued by the government between April and June 2023 was Shs2.42 trillion, with Shs1.94 trillion of it used to refinance debt and the rest meeting fiscal obligations.<\/p>\n<p>While this demonstrates the government\u2019s dedication to short-term debt management, an investment analyst who sought anonymity, said it shows signs of a thirst for additional funding in the near future. The government cannot address this synonymously, the analyst reckons, with debt refinancing, including needed money to pay medical interns, the lack of funding for LC elections, the impending election, high government costs and salaries, and a sizeable budget allocated to debt repayments rather than development expenditures.<\/p>\n<p>\u201cInternational creditors will not be kind with us. In two or three years, they will be pushing for the government to reduce domestic borrowing, which is the largest fixed investment for NSSF,\u201d said Mr Muhumuza.<\/p>\n<p><b>Way forward<\/b><\/p>\n<p>According to Mr Musasizi, Uganda is planning to adjust its budget for the 2023\/2024 fiscal year due to reduced funding caused by the World Bank\u2019s decision to halt fresh loans.<\/p>\n<p>Mr Mukunda from CSBAG, however, says the best thing the government can do is to lower the country\u2019s expenditure. For example, he adds pointedly, if the country planned to build 10km of roads, that can be scaled down to 2km.<\/p>\n<p>He explained that Uganda\u2019s domestic revenue mobilisation is still very low to cushion the country.<\/p>\n<p>Mr Mukunda expressed doubt that Uganda will opt for expensive debt. He instead expects the Finance ministry to table an amended budget and make proposals to cut certain expenditures. He also expects the government to cut administrative expenses, including wiping out the foreign travel budget, directing public servants to pack their vehicles and use public transport, cutting the pay for politicians, and revise downwards the salaries of civil servants.<\/p>\n<p>Mr Karim Masaba, the lawmaker of Industrial Division-Mbale City, told Saturday Monitor that \u201csome of the sectors we need to look at [are the ministries of] Defence and Security, which take the lion\u2019s share of our budget.\u201d<\/p>\n<p>He added: \u201cWe have given billions of shillings to Atiak Sugar. This is money I believe we can now revise because we need to look at the priorities of the country.\u201d<\/p>\n<p>Mr Muwanga Kivumbi, the shadow Finance minister, while expressing doubt that the House will be bold enough to go after classified expenditure, offered support, saying:<\/p>\n<p>\u201cThis World Bank thing for once is going to instill discipline in the way we manage our economy. It is going to be a hard and rough road but we needed this to go through so that for once we live in reality.\u201d<\/p>\n<p><b>Background <\/b><\/p>\n<p>The response from Uganda\u2019s Western donors and some international lenders like the World Bank has been harsher than the moves taken in 2014 after the signing of the 2014 anti-homosexuality law that was repealed.<\/p>\n<p>In 2014, several Western governments announced cuts in aid to Uganda after President Museveni signed the now-repealed anti-homosexuality law.<\/p>\n<p>Countries including Denmark, The Netherlands, Norway, and Sweden all cut their aid to Uganda. The World Bank postponed a $90m loan to the country.<\/p>\n<p><strong>For More News And Analysis About <a href=\"https:\/\/www.africa-press.net\/uganda\">Uganda<\/a> Follow <a href=\"https:\/\/www.africa-press.net\/\">Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Reporting by Stephen Kafeero, Deogratius Wamala and Arthur Arnold Wadero Africa-Press &#8211; Uganda. The World Bank\u2019s decision this past week to halt new funding for Uganda after it green-lit anti-gay legislation in May has sent the country\u2019s shilling tumbling. The shilling appeared headed for its biggest drop since December of 2018 after plunging 1.76 percent [&hellip;]<\/p>\n","protected":false},"author":84,"featured_media":54182,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,6],"tags":[233,240,234],"class_list":["post-54183","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-files","tag-africa-press","tag-africa-press-uganda","tag-uganda"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.1 (Yoast SEO v27.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Shilling slides after World Bank shocker - Uganda<\/title>\n<meta name=\"description\" content=\"The World Bank\u2019s decision this past week to halt new funding for Uganda after it green-lit anti-gay legislation in May h ...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Shilling slides after World Bank shocker\" \/>\n<meta property=\"og:description\" content=\"The World Bank\u2019s decision this past week to halt new funding for Uganda after it green-lit anti-gay legislation in May h ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker\" \/>\n<meta property=\"og:site_name\" content=\"Uganda\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AfricaPressTunisiaa\" \/>\n<meta property=\"article:published_time\" content=\"2023-08-14T11:25:02+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-08-14T12:40:56+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/static.africa-press.net\/uganda\/sites\/34\/2023\/08\/sm_1692000560.141517.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"688\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"cfeditoren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"cfeditoren\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"8 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker\"},\"author\":{\"name\":\"cfeditoren\",\"@id\":\"https:\/\/www.africa-press.net\/uganda\/#\/schema\/person\/068c7ab4e9634ae78ec5d54ec46598bb\"},\"headline\":\"Shilling slides after World Bank shocker\",\"datePublished\":\"2023-08-14T11:25:02+00:00\",\"dateModified\":\"2023-08-14T12:40:56+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker\"},\"wordCount\":1671,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker#primaryimage\"},\"thumbnailUrl\":\"https:\/\/static.africa-press.net\/uganda\/sites\/34\/2023\/08\/sm_1692000560.141517.jpg\",\"keywords\":[\"Africa Press\",\"Africa Press-Uganda\",\"uganda\"],\"articleSection\":[\"all news\",\"files\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker\",\"url\":\"https:\/\/www.africa-press.net\/uganda\/all-news\/shilling-slides-after-world-bank-shocker\",\"name\":\"Shilling slides after World Bank shocker - 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