Reform, don’t bailout- Uganda Debt Network

July 30, 2016 in Business, Companies, Finance, Investment, Policy by Editor

KAMPALA, JULY30 – Uganda should address the structural bottlenecks holding back its economic potential rather than splurge scarce national resources on a bailout for a few struggling businesses argues economists as consensus mounts against a proposed $380.1 million government bailout for some 60 ailing private enterprises.

Speaking during Uganda Debt Network organised dialogue on the proposed bailout, Dr. Fred Muhumuza a senior manager with the Accounting and Advisory firm KPMG said the economy was going through auto-correction in response to poorly structured investment.

“Our financial markets are poorly developed with most of the funds frozen into non-tradables such as real estate whose rate of return is unrealistic. For the economy to grow there needs to be a stimulus and once you don’t restructure to pave way for this stimulus, then the  economy will restructure itself in a bad way and that is what is happening now,” he said.

Pointing to a 1.3pc contraction in the economy during Q3 of the 2015/2016 financial year, in critical subsectors such as agriculture, transport with a knock-on effect on tax revenues, Muhumuza warned that more businesses were likely to fall into distress.

“Employment, tax revenues, public service delivery and overall growth will decline further and this can only be cured by economic reforms,” argued Patrick Tumwebaze, the Executive Director at Uganda Debt Network.

Should that happen, the crisis will morph into a vicious cycle of sliding key metrics of the economy and more distressed firms, unless incentives and reforms that can lift economic growth to double-digits are implemented, Muhumuza added.

Pointing to the possible negative effects of a bailout, Lawrence Bategeka a researcher and legislator representing Hoima Municipality in the national parliament said a Ushs 1.3 trillion ($380.1million) bailout could only make Uganda debt position, already running at $8.1billion worse.