The Central Bank Governor, Prof. Emmanuel Tumusiime Mutebile is expected to appear before the Budget Committee of parliament today to explain their persistent requests for recapitalisation. The central bank has been pushing for recapitalisation for the past three financial years.
According to the 202/2021 financial year National Budget Framework Paper, government indicates that it needs Shillings 481.7 billion to recapitalise Bank of Uganda. The proposal became a subject of contention when the Finance and Planning State Minister, David Bahati appeared before the budget committee to defend the National Budget Framework Paper.
During the meeting, the committee members tasked Bahati to explain why parliament should approve the proposal for BOU recapitalisation. The Committee Vice Chairperson, Patrick Isiagi noted that Bahati should have appeared with the BOU Governor, Mutebile, Deputy Governor, Dr. Louis Kasekende and other top officials. He explained that the committee needs the top BOU managers to make strategic explanations for the recapitalisation and give a breakdown for the funds.
Isiagi made the ruling after the Butambala County, Muwanga Kivumbi and his Kumi county counterpart, Charles Ilukor moved that the committee should summon Mutebile. Kivumbi noted that Bahati had appeared with some officials from BOU, including an accountant who in his opinion don’t hold top positions in the bank.
He argued that the bank should have at least delegated its spokesperson so that the committee doesn’t question the competence and authority of the statements from its officials.
Ilukor asked that the committee not to accept presentations on the BOU recapitalisation unless Mutebile or top managers appear. Bahati promised to ensure that Mutebile appears before the committee.
Isiaga directed that Mutebile to appears today before the committee. The committee’s reservation for recapitalising BOU is shared by the Leader of Opposition in Parliament, Betty Aol Ocan. In her alternative Budget Framework Paper, Ocan says that the continuous need to recapitalise BOU could be a sign of financial indiscipline.
She is concerned that BOU has been seeking bailouts annually yet it should perform better than the banks it supervises as a lead agency of monetary and fiscal discipline. Ocan also questions why BOU should be recapitalised when the same thing was done in the current financial year. Parliament approved Shillings 210 billion to recapitalise BOU in the 2017/2018 and Shillings 200 billion in 2019/2020 financial year.
She also notes that the amount being requested for the next financial year is more than double in the previous two years, which should raise a red flag. Aol notes that the bank should consider exhausting all options before seeking any recapitalisation. These include among others using savings on government accounts, repurchasing agreements and drawing down General Reserve Funds, which stood at Shillings 399.2 billion by June 30, 2019.
The Bank of Uganda Act 2000 states that the authorized capital of the Bank of Uganda may be increased by a resolution of parliament to ensure adequate operations of the bank. However, the Accountant General, Lawrence Ssemakula told Parliament last year that BOU has suffered deficits since June 2013 and thereby needs money urgently to avert an impending crisis.
This opinion is supported by the Auditor General’s report for the 2018/2019 financial year, which shows that BOU is under capitalised to a tune of Shillings 671.7 billion. The Auditor General, John Muwanga explains that Section 14 (3) of the BOU Act, 2000 provides that the issued and paid-up capital of the Bank shall be a minimum of Shillings 2 trillion.
The budget committee is expected to present a report to the House by the end of this week. The Public Finance Act, 2015 provides that Parliament must approve the NBFP of the next financial year by February 1st each year.