Economists advise gov’t to ‘Go slow on loans’ in bid to stimulate economy

Kampala, Uganda | THE INDEPENDENT | Economists have cautioned the government against taking loans to stimulate the economy in the course of COVID-19 lockdown. They say that relying on loans is a bad idea that could leave Uganda in more trouble.

The caution comes amid a scramble by African countries to cushion their economies, support hard-hit sectors and provide social support to nationals amid tough measures to contain the coronavirus disease-COVID-19, whose infection rate has gone beyond three million people world wide.

Initial reports indicated that the Ugandan government was seeking financing of up to USD 190 million to cushion the economy from the impact of the coronavirus pandemic. The funding will include USD 100 million budget support loan for this financial year and a further USD 90 million for the next financial year according to Finance minister Matia Kasaija said.

But Mildred Barungi, a Research fellow with the Economic Policy Research Center (EPRC) says that Uganda is already highly indebted and taking more loans in the aftermath of COVID-19 might continue to have an impact on the economy.

Barungi says that the best thing that could happen is to give Uganda a grace period of up to a year of no interest payment adding that the budget that would go to the payment of interests within Uganda’s budget estimates for the next financial year can ably stimulate the economy.

Professor Ezra Suruma, an Economist and former Finance Minister says that loans are a long shot especially for Uganda. Suruma proposes that extra ordinary measures be put in place to assist the banks and businesses to come back to normal.

“We have been through that many years especially when they come with conditions, I wouldn’t want to put my hopes on them. Sometimes the conditions are very bad” Suruma says. He says for instance that the Central Bank can lower reserve ratios to allow commercial banks lend out money and not hold on to money.

Julius Mukunda, the Executive Director of the Civil Society Budget Advocacy Group however says the country does not have money despite being indebted but advises that the government should be cautious and only go for concessional loans if it must. He says Uganda’s economy could go to its worst if not handled well.

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