No need for recapitalization of BoU – Deputy Governor

Kampala, Uganda | THE INDEPENDENT | The Central Bank does not need recapitalization in the 2021/2022 financial year according to Deputy Governor Michael Atingi-Ego. He disclosed this while appearing before the Budget Committee of parliament on Wednesday.

He was appearing on the request of the committee to clarify on the Shillings 481 billion request in the Budget Framework Paper for the 2021/2022 financial year towards the recapitalization of the Central Bank for the second consecutive year. This request triggered suspicion among legislators with the committee chairperson, Henry Musasizi saying it could be a ploy by the government to siphon funds under the guise of recapitalizing the Central Bank.

Musasizi disclosed his suspicion during an interface between the Budget committee, Finance Ministry and National Planning Authority led by the Finance Minister Matia Kasaija on Monday over the budget estimates for the next financial year. During the budgeting cycle for the 2020/2021 financial year, the Finance Committee approved a request of Shillings 481 billion to recapitalize the Central Bank.

Musasizi then explained that recapitalizing BoU would not be done through appropriation of cash from the Consolidated Fund but rather from the securities issued by the treasury. Approached with a fresh recapitalization request, MPs questioned whether the Finance Ministry was using the item of recapitalization to fund items hidden from parliament’s scrutiny.

Asked for an explanation on Monday, Kasaija said just like any other bank, the Central Bank is required to maintain capital holding above a certain threshold and therefore the government couldn’t risk allowing BoU to fall below the threshold. Now contrary to the submission by the Finance Minister two days ago, the Bank of Uganda Deputy Governor, Michael Atingi-Ego told legislators that the capital of the bank is not impaired and therefore no need for recapitalization.

“The procedure for recapitalization is that once the audited accounts for any financial year have been finalized, then the level of capital is determined…whether the capital is impaired or not. Should the capital be impaired, then it is only at such a point when Bank of Uganda requests the Ministry of Finance to present to parliament a request for recapitalization,” said Atingi-Ego.

He recounted an incident in the 2018/2019 financial year when the capital of Bank of Uganda was impaired by Shillings 481 billion and a request was made to the Ministry of Finance for recapitalization, which was approved in July 2020. Atingi-Ego told the Budget Committee that the accounts of Bank of Uganda were audited in the current financial year and the big picture of the audit was that the Central Bank made a modest profit of Shillings 40 billion. He noted that with this profit, the Bank of Uganda is not requesting for any recapitalization because the capital is not impaired.

When tasked by the Budget committee vice chairperson Patrick Isiagi to explain what informed the request to recapitalize BoU in the proposed new budget, Finance Minister Matia Kasaija said that the allocation of Shillings 481 billion was a forecast in the budget for the 2021/2022 financial year, pending the completion of the audit by the Auditor General in September 2021. “This transaction entails issuance of securities to Bank of Uganda to undertake its monetary policy responsibilities,” he said.

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