Rigid fi­nanc­ing hurt­ing growth- WB

East African Business Week - - FRONT PAGE - BY PAUL TENTENA

KAM­PALA, UGANDA –Ac­cord­ing to the Uganda Eco­nomic Up­date, the puzzle man­i­fests in the mismatch be­tween the low re­turn on sav­ings and the high cost of bor­row­ing. “In­creas­ing ac­cess to low cost and safe fi­nan­cial prod­ucts for firms will spur busi­ness in­vest­ments and eco­nomic growth. “Sim­i­larly, fi­nan­cial prod­ucts tar­geted at the in­for­mal sec­tor, ru­ral house­holds and women will cre­ate jobs and build re­silience against shocks,” said Christina Malm­berg Calvo, World Bank Coun­try Man­ager for Uganda. Sav­ings at­tract 3-6 per­cent an­nual re­turn while in­ter­est rates on loans range be­tween 22 and 25 per­cent. Low credit rates sup­port house­hold and busi­ness spend­ing, while high re­turns on de­posits en­cour­age more sav­ings. Uganda cur­rently ranks at 120 out of 138 coun­tries in af­ford­abil­ity of fi­nan­cial ser­vices by the World Eco­nomic Fo­rum’s Global Com­pet­i­tive­ness Re­port (2016-2017). The high cost of credit, and other short com­ings like lim­ited fi­nan­cial mar­ket in­fra­struc­ture, and costly ac-

cess to phys­i­cal in­fra­struc­ture that en­ables fi­nan­cial ser­vices, have made for­mal reg­u­lated ser­vices unattrac­tive to many con­sumers. This is also pre­vent­ing Uganda’s fi­nan­cial sec­tor from reach­ing its po­ten­tial to sup­port eco­nomic growth. Malm­berg Calvo while launch­ing the Uganda Eighth Eco­nomic Up­date said Uganda’s econ­omy is not per­form­ing ac­cord­ing to ex­pec­ta­tions. “Growth de­clined by 0.2 per­cent in the first quar­ter of 2016/17. The econ­omy had been an­tic­i­pated to re­bound strongly on the back of planned public spend­ing on in­fra­struc­ture, and in­crease in pri­vate sec­tor credit to raise pro­duc­tiv­ity. “How­ever, the con­tin­ued weak do­mes­tic eco­nomic en­vi­ron­ment, wors­ened by the low com­mod­ity and fuel prices in in­ter­na­tional mar­kets, the cri­sis in South Su­dan, and se­vere drought have con­tin­ued to strain in­vest­ment and ex­ports, and hence slowed down growth,” said Calvo. Ac­cord­ing to the Up­date, Uganda’s econ­omy will need to con­tinue ad­just­ing to these shocks and strengthen the fi­nan­cial sys­tem, which re­mains jit­tery due to the high level of non-per­form­ing as­sets and the Cen­tral Bank’s re­cent takeover and res­olu- tion of Crane Bank, pre­vi­ously the third largest bank. “If the econ­omy over­comes these shocks and grows at an av­er­age of 2.5 per­cent per quar­ter, the over­all rate of growth for FY 2016/17 could rise to 4-5 per­cent. How­ever, this rate of growth is far be­low the over 10 per­cent re­quired for the coun­try to out­pace the pop­u­la­tion growth rate and re­alise its de­vel­op­ment as­pi­ra­tions to achieve mid­dle in­come sta­tus by 2020,” added Calvo. Un­der­tak­ing re­forms aimed at stim­u­lat­ing con­sumers’ ac- cess to a wide range of ser­vices, and re­duc­ing the cost of credit could boost growth and in­su­late the econ­omy from risks and the im­pact of neg­a­tive shocks dur­ing an eco­nomic down­turn like the cur­rent one. Con­tin­u­ing ef­forts to strengthen the le­gal, reg­u­la­tory, in­sti­tu­tional and su­per­vi­sory frame­work of the fi­nan­cial sec­tor to en­sure it is safe and sound is equally im­por­tant in restor­ing con­sumer con­fi­dence. Last week, the World Bank launched its new Eco­nomic Up­date for Uganda, ti­tled “Step by step - Let’s solve the fi­nance puzzle to ac­cel­er­ate growth and shared pros­per­ity”. It shows the coun­try has made great strides in ex­pand­ing the fi­nan­cial sec­tor with more than half the adult pop­u­la­tion ac­cess­ing for­mal and reg­u­lated fi­nan­cial ser­vices. This is thanks in part to the ris­ing growth of mo­bile money and open­ing of a credit ref­er­ence bureau in 2008. About 8 mil­lion adult Ugan­dans own a bank ac­count. This pushes the share of the adult pop­u­la­tion with ac­cess to fi­nan­cial ser­vices to 52 per­cent, up from 28 per­cent in 2009. With 7 mil­lion ac­tive us- ers, mo­bile money, has greatly in­creased ac­cess to cost ef­fec­tive fi­nan­cial ser­vices, such as sav­ing, money trans­fer, and pay­ing bills. Con­fi­dence in the for­mal fi­nan­cial sys­tem how­ever re­mains low, and the high in­ter­est rates make bor­row­ing very ex­pen­sive for busi­nesses and house­holds.

World Bank, Uganda cur­rently ranks at 120 out of 138 coun­tries in af­ford­abil­ity of fi­nan­cial ser­vices by the World Eco­nomic Fo­rum’s Global Com­pet­i­tive­ness Re­port (2016-2017).

Christina Malm­berg Calvo, World Bank Coun­try Man­ager for Uganda

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