Coronavirus: Bank of Uganda announces mitigation measures, to intervene in foreign exchange market

Government trims growth forecast on tourism and trade disruption, expects exports growth to slow

The Bank of Uganda in Kampala
The Bank of Uganda in Kampala. Photo: Courtesy

The Bank of Uganda has announced plans to ensure that banks and credit institutions continue to operate effectively as coronavirus roils the economy, and that it is engaging telecom companies and commercial banks to reduce transaction fees and charges.

In a statement released on Friday, the bank said it will continue to intervene in the foreign exchange market to “smoothen out excess volatility arising from the global financial markets.”

“The volatility in global financial markets has resulted in offshore investors exiting frontier and emerging markets, including Uganda, into safe havens,” said the Bank of Uganda.

The measures come as the minister of finance told Bloomberg that the coronavirus pandemic could slow economic growth to between 5.2% and 5.7% in fiscal year 2019/20, down from an earlier forecast of 6%.

Uganda has no confirmed coronavirus cases, but neighbouring countries have reported infections.

The central bank also said it will “put in place a mechanism” to minimise the possibility of sound businesses going bankrupt due to a lack of credit during the coronavirus outbreak.

In the event that any commercial bank runs into liquidity problems, the central bank said it will provide “exceptional liquidity assistance” for up to one year.

The bank will “waive limitations on [the] restructuring of credit facilities at financial institutions that may be at risk of going into distress due to the Covid-19 pandemic,” it said.

In addition, to limit the use of cash and visits to bank branches, the central bank is engaging telecom companies and commercial banks to reduce fees on mobile money transactions and other charges for digital payment, and also increase daily transaction and wallet size limits.

The bank said its measures were in response to the “already visible” impact of the Covid-19 coronavirus global pandemic on the economy. It has disrupted supply chains for manufacturers and traders, especially those who rely on raw materials and products from China and Europe.

“Tourism, a major source of foreign exchange earnings, is shrinking on account of declining demand and expanding restrictions on travel to and from a growing number of countries abroad and overseas,” the central bank said.

Matia Kasaija, the finance minister, told Bloomberg that exports are expected to decline in the four months to June, while revenue collections could fall short by Shs82.4bn ($21.5m) in the same period.