PRESENTER: Dr. Fred Muhumuza. – Lecturer, School of Economics, Makerere University

PANELISTS: Dr. Adam Mugume. – Executive Director, Research: Bank of Uganda

Dr. Albert Musisi – Commissioner, Macroeconomic Policy Department, MoFPED

Dr. Asumani Guloba. – Director, Planning, National Planning Authority

 Moderator: Dr. Fred Matovu. Director PADRI and Sen. Lecturer, School of Economics, Makerere University

DATE: 29th May 2020

Moderator: The discussion is going to be started by Dr Muhumuza who is going to give us the landscape of the issues to discuss and after he has done his presentation. We are going to have our colleague from the National Planning Authority to give us the planning horizon and how the National Development III is going to respond to the Covid-19 effects. Then we shall have Dr. Albert Musisi from the Ministry of finance who are the people to deal with resource mobilization and spending. Then thereafter our colleague from the Bank of Uganda will come in as the agency that actually does the Macroeconomic stabilization. Dr. Muhumuza kindly introduce yourself.

Dr. Muhumuza: As you have written fully put, mine is simply to kind of it put it in context the discussion that we are going to have, Macroeconomics is not something that everybody appreciates so we want to just put a context so that when people come out to speak, they will be understanding of where they are coming from.

So at this point, I just want to say that Macroeconomics can be equated to a tent under which many activities are done by different people you may find people seated in the corner as they are doing salon work, as somebody is registering other people and children are playing in that tent. Very many things will happen inside there and as long as the tent is intact nobody will have a problem. But if the wind comes and blows the tent off then everybody will have a problem. So Macroeconomics is that discussion on Economic parameters necessarily interacted with but they are actually critical for whatever else these people may be doing in their own businesses. In the National Development Plan II, macroeconomics was equated to the shell of the egg literally meaning of the shell of the egg is intact, growth happens inside that egg but once the shell of the egg cracks then you have a problem that that egg will not do any growth. So am going to quickly run through some eight key parameters of the Macroeconomic nature that we shall be discussing this evening that we would like people to appreciate.

  1. Like I have said if the shell of the egg cracks then that egg cannot grow into a chick. So the growth of the economy is very important and we do relate it not necessarily with other countries but with what which country has to bear. Even medical practitioners are very much concerned with the growth of children especially and they will have parameters like height for weight and age for height. If a child has a weight that is less than their age and people will get concerned. So in countries, we always measure the growth rate and relate it to the other challenges that the Economy should be able to have. Now in the Covid-19 era, we all know that the global economy is in recession for a number of countries and even Uganda has suffered the same fate. Our growth was projected at 6% and above, right now the projections are between 3% and 4%. That means that our growth has come down to what we would have loved it to be. The last projection by IMF middle of this month was 3.3% and the Bank of Uganda had earlier on given us between 3% and 4%. There are even discussions that we might go lower so any growth rate that is low is not very good for anybody so in this discussion and in the days ahead, we need to plan on how do we revive the growth, and economies have used graphs to look at things like how can the Economic growth recovery happen. It can be by a letter V like how everybody knows that letter V has a sharp bottom so if we drop down from the projected 6% let’s say that we grow by 3%, next year can we grow back above 3%. That would be a V and we would be very happy if we hit 3% and then we go back to 4% and possibly 5%. That’s is one kind of growth scenario that one can have. The second one could be a U. we hit 3% and in the coming years maybe two to three years, we are still down at 3%, 3.5%, or less than 4%. That becomes a letter U before you start to ascend. We don’t want that. So the discussion on Macroeconomics should be saying how first we can get this economy going up now that we know its way down. We can also get other variants like you get a letter W, You try to go up next year and some circumstances send you down in the subsequent years 2023 you hit the bottom again. We don’t want that either. The discussion on Macroeconomics tries to ensure that that does not happen to us. There has also been proposals of letter L where you go down and you stay down there for another 3 possibly 4 or 5 years. Now we want to avoid those and we get the growth going again as fast as possible.

This is another economic variable and we all know that people have lost out on jobs and companies have closed or set way some staff. The whole world is struggling. America has forty-eight millions of people who have got out of jobs. So employment is very central for very many reasons and we are not just talking about people having jobs but quality jobs. Actually know that have some Ugandans had some jobs but which are not actually enough because one week of the lockdown people were hungry. You want a job were you can meet your basic needs and you are able to save for a rainy day and also invest and move further on as the economy continues to grow. Employment is another discussion. You may be self-employed wherever you are in a salon by the roadside, bodaboda rider, a taxi driver, whatever it is the economy needs to create some employment for people because out of this, people earn income and out of these incomes, people are able to spend.

  1. Aggregate Demand.

Without demand in the economy, nobody is going to be looking forward to any production of any kind and this is another thing that Covid-19 has taken away from us. As people lost away their jobs, they went back to their homes, and some of them due to lockdown measures they were not able to go and buy whatever they needed to buy. So the discussion is out is on the demand level in the economy. If there is less demand, the economy stops producing and goes into a recession. And that’s where we have had a discussion on a number of what stimulus do we need, how do you get people back into the system demanding goods and services. The developed world have been paying out people even when they have not been working. At one point Britain was paying 80% of the salaries for 25% employees. What are they looking for; people should have money, people should go out there and demand goods and services so that factories can produce and service providers can provide services. These are macroeconomic parameters that what’s wrong, for me I still have my job. But remember you still have your job but whoever demands what you do might have lost the job. In order to demand that service from you, you are also going to be affected. You might have a house where you are renting, if they lost their jobs, they may not have money to pay you. So these things are interrelated and they come back to haunt us jointly and that’s why we call them a macro parameters. They are at a high level but they affect each one of us in our individual capacities. In USA at one point last month, they were pouring 1.3billion litres of milk. What was the reason? Value chains were still on but the problem was that there was no demand for the milk and people were priotizing other things. So aggregate Demand is very important. You might be having at one cow or goat, one chicken or even thousand chicken and all you do is to produce eggs and if there is no demand out there, you are going to be hit so hard. So the discussion is how is do we keep aggregate Demand in the economy so that it can recover.

Many people don’t understand or appreciate inflation, it has a figure but I want to put it in the basic thing but if you have ten thousand shillings and you are buying sodas which are costing you ten thousand shillings, you will have your ten bottles of soda….(Network Interruption) That’s why every month the Central Bank is out there to give us a signal on how inflation was and they are trying to keep it below single digit. Single digit meaning inflation must not go beyond 9% and so you don’t wait for it to get to 9% to act. They have out a medium measure of targeting at 5%. Every time it goes above 5%, they want to keep it at that level.

  1. Interest rate.

Some people may say me I do not borrow I don’t care where the interest rates are. Others will say I borrow whatever it is I find at a lower rate. Interest rates drive the cost of production for those who borrow and they may want to pass it on to you as a buyer of commodities. It is also possible that you borrowed earlier terms and conditions apply, your interest rate may be revised upwards. We already have concerns about where interest rates levels are in Uganda and you want to make sure that they are moderate. The cost of credit should be low but how do we get it down in the Covid-19 era when our economies are really struggling, the banks have a lot of non-performing loans meaning people are not paying back to banks and yet the banks still need liquidity in order to continue servicing the new borrowers and also do their work. If the bank has more people not bringing back their loans this bank has to go to borrow from other banks or even from the Central bank. And if it’s borrowing at a higher rate, it’s going to pass on this rate to its borrowers. It is important for us to understand the dynamics behind interest rates and quiet a number of people think the banks are just cheating us. But the cost of mobilizing money is very high. It can also be because of government borrowing. We are all putting pressure on the government; why can’t government pay us unemployment benefits, why can’t government pay for electricity, why can’t government pay for the water, but remember all the revenues of government were also dependent on aggregate Demand. Because we have not been buying things, government has lost the value Added taxes and also because people are not employed, government have lost on Pay As You Earn. Government is pressured to spend more and remember they are increasing costs on testing all the thousands of people that they are testing per week, policing, following up and security. Then government will be forced to go into the market and borrow to replace the shortfall in revenue. Now if government goes into the market to borrow, interest rate will go up and your business will be affected, your loan will be affected and you will be affected in one way or another. So these are Macro things that I said it’s a tent above, the drivers of this tent we may not know but if that tent is destroyed….(network interruptions) You will be happy to say for us Government is paying electricity for us as manufacturers but if government doesn’t raise enough sufficient funds to subsidize that electricity, it’s going to borrow on the market. As a manufacturer when you get a lower tariff for electricity but when you get to the market to borrow money, you will find the government has been there and the interest rates have gone up. So Macroeconomics is quite key that you may get your cake in the morning and buy evening….( Network interruption) It’s important for us to look at what it is and what it means. We need to ‘balance the boat’ and as they say economics is a matter of trade-offs. You can’t have your cake and eat it. How do you manage that trade-off?

  1. The exchange rates.

I have seen people say” I have never seen a dollar and I don’t need dollars.”  That may be true but remember we said Macroeconomics is a tent, if the tent is disturbed then it doesn’t matter what you are doing under tent you will feel the pitch. If the exchange rates are going up and right now we have them a little bit stable but we foresee a problem going forward. Reason? No tourists are going to come in that’s about 1.2 billion dollars that is not going to come to Uganda, the remittances have gone down that’s possibly 500 or 600 million dollars that may not come in. That means that we have less inflows of dollars. Our reserves were about four and a half months of imports meaning if Uganda got no new dollars for four and a half months. That was coming down to three and a half and could even go lower. So how do you stabilize the exchange rate. By replacing the dollars that are no longer coming in. Many have heard about the IMF loan for exchange rate stabilization, balance of payment stabilization and people had all sorts of questions. But this is how the exchange rate affects you, part of the electricity tariffs that we pay, among the four parameters, besides water, the price of barrel of oil internationally, global rate is actually the exchange rate. This is because the investors in the energy sector invested in dollars. UMEME recovers from us in shillings so they have to buy dollars to pay investors. I’d they need for example one thousand dollars to pay back to these people and exchange rate has gone up, you are going to need more shillings to buy the same amount of dollars. That means that your tariffs would go up. So we need to be keen on where is the exchange rate going. There are people will dollar denominated, people who borrowed in dollars. You heard the discussions in arcades, “why should we be paying in dollars when we are actually renting in Uganda?” This is because the person who built that arcade used dollars and he is paying his bank in dollars. If the exchange rate was not than five hundred thousand shillings, everything would go buzzer and we would have a very mad town. This is because transport costs will go up since fuel would have gone up, renting arcades will go up, and quite a lot of things would go up. Even if you do not deal in dollars, the exchange rate is very instrumental variable that can actually affect your business wherever you are. If you are dealing with business from out, there a lot of people who eat ‘kikomando’ and wheat is imported. That ‘kikomando’ can double the price if the exchange rate is not very well managed. That’s why we need to stabilize the exchange rate so that it doesn’t go so fast or else the electricity, fuel, food, spare parts would all go up and won’t be able to manage recovery.

  1. The Balance of Payments.

What is the difference between what you import and what you export? Am trying to avoid numbers because my colleagues are going to speak about numbers. If Uganda does not export enough.. (Internet interruption) then we are still going to be importing and this is even in a bigger concern as we begin to unlock. As they unlock, some of you will remember to replace your Samsung, you need more fuel to move around. Right now we have been having vehicles Locked down and now the vehicles are back on the streets, the import bill for fuel is going to go up if the dollar goes up, it may worsen the exchange rate but also that import has got to be matched by an increase in our exports. Because we are saying we are going to import more, we are into the drive of import replacement and the president is insisting ” I want alot of things manufactured here.” Many of the factories are not here yet. If they are going to be here as we open up and as they should, it means that we are going to import the equipment to set up this factories and in the initial years we might also have to import some of the inputs and the technical people who begin to run them off. These are going to be imports going up, our exports also need to go up. If they don’t, remember the exchange rate will lose value. So these are some of the discussion I thought are the things I should put up so that as my colleagues come in to begin talking about interest rate, they need to stabilize exchange rates, why they need to stimulate aggregate Demand and government may not been able to, or why government needs more revenues and to avoid borrowing. This discussion will at least begin to speak to you on how this will affect you in your small business or big business. And as people are losing jobs, you might be saying at least I still have mine or I do my own business. Remember the incomes people earn out of these jobs that they are losing; that’s how they pay rent and that’s if you own a house, that’s how they buy drugs if you own a clinic and that’s how they pay for the bodaboda ride if you own a Boda or even come to your hotel to spend a holiday or eat a meal.

Moderator: Fred I think you are winding up now.

Fred: Thank you, I have finished.

Moderator: Dr Muhumuza thank you very much for giving that wide and simple landscape of how Covid-19 is going to affect or is already affecting our economy. This has been a very well covered topic so let me request others to mute your mic.

I would like to request Dr Asumani Guloba to do make a quick introduction of yourself before you start.

Dr Asumani: I want to first take this opportunity to thank School of Economics for organizing this conversation and in particular because of what SOE holds in this conversation. This is the way Universities should be because going forward we need such conversations to be ongoing in the country so that….(interruptions) Am happy to respond to what you have told me, “how NDP is going to respond to Covid-19” but you did request me introduce myself. My name is Asumani Guloba, am director in charge of planning National planning Authority but the main reason why am here is because of the close relationship I have with School of Economics.

You asked a question “how is NDP going to respond to Covid-19?” But before I answer that question, let me tell you a story. Before Covid-19, we were about to launch NDP III  probably two weeks before Covid-19 meaning that when Covid-19 came in, it totally changed the entire landscape. Then the dilemma we are in right now as planners, whether we bring it the way it is or integrate Covid-19 issues before we bring that out. At NPA, we have done a detailed assessment and this assessment starts from the macro framework and it goes to actual sector issues that we need to respond to but the preliminary view we are getting from this is that;

  1. Fundamentally the way the plan is in a way we didn’t now know that the plan had a risk chapter and it had issues per sector. The plan generally responds to anything that happens including Covid-19. So even with the analysis that we have done, we realize that the plan may not change as much as possible. Because most of the interventions that we look at are actually already in the plan but two things need to happen. We want to first track and the second we had a few targets which were annualized so the targets which we had for first year may not be the targets that we plan. Particular to this is the macro Economic framework. The Macroeconomic framework is changing and I want to inform you that we are working closely with the colleagues that are on this panel like Dr Albert Musisi is leading the Macroeconomic framework of NDP III and Dr Adam Herbert Mugume. But what are we expecting from Covid-19 on Macroeconomic framework. The way Dr Muhumuza did report it, indeed we expect the real sector to suffer particularly when you look at the drivers of growth in Uganda, half of our growth is from services and when you have a lockdown like the way we had one, the service sector was affected for the two weeks we had in the lockdown. And this in particular is informal sector, financial services, you have other informal sector services like the common things we do like the barber shops. You noticed in Covid-19 time, all men had long beards and a lot of hair. All these have an impact on the economy so meaning that the economy generally coming from that area was a bit hard.

Secondly, in manufacturing while the government put in relaxed measures to allow manufacturing to continue because people were not working at the time when they should be working, definitely there has to be an effect. The interesting story to tell is in Agriculture, I will talk about that in more details when I talk about the plan and how we are accommodating this. But Agriculture has a very interesting mixed story. The mixed story of agriculture is on one end, the demand for Agricultural products may reduce the prices and there has been challenges with supply chains in terms of inputs but on the other hand because of the lockdown, even those who were in service sector have shifted to agriculture. Anybody who had a piece of land has tailored it. It has an impact on how we have to respond later. These are the issues likely that lead to prioritization.

The other thing is about the issue of external. The external sector is likely to worsen particularly on one side. It’s a balancing issue and it’s because trade is likely to suffer particularly from imports. Imports are likely to be a bit sluggish. But I think exports are improving because demand for our coffee has increased all over sudden within this period. Am yet to see the numbers to see how this impacts the whole story. The thing that is more challenging on the external side is the capital flows and that’s where the issue of IMF loan that we are getting to be able to support the shilling. We have a risk of where we could be a run on the shilling as people start converting to more renowned currencies particularly the dollars. The dollar was appreciating. I want to thank Bank of Uganda so far the way it has managed this because so far when you compare the way we have managed the external side for Uganda with other countries, we are not doing very badly off. Other capital flows particularly from FDI remittances may have to suffer both in the short and medium term. We expected FDI on oil because of what is happening and the prices of oil lacking, this might be a going forward issue. The other is in the monetary side; again Dr Fred, you did put it well…Private sector credit because If you have no business definitely private sector credit will suffer. Even the non-performing assets are on the rise but Bank of Uganda has been able to manage.

Moderator: Dr Asumani we are getting out of time, may be you want to finalize a little faster.

Dr Asumani: Okay, all this said Government must come in with a balance and that’s where a deficit will come in. The main point I have to talk about the deficit is that we have to be careful as Economists because on one hand if the deficit is it would be a good thing for the economy to slug regardless of. So you have to balance it and here the issue of spending becomes key. The implications of the plan with the analysis we have made, the plan will not change in terms of the way it was crafted but because of Covid-19 a few things need to be first tracked. There will be losers and winners and if you look at it more, the best winner we had in plan was digital transformation program. Digital transformation program is now the way to go including this meeting. So when we were talking about this in the plan earlier, people did not understand it but now it is the key. Because if we now move forward including government services, agriculture extension and health services, you don’t need to go to the hospital but using a consultation doctor from a laptop is the way to go. Secondly Import replacement. While import replacement was number three of the plan, it has been amplified we have to first track it faster to develop an action plan. Third the winners here is also the health sector, we have seen a high tend focus on the health sector. This in particular is that if you became sick today and you have been affording to go out of the country and now you can’t go out to get these services meaning we need to do better investment in health sector. The bigger losers that I see are mainly Tourism as a sector, the things that we prioritized in NDP may not be a key. For instance we were priotizing aggressive marketing but you cannot market an audience that is not willing to travel. But it gives us an opportunity to rethink a little bit of the way we are looking at tourism because within the next two years if we are not going to do the marketing, probably this is the time to invest in the fundamentals of diversifying tourism. These are some of the things we are talking about.

As I sum up in two more areas; one is an issue that is coming up that there is a high tended importance for environment issues particularly in masks. How do we dispose off masks? Masks might become the ‘big thing’ if we don’t have a big plan of how we are going to dispose them off. May be going forward these masks should be the reusable ones so that we do not have an environmental disaster on our land.

Lastly in the transport sector, NDP looked at this in detail because if you look at the transport sector and look at the drivers of Covid-19 cases which are now truck drivers and these are mainly coming from Kenya. NDP had gone a bit more in detail to say we need to reduce the actual tracks coming in but leverage rail and the lake Victoria more so that instead of Kenya. And when you talk of import replacement the biggest service import that we need to replace is in Transport. It occupies 60% to70% of transport service. This is mainly driven by the trucks that you see lining up coming to Uganda. The approach here is that because of Covid-19, It’s has heightened the focus to make sure how do we diversify modal transport that is as Lack Victoria and instead of these trucks coming to Uganda, they stop in Kenya Mwanza and Kisumu so that they use the ports through Bukasa and other ports on Lake Victoria. I could talk the whole day on this because I have an analysis related to this, maybe that would be a discussion for another day but for now. Thank you very much.

Moderator: Thank you so much Dr. Asumani. At least what you were clear about is that NDP cannot be implemented the way it was envisioned especially…(internet interruptions) because COVID-19 has brought in a lot if dynamics which have now to been taken care of especially in the first year.

One of the commenters, I think this is Dr Mpunga from Addis is saying “as we think about Covid-19, we should also that there must be a resurgence of this Covid-19 maybe a year later because the vaccine has not yet been discovered. So as we do our plans, let us not think about Covid-19 as going away tomorrow and therefore the plan can go as normal as it was planned.” I think that’s another thing to recognize. I like the way you talk about some of the issues that you had prioritized in the plan like promoting tourism now that the tourism sector is likely to be the last to recover then there has to be a reprioritization of the programs that have to be undertaken. I think this speaks well to how the Macroeconomic framework of NDP III has to be kind of a cast to take into consideration the context of the Covid-19 under which are working on.

So may I request Dr Albert Musisi to come on and kindly make a quick self-introduction?

Dr Albert: Thank you very much, Iam Albert Musisi and am the commissioner for Macroeconomic policy in the Ministry of Finance and I would like to start by thanking the organizers in the university. The main reason why I start with that thanking is because Macroeconomics ride and some people think it’s no longer an issue for discussion.  This time of Covid-19 it’s very critical and it affects everybody. What is done at the macro level, the Macroeconomic policies and decisions that are made at the Macroeconomic level impact on almost every body even the small enterprises, poor households and not just big businesses as some people seem to suggest. In fact we have always had this discussion of we don’t eat GDP or inflation, we don’t need to know about all these things but they are very critical. I would like to thank Dr Muhumuza, he gave a very good introduction on the issues and I will therefore go straight to my presentation.

I want to start with what we saw before Covid-19 because I want to put a context to the kind of challenges we are going to face going forward and therefore this should inform the kind of policies that we take into account and decisions that we must make as we deal with COVID-19 and its effects on the economy. Now when you look at this graph, you could see that upto 2016 we had problems with growth. Growth had decelerated upto 3.9% and this was because of the problems in the global financial crisis in the past and the drought that we had during that period. After 2016, as we went to 2017,2018,2019, We had a significant recovery. Infact we had started talking about acceleration. So far Covid-19 has had a significant impact on the global growth as Dr Muhumuza already pointed out. We are seeing a global recession projected now at -3% and you know if it’s negative it affects us in a number of ways as am going to point out. So the negative global growth and the domestic lockdown policies that have been undertaken in the economy, they have resulted into the slowdown of economic activities in the domestic economy. It has made Economic and health shock very unique because it has ended up affecting both the supply side and the demand side. So aggregate Demand is affected but also just because of the lockdown policies and disruption with trade, we have problems with demand and we also have problems with supply chains disruptions. The official restrictions have also affected the economic activities.

UGANDA- Real GDP Growth Projections.

2018/19FY 2019/20FY 2020/21
Post CovidPost CovPre CovPost Cov
Agriculture, forestry and fishing



Real MP GDP growth





















And as you see there on the chart. We had projected in the year 2019/20, our growth would be about 6% and our current projection is that we shall grow at about 3.9% with unanticipated expenditure particularly for the health sector and the Covid-19 related expenditure requirements. This is true not only for the public sector but also for the private sector. So in both cases, the private sector side of the economy is struggling with revenue and the public sector is also suffering with revenue. So this is very significant under normal circumstances.

Lockdown- the negative impact on domestic production we have seen some enterprises closing and there has been some job losses and this is particularly among the SMEs, self-employed and the daily wage earners. Because of the lockdown, some people are not working, some businesses have closed, etc.      The result of this, is increase in poverty and vulnerability.    We are also seeing a bigger decline in foreign exchange inflows than outflows. So exports, remittances, loan disbursement, FDI and Tourism revenues have declined and this obviously is going to have pressure on the exchange rate and possibly a pass through inflation. When all these happen, of course then we have effects even in the financial sector with non-performing loans possibly going to increase because of the slowdown in the Economic activity and the crawling of some businesses. etc. So those are some of the implications of what we see.

I would like to focus more on the fiscal sector because I think Dr Mugume will talk about the monetary. Am going to mainly look at the government side.

FY 2019/20FY 2020/21
BudgetPost CovidDeviationBFPPost CovidDeviation
Revenue Projection

o/W tax revenue

o/w Non-tax revenue



















As I pointed out already, government revenue has really suffered as you note there, we are having a shortfall of 3.4 trillion in this financial year and given what we had projected for next financial year and we see possibly a short fall of about 1.9 trillion. To increase given the needs of the health sector and other Covid-19 related expenditures, there is need to make sure that the economy doesn’t collapse. You need to have a fiscal stimulus. On one end you have a revenue decline and on the other hand you have a need to increase government expenditure. So what do we have then? That means that our fiscal deficit which has been discussed already is going to expand. This financial year, our fiscal deficit was supposed to be 6.8%but now it’s projected to go upto 7.6% and to increase further to next year to 9.3%. As Dr Asumani said we think need to do this because we need to stimulate the economy to make sure that we minimize the negative impact of what’s happening now. The idea is that after this, we should be able to fiscally consolidate to make sure that we maintain long term fiscal sustainability. And that’s where the discussion is going to be, How are we going to manage to do this going forward where by you stimulate the economy at the same time fiscally consolidate. That’s the challenge. To our it in bigger context, we need to look at the Ugandan context just like any other developing countries, we have limited fiscal space meaning that we don’t have enough fiscal savings, low ratio of public revenues to GDP and we have a huge debt servicing to revenue budget ratio. That means that we actually have to use alot of our revenues to service debt. The question then is how we are going to finance debt in the stimulus package. We also have a big informal sector and that is where most of the people are. Those two have to be taken into account as we come up with the policies and tools to stimulate the economy. When we talk about the stimulus package of what we need to do to stimulate the economy, there are two things. One is increasing government spending to boast aggregate Demand but also help out the private in the supply side. The other one is tax relief. This means that you have come up with some tax cuts and tax deferrals. A number of considerations can be made forexample you could ease tax administration to reduce the price of tax compliance, you could differ some tax payments by the affected sectors or businesses or you could as well as differ Pay As You Earn or cooperation tax. There is number of things that have to do to help the private sector side in the economy. These are intended to help the private sector not to collapse especially those that may be facing liquidity problems. From a Macroeconomic view, we have to do all these without jeopardizing long-term sustainability. So that is the context in which we have to do our policies as we go forward.

The stimulus package therefore the questions one  has to ask- how is it to be financed?, what size because what size determines whether we have a V, W, L and so on, what size to bring economy to pre- Covid-19 levels? The first thing is how is it to be financed even that we have limited fiscal space. Therefore we have to look for the least cost financing option to bridge the budget gap and also to finance this package. What is available in our ‘tool box’ is concessional financing from institutions like IMF and World Bank and the government has already taken advantage of this. The other one is to take advantage of debt relief where available even though Uganda is at a low risk of debt distress. We don’t really have such bad debt compared to other African countries. So we have some room to finance this package through concessional borrowing from other sources.

But I think most importantly, one has to carefully consider what interventions are required in the stimulus package. I think the first one, we have to take into account the fiscal multipliers and the fiscal multipliers do measure the effect the increase in fiscal or government spending to boast Economic output. The second one is which sectors to target. You could sectors like tourism which have been affected. Whoever sectors to be focus on need to be prioritized based on their impact on the economy and recovery potential. What government is thinking about now is to boast locally goods and services to replace imports. And also support private sector to ensure resilience of the economy, protect jobs and therefore reduce negative effects on the economy.

We may also have to focus more on the small and medium enterprises in addition to large businesses forexample one could consider a fund for small and Medium Enterprises.                                             Another one is look at the household Economic welfare (particularly for the poor and vulnerable households.) This is not only a social objective because some people look at it that way but it could also have a greater impact on aggregate Demand.

As I conclude, you saw the difficult balance that has to be met and one is that you need to finance a stimulus package but how do you do it without getting into fiscal and debt sustainability. So we are thinking of reviewing public expenditure and focusing on that expenditure that actually would help to smoothen the fiscal deficit by sort of reducing that expenditure not necessarily be most helpful for a recovery. Another one is strict accountability for stimulus interventions that are required to ensure that we have maximum impact when we have this package. I think I will stop there.

Moderator: Thank you very much Dr. Albert. I think you have addressed the issues of how do you stimulate aggregate Demand which is one of the issues that Dr. Muhumuza talked about that needs to be addressed. You’ve given us an overview of what Ministry of finance is thinking Interms of looking to concessional loans which are a little easier compared to the domestic debts which could be very constraining because it has much quicker effect on domestic rates. I think your last slide is very critical for us to think about, all these loans that we are getting, there should be a good accountability and good use. And also reviewing the public expenditure and make sure that priotization in expenditure and also going for where some people want to call for value for money so that the public money that is being injected in which is moreover borrowed funds is first accounted for properly but also going to the priority expenditure areas for government. I would like to request Dr. Adam Mugume to address himself to the other components of interest rates and exchange rate stabilization. Dr. Muhumuza just explained how the effects are likely to be because we may not have as much dollars coming in from the tourist sector and also the export sector we are having trade balance issues. So probably Dr. Adam can join the discussion.

Dr. Adam Mugume: Thank you so much. The most important thing I need to highlight is that where this Covid-19 brought out evidence that the way we save and spend is seriously wanting because for the first time you saw that once you have saved in land, during Covid-19 you can’t sell the land. You are equally as a person who had no land because nobody wants to buy land or property. I think the culture of financial sector development and financial inclusion comes to the limelight and also buildings up the buffers. The culture of making sure that you can have a small box where you put coins and accumulate as a form of savings even if you don’t necessarily go into the financial system. It really becomes very crucial. You can see that the most vulnerable people are the one who are equally affected because I think we saw some analysis that actually on the first day some of the vulnerable people had no money remaining on their savings. You could see that actually that is also something that comes into…(Interruption) What Dr. Muhumuza, Dr. Asumani and Dr. Musisi said are facts. The question would be what- forexample from the Bank of Uganda side, what have we done? One of the issues we have tried to do is really to encourage banks to restructure loans. Now we have seen that just by April, the value of loan applications was down by 50%. That’s just loan applications not approvals. If you look at what was approved was basically 25%of the loan application. So originally we would get like a total of two trillion shillings In terms of the value of loan application. Now we are taking about a half of that and what has been approved by commercial banks is 25%. This automatically shows that once the loans are not approved or once there is no demand for loans, what is coming next is basically low Economic growth. Also commercial banks are realistic saying “okay if we give out loans with the economy that is on decline, how do we get paid?” That’s where we have come in to say let us see how we can restructure the loans. Because we know the loans are going to be non-performing anyway. The question therefore was to come in and encourage commercial banks to restructure the loan for a period of twelve months because down twelve months ahead, growth would have started recovering. So that is the basis actually. We are really wishing commercial banks to restructure the loans and all of them have agreed. There was a question, “supposed all of them gave a holiday for repayment of loans for three months.” Once you do that remember that some of the banks, 60% of their incomes comes from loans. So once you have a moratorium and say none of the borrowers should pay for the next three months, it would automatically mean that some of the banks would fail. That’s where I was talking about restructuring for those who are unable to pay but for those who are able to pay should pay because if they don’t pay then the financial institution would collapse. We have been at forefront of doing the loan structuring. Because also we knew that once customers do not service their loans, banks will be in financial challenges. That’s as Bank of Uganda said we know we are encouraging you to restructure the loans so that means that people will not be able service their loans. In the event where the bank doesn’t get necessary liquidity from loans Bank of Uganda is saying okay we can give you support for a period of also twelve months as you structure the loans, as your income flows become disrupted, you can give you a facility from Bank of Uganda to make sure that actually as a bank also you remain afloat. So basically that’s another side of what we have looked at. The first response to Covid-19 was easing monetary policy. Many people will say when you reduce CBR, there is no effect after all interest rates remain high. I intend to disagree because forexample in the history of Uganda from 1986, in April we recorded an interest rates of 17.2% and it had never happened. If it was not for easing of monetary… because the argument here is if we do not give out credit at the lower rate than where would you put the money. There is nowhere else apart from government lucky enough also government came in and said we are not incurring more domestic borrowing. Therefore when commercial banks also know that they have the money, they have nowhere to put it and they have to offload it somewhere to the domestic economy and that’s where we see that some of the lending Interest rates have come down. At 17.6%, it is still too high and it automatically means that for you to borrow at 17.6% then your return investment must be above that way. So we believe that that is still too high. So we are really working with commercial banks to ensure that lending Interest rate continue to follow the easing of financial condition. So once we ease monetary policy, we follow commercial banks one by one to ensure that actually they replicate what the central bank had done Interms of lending Interest rate. However, there are some sectors that are still a challenge for example if you are borrowing and you are mortgaging your land or property because of the challenges of the land title, evaluation and registration of property. You always find that the people who are borrowing given collateral for land and property will always be changed higher still in the range of 24%. So that becomes a big challenge Interms of developing the financial system to ensure that actually have alternative to the collateral rather than land and property.

The other thing we have talked about is the exchange rate. We have talked about exports declining, you have a deficit and the alternative therefore will be let exchange rate go through the roof. Now in the process of doing that, everything goes through the roof and including the public debt. The question therefore of managing the exchange rate is now at the forefront. I know in the most Macroeconomics you see managing exchange rate is straight forward but the nature of our market that is too shallow, even a demand of a hundred million causes alot of liquidity in the exchange rate. And that’s why we have been at the forefront trying to see how we can get some dollars. By the way remember that some of the dollars that we have as reserves, we buy them from the market. It is the supply of the incomes we get the surplus Vv what we spend Interms of Imports that we are able to accumulate the reserves. We buy from the market which automatically means that if now it’s the other way round, we are spending more Interms of Imports Vv what we are earning and it automatically means that we have to lose some reserves. That’s where IMF comes in because from IMF’s foundation was meant for such kind of assistance. That’s why we wanted to have more funds from IMF Interms of funds we can use in the market to stabilize the exchange. The three hundred and forty we are talking about is very small, actually when you look at the financing Balance of Payments, it is 1.2 billion. So 1.2 billion is what we require to make sure that our balance of payments is zero (we have no deficit and we have no surplus.) The three hundred and forty is so small, it automatically means that we have to either allow bit of exchange rate depreciation but which will automatically mean that we have cut on exports and also we have to lose some of the reserves in the process of stabilizing the exchange rate.

There was also about inflation and recovery. In our assessment as Bank of Uganda, we believe that inflation is not a big challenge. Why? We have already answered it that demand is very low. Lucky enough food inflation is now at -4%. This is simply because of demand problems. In the coming months, probably towards election as exchange rate also depreciates because of inflation. Now the question comes in- do we try to maintain below 5% and then hurt growth or we can allow inflation to go slightly above 5% and not even double digit. Supposing inflation goes into the range of 6% or 7% but at the same time encourage Economic growth. And I think as Bank of Uganda, our view is that so long as on average, inflation will come back to 5%, we can allow inflation to go above 5% into six and not double digit. But make sure that in the process, we allow liquidity in the system to be able to support Economic growth. Overall I think inflation is not a big challenge now but we believe that allowing inflation to slightly age up as we support Economic growth is the best way to go.

Another important thing that we need to empathize is that 80% of our imports are raw materials and capital goods. I have had an argument with senior policy makers because they think that you can wake up and have import substitution the following year remembering well that 80% of our imports are raw materials and capital goods. We have to have a strategy of going forward Interms of how we can encourage Import substitution. And that’s why we are saying that import substitution should be stable. Why? Because 80% of these are used for production Interms of capital and raw materials so that at least once you have a stable exchange rate, the manufacturers who import these raw materials or capital goods can be able to produce and also supply to the rest of the economy and also to some of our neighboring countries. The most important part in this debate is really bringing back the confidence, saying we are slightly in a decline but it’s temporary. As Dr. Musisi showed, we believe that by the end of this year, we should be back to the gradual recovery. By 2021, we should be up towards where we are supposed to be. So I think that confidence knowing that we want fiscal stimulus into sectors that can be able to bring return very fast, I think that’s the best way to go. Basically that’s what I can summarize because the other issues have been talked about. The most important thing is to know this is a temporary effect and we will be back in recovery by the end of the year.

Moderator: Thank you so much Dr. Mugume, I like the way you have summarized this to work for us. Your last point on confidence and knowing that this is a temporary decline gives hope for both the households and other enterprises. You did address yourself the issue of providing support to commercial banks such that they can be able to reschedule loans if they are having liquidity problems and the Central bank can come and support the commercial banks. In stabilizing exchange rates, you have addressed yourself to the need to have Bank of Uganda foreign exchange reserves that can be drawn on to stabilize the exchange rate. Because otherwise if it goes through the roof as you mentioned, many sectors like import sector would suffer and that’s where the IMF loan comes in so that it can provide some space to Bank of Uganda to do stabilization. The effort you have taken as Bank of Uganda to negotiate with commercial banks moving forward to reducing the lending Interest rate; I think this is going to help small enterprises and big firms that are looking forward to borrowing from the commercial banks to be able to recover faster because all this time while they were not working during lockdown, they were eating into their working capital and now they need new capital to inject back into the business. We mentioned that some of us had issues with CBR going down and affect the interest rate, we thought that these commercial banks are not really responding fully to the signals given by central bank but you have mentioned the efforts you are trying to make and reduce the very high interest lending rate in the country.

Am going to open up just for ten minutes, I think some people may have questions or comments.

Dr Birungi: My questions to Albert. First what is the right size of stimulus that can pull us out? So people think the proposal at the moment is too small to create an impact. My second question is we seem to be in a war situation and in war situations at times you don’t follow the laws as you should, can’t we change that budget that we have just completed because we are in a special situation and we need to review the expenditure and put in the money in the right place as long as that money creates an impact as opposed to continuous borrowing.

Moderator: Thank you Dr. Birungi. I think Dr. Albert you have picked up the two questions.

DrEdward: Thank you very much. My question goes to Dr. Asumani. I just want to know which adjustments need to be done to achieve the NDP III in the short run because Dr.Asumani has given us areas of adjustments largely in the medium and long term. But for the time being, we would like to hear the short run adjustments that may be required. Another question goes to Dr. Musisi. I would also like him to tell us in which specific areas will have the greatest impact to boast aggregate Demand when there is a stimulus package that is issued or any intervention that government has to adjust.

And lastly to Dr. Mugume, I would also like him to guide us on when does he anticipate the effects of the Covid-19 that we are experiencing now to fisal out so as to go back to high levels of equilibrium. Thank you very much.

Moderator: Thank you. As to when we expect to go back to normal, it’s really hard to know and it’s only God who knows. We still have an issue with resurgence and that can bring the whole equation out of what we expect. Let me ask Dr. Wasswa to ask his question.

Dr. Wasswa Gabriel: Thank you. My questions will go to Dr. Mugume. He has presented the attempts that Bank of Uganda has made to respond to Covid-19 and I wanted to ask him what Bank of Uganda has actually done Interms of reaching out to the local producers. I mean Interms of direct intervention on the supply side because many people have closed their businesses and some of them don’t even expect to restart their business because they can’t pay the loans they had borrowed before. The policies he mentioned like foreign exchange management, monetary policy and restructuring loans, I don’t see those working on the local person or Small scale businesses because if they don’t borrow money, they would not still be able to startup businesses if the businesses collapse. Wouldn’t there be a way for Bank of Uganda in conjunction with the government to intervene directly to support those small farmers Interms of giving them cash to start up again. How possible is that and what policy would work?

Moderator: Thank you Dr. Wasswa. I think that’s a good question and Dr. Adam is going to address himself to that although Bank of Uganda is not in the known of giving cash to Enterprises. It has to go through commercial banks. He is the expert and he is going to address that.

Dr. Wasswa Gabriel: The Bank of England cut it’s bank rate to 0.01% during the Covid-19 period and also understand the reserve rate in USA was cut to 0% during the Covid-19 period. What impact what these have on the Bank rate of Bank of Uganda and the influence of commercial bank rate?

Moderator: Thank you very Much Gabriel. Let me ask Dr. Danson Kaijja connecting from Nairobi to ask the question.

Dr. Danson: Thank you so such moderator and the panel. My first question is; given the poverty levels in Uganda, I have not heard anything to do with the interventions that are there to protect the poor and the vulnerable and also avoiding a number of people becoming Vulnerable. I think that is very critical. It would be good to hear from the ministry of Finance, National planning Authority, Dr. Mugume if there are any interventions or resources that have been put a side to support social protection. My second question is that we have a number of people who are low income earners and they still Pay As You Earn. Looking at the Kenya experience, where there have been given tax waivers for anyone earning less than twenty four thousand Kenyan shillings and that’s around eight hundred to seven hundred Uganda shillings getting a tax waiver for some time. Is Uganda considering such a thing? Because where we are heading to, the situation is going to be quite tricky for even the low income earners including the majority of the youth. Thank you.

Mr. Christopher: Just three questions from me and two questions to Dr. Albert Musisi of Ministry of finance and another one to Dr. Mugume. The first question to Dr. Musisi about Austerity; you talked about the fiscal deficit going large and larger but we are not hearing anything in terms of Austerity from government expenditure or non-productive expenditure on things like ministerial vehicles and lavish expenditure or travel. We are not hearing that coming out of government. While we hearing the message of saying this deficit is getting worse and worse but there is no Austerity or fiscal deficit coming from government side. The side one will be around stimulus options which will be about why aren’t we looking at various options.  We saw The Kira Buses launch if it just offered free transport to people for the next three months and that’s putting money back to their pockets in terms of disposable income. Can we look at other options? Then to Dr Mugume; on efex you have highlighted the importance of efex but why do we see Bank of Uganda coming to the market very late into the game? Why does the currency move from three thousand six hundred to four thousand shillings before the Bank of Uganda comes and shrinks it back to three thousand eight hundred shillings? Why don’t we see Bank of Uganda in coming earlier as the thing begins to take a trend? Why do we see you coming so late that the impact is minimized? Is there a reason behind that? Thank you.

Moderator: Let us give the panelists to respond. I think we can start with Dr. Mugume and then we go to Dr. Albert.

Dr. Mugume Adam: Let me answer the question about exchange rate. As you all know in Economics, Exchange rate is an asset set price. When an asset price starts moving, it doesn’t warm you and that’s why the stock market in Newyork can climb up in the morning and it crushes the following day.  That’s the asset price. It is always very difficult to control an asset price. For example when we intervene, we use almost two hundred dollars to stabilize the exchange rate when we had moved to three thousand nine hundred because 80% of our imports are raw materials and capital goods. So the manufacturers were pre buying and you can’t stop them. You buy money and they are pre buying until a situation where it reaches and they don’t have a shillings and then they stop. So you have to put in measures in selling dollars but also make sure that we withdrawal shillings at the same time before the currency stabilizes. It’s always something that you can’t really say that am going to control the level. Bank of Uganda normally tries to stabilize but not control the level of the exchange rate.

Then another question about the producers and I think Bank of Uganda and Ministry of finance work together so we divide our tasks. We let them do the pumping and the helping but for us we do the demand management side. Now when it comes to producers, I know Dr. Musisi will talk about the facilities they are ‘cooking’ in UDP for small scale enterprises but also for Bank of Uganda, what we have been trying to do with commercial banks and also some donors, is to see whether we can have a plan that we can on-rent to particular sectors. Mainly into Agriculture beyond what government has been giving under agricultural credit facilities, we are trying to see whether we can borrow some money because the default rates of these ACF is about 1% much below the other loans. We are still trying to see whether we can be allowed to borrow and enhance this facility through some donors. That’s the way to help. However when we are talking about loan restructuring; we were saying of the producer in Katwe you borrowed and  things are not going well, you go to your bank and say please I don’t  have money to pay you for the next twelve months. They should be able to honor that request because they can see that your financial flows are hindered. Commercial banks will also come to Bank of Uganda and say ” I have restructured this loan therefore also give me a waiver In terms of the liquidity. That’s the approach we were taking.

Moderator: Thank you. Let me ask Dr. Albert Musisi to come in. I know you talked about reviewing the public expenditure. There was a question about that and people wanted to know exactly what areas are you touching in this review? You can address yourself to the questions.

Dr. Albert: Thank you. I should start by saying the government and the minister of finance is going to give a detailed presentation to the parliament and the country on the stimulus package. That’s why I only gave the kind of considerations that have been taken into account without really being specific. Someone asked why don’t we have a fiscal Austerity at this point? Of course that would be a wrong policy to undertake now given what we know now that the public sector is the one that can stimulate the economy at this style because the private sector is struggling. The fiscal deficit has been expanding particularly because of the mainly public infrastructure investment which has taken a bigger part of the budget and what we are thinking about now is to… As I showed in my group, although next year we are having an expanding fiscal deficit after that we are planning to go back to a more sustainable level fiscal deficit. How to do that? As I pointed out, we are reviewing the kind of programs mainly projects that we are undertaking and this review is ongoing now looking at individual projects and how best to manage it. So the fiscal consolidation is part of the plan but at the same, you have to measure that against the factor that we need to stimulate the economy. So it is not that it’s not thought about it but that’s all we are thinking about. Then I think it’s was Dr. Kaijja about the vulnerable people, as you know government already provided food to the people mainly in Kampala and surrounding areas. That’s already an intervention towards the vulnerable people. But also there is an ongoing discussion on social protection, how best to intervene in that area. We are also focusing on microfinances and also small scale enterprises that are going to be given credit at affordable level. It’s just the mechanisms and the way to finance it and the affordable ways of doing it, what interest rates to charge and so on. So it won’t be just grant, it will be more credit but credit at affordable rate. There are a number of considerations and these will be brought to attention next week. Then the question of tax waivers, it is also something under consideration and details are going to be given and already URA has eased some of the fees that tax payers have to pay but this is being balanced with the fact that we need revenue as well to finance the government side. So it’s a balancing act but it’s something we need to consider. Then are we going to consider Budget Adjustment? I think it has to happen and it will happen between now and next year. We will have adjust as I highlighted to what those areas that will help boast the recovery of the economy. Now what’s the right size of the stimulus? We are actually trying to compute it by looking at what fiscal stimulus will help us get to pre-covid levels. That’s how we are trying to compute that size. As I said in my presentation, unlike countries like USA or European countries that can actually have a very big size of the fiscal stimulus, we are constrained on the other hand. Most of the developing countries have limited fiscal space so apart from saying we need this you need to understand that also there is an issue about how we are going to finance it. That’s why we need to do budget adjustments. Otherwise we have computed the number and it will depend on whether we can finance it.

Moderator: Thank you very much Dr. Albert. It has been a very useful discussion. Iam going to request the Dean school of Economics to come in and only use one or two minutes. First of all to thank the panelists and the presenter and to thank the participants and also give us a program of the series of discussions that we are going to have. Otherwise it has been a very interesting discussion we have had. Dean could you please unmute yourself and give us a concluding remark.

Dean SOE: Thank you so much Moderator and first of all, I would like to thank our panelists for the work well done and the presenter for pinching this discussion at a very high notch. There so no doubt that it has been very interesting and as a school, we have a program where we shall be having such Webnars frequently and basically in the next two weeks we shall have another one. We are also planning on where we are going to be televised live on NTV, so far we have got promise of financial support from our stakeholders towards this. But before there, this forum is critical and we are going to go in with this because this one does not require any financial investment in this. Also Moderator allow me to give a comment. There is something Dr. Musisi pointed out which is very interesting about the repriotization looking at the government projects once again. I don’t know which criteria they are using to look at which projects to come first now even the Covid-19. And how fast are you doing it. Is it a study, have you instituted the study or what are you doing in the Ministry to make sure that you will point to the right projects given this scenario. And what are the likely implications of those projects that are likely to be pushed behind in favor of those that can actually address the situation. My last comment; Dr. Mugume about the status of the results Vv the ability to protect the shilling amidst the declining exchange rate. So we asked a question to Dr. Musisi about that right amount of the stimulus. In this case am trying to say, what is the status of the foreign revenue now? Are we safe or we are likely to have trouble. Thank you so much. Allow me in one second to say that this has been great and I would like to thank the Taskforce that has done great to make sure that this discussion is put together. Thank you colleagues and God bless you.

Moderator: Thank you very much. I want to say that this has been a very wonderful discussion. We had over 150 participants joining in and we actually went to 180. So there has been a lot of publicity. It has been recorded and we are going to be able to circulate this recording. Thanks everybody and to our panelist Dr Muhumuza, Dr. Goloba Asumani from NPA, Dr. Albert Musisi commissioner Ministry of finance and Dr Adam Mugume from Bank of Uganda. To all of you participants. Keep safe and stay well. Hope to see you soon in our next Webnar. Good bye and God bless you.