Uganda’s economy on track – IMF

THE International Monetary Fund (IMF) has endorsed Uganda’s Policy Support Instrument (PSI), saying it aims at maintaining macroeconomic stability and alleviating constraints to growth.

The endorsement, which was announced yesterday after IMF’s executive board completed the second review under the PSI for Uganda, means that the country is on the right path towards economic development.

IMF deputy managing director and acting chairperson Naoyuki Shinohara in a statement said: “Thanks to generally sound macroeconomic policies, Uganda withstood the global financial crisis and other shocks. Economic growth has recovered and is expected to strengthen, although inflation risks, mostly related to rising food prices, have increased.”

He added that the modest intervention by the Central Bank had mitigated volatility of the exchange rate, helping the financial sector to remain sound.

Reacting to the endorsement, the finance ministry permanent secretary and secretary to the treasury, Chris Kassami, said the endorsement shows that the economy is being competently managed.

A successful policy support instrument, he added, was important for the credibility of Uganda’s budget and attracting foreign investment.

“This endorsement gives a signal to investors and donors. Even Ugandans living abroad have the confidence that the money they send back home is safe,” Kassami said yesterday.

Policy support instruments are designed for low-income countries that may not need, or want IMF assistance but still seek the organisation’s advice, monitoring and endorsement of their policies.

“A PSI review is, therefore, an important tool in giving signals to the international community and investors about soundness of the economic policy framework,” Kassami explained.

PSIs are voluntary and demand-driven. The PSI for Uganda was first given a green light on May 12, 2010.

Shinohara said the main challenge facing economic policy makers at present is to adjust fiscal and monetary policies to safeguard macro-economic stability and rebuild policy buffers, including international reserves.

He noted that scaling up infrastructure investment will be key to faster growth in Uganda over the medium term.

Kassami said the Government will continue to invest in infrastructure, value addition, agriculture and human resource to improve competitiveness and exports growth.

Commenting on the depreciation of the shilling against the dollar, Kassami said the current problems of the shilling were temporary and would be handled.

He said international factors had affected Uganda’s exports thereby reducing foreign exchange inflows.

The shilling hit an all-time low of sh2,725 against the dollar on Wednesday due to the increasing global demand for the dollar.

“The Government is taking measures to improve exports to increase foreign exchange inflows and resolve the shilling problem in the short term,” Kassami explained.

But, he said, redeeming the shilling was a collective responsibility where all Ugandans have a role to play through working hard and exporting more.
source.  http://newvision.co.ug/D/8/12/758991

Today's inflation figures: this could cost you even more than the banking collapses.

Inflation is hitting savers harder than they realise (Photo: Alamy)

The latest inflation numbers were out today: 5.2 per cent again for the change in the cost of living (the RPI); 4.5 per cent for the change in the Bank of England’s policy index (CPI). The combination of high inflation and the policy response to have cost savers just as much as (if not more than) if they had had money in banks that were liquidated.
First, let’s see how much savers have actually lost. The banking crisis has been going on since mid-2007. Let’s call that four years. The natural equilibrium rate for UK interest rates – the rate that would be set if policymakers were not trying to manage short-term macroeconomic disturbances – is about 5 per cent. The inflation target is 2 per cent.  If inflation had 2 per cent and interest rates 5 per cent for the past four years, then £10,000 invested in 2007 in an account paying out at Bank Rate would now be worth about £12,200, or about £11,200 in real terms (at 2007 prices).
In fact, interest rates have average just 2.3 per cent in real terms over the past four years, whilst CPI inflation has averaged 3.3 per cent.  So £10,000 invested in 2007 at Bank Rate would now be worth £10,900 or £9,600 in real terms (at 2007 prices). So in real terms, savers’ money is only worth about 86 per cent (£9,600/£11,200) of what it would have been worth had policy been neutral and inflation kept under control – a loss of 14 per cent.
In 2007, the first £2,000 of depositors’ money was insured 100 per cent, and the next £33,000 was insured 90 per cent.  If depositors had been preferred creditors of banks, as they should be, then no depositor could conceivably have lost a penny in 2007, and the state insurance scheme would not have been called upon.  But let’s ignore that for now, and consider a case in which your deposit insurance is required. Then our £10,000 saver would have lost 10 per cent of the difference between £10,000 and £2,000, i.e. £800.  So she would have recovered 92 per cent (or lost 8 per cent) – well ahead of the 86 per cent value (14 per cent loss) she has experienced under our low interest rates/high inflation policy.
Consider a more extreme case. Suppose that there hadn’t been any deposit insurance and that depositors hadn’t been preferred creditors.  Then what?  Well, in the early 1930s banking collapses in the US, typical depositor recovery rates were above 80 per cent. So if there had been no insurance at all, depositors had not been preferred creditors, and the UK banks in 2007-9 had been just as bust as the US banks of the early 1930s, then depositor losses would have been about the same as they have been over the past four years under our low interest rates/high inflation policy.
One of the implications of all this is that if you were a saver in a bank that wouldn’t have collapsed, such as HSBC, you have made a very considerable loss from this policy. Depositors in robust institutions have a clear interest in opposing bailout/low interest rate/inflate away the debt schemes.

Andrew kyambadde

Least Developed Countries: Reservoirs of Untapped Potential by Ban Ki-moon

Ban Ki-moon addresses UN-LDC forum UN Photo/E.Schneider

In 1971, the international community identified 25 Least Developed Countries: the poorest and weakest members of our global family, those in need of special attention and assistance.  Today there are 48 LDCs, home to nearly 900 million people, 12 per cent of the global population, half of whom live on less than $2 a day.

They suffer disproportionately from largely preventable diseases.  They are most vulnerable to natural disasters, environmental change and economic shocks.  They are the least secure.  Eight of the United Nations 15 peacekeeping operations are in least developed countries.  In the past decade those nations have produced some 60 per cent of the world’s refugees.

The facts are plain.  We live in an unbalanced world, an unfair world.  With 12 per cent of the global population, LDCs account for just 1 per cent of world exports, and less than 2 per cent of global direct investment.  Recent years have seen a transformation of the global economic landscape.

Since the 2001 Brussels Programme of Action was adopted, many LDCs have benefited from this changing environment.  But others have seen little progress or have even slid back.  We risk a splintered world economy, a widening gap between haves and have-nots, between those who have hope and those who do not.

This cannot continue.

I have painted rather a bleak picture.  But there is another one, a landscape of opportunity.  It is this outlook that I want to present to you today.  It is time to change our mindset.  Instead of seeing LDCs as poor and weak, let us recognize these 48 countries as vast reservoirs of untapped potential.  Investing in LDCs is an opportunity for all.

First it is an opportunity to relieve the world’s most vulnerable people of the burdens of poverty, hunger and needless disease.  This is a moral obligation.  Second, investing in LDCs can provide the stimulus that will help to propel and sustain global economic recovery and stability.  This is not charity, it is smart investment.  Third, it provides a massive opportunity for South-South cooperation and investment.  The world’s rapidly emerging economies need both resources and markets.  LDCs can provide both — and are increasingly doing so.  Fourth, the LDCs represent a vast and barely touched area for enterprise, for business.We have all the ingredients for success, for a genuine partnership for development. 

I would like highlight some broad areas where we can reap the maximum benefits for LDCs and the global economy.

First, productive capacity.  Most LDCs are rich in resources.  All have young and vibrant populations.  These men and women need decent jobs, education, training, so they can make the most of their country’s assets — minerals and other commodities, farmland, rich stores of biodiversity and tourism potential.

However, enhanced productive capacity will only be achieved with a dynamic and thriving private sector.  One of the most significant aspects of this Conference is the enthusiastic engagement of the business community.  Let us ensure that business has the right environment to thrive.  It is no coincidence that the three countries that have graduated from the LDCs also score high on governance and democratic principles.

Let me now turn to the issue of aid.  Official development assistance (ODA) to LDCs has nearly tripled in the past decade.  But it remains below agreed targets.  Yes, it is true that we live in times of austerity.  But as I have said, assistance to LDCs is not charity, it is sound investment.  Many also argue that current aid places too little emphasis on economic infrastructure and productive sectors.  Furthermore, many LDCs are still saddled with unsustainable debt burdens.  I urge lenders to revisit this issue.

Let me now turn to agriculture, which employs as much as 70 per cent of workers in LDCs.  This is perhaps the most important sector for development.  We need to invest more in smallholder farmers and the infrastructure they need.  This means transferring appropriate technologies, supporting climate change adaptation and protecting ecosystems.  We need to invest, too, in basic social protection and safety nets.
Global food prices are at new record levels.  LDCs face a real prospect of a new crisis in food and nutrition security.  In many LDCs, the poor spend more than half their incomes on food.  More than 40 per cent of children in LDCs have had their growth and development stunted by malnutrition.  A country that cannot feed its children cannot thrive.

My final point concerns trade.  The international community has failed to follow through on global commitments in the Monterrey Consensus and the Doha Declaration on Financing for Development.  I call again for a successful conclusion to the Doha Development Round of multilateral trade negotiations.  There is little point in helping LDCs to grow food and other commodities, manufacture products and develop services if they cannot trade fairly in the global marketplace.

The United Nations system will continue to prioritize LDC issues throughout its programmes.  We will work diligently with all partners to help implement the new Istanbul Programme of Action.

A measure of any society is how well it looks after its least fortunate.  The same is true of the international community.  Now is not the time to turn our backs, but to increase our support.

The past two decades saw spectacular progress among emerging economies.  The LDCs are poised to be the next wave of development achievement.  Let me emphasize again, ladies and gentlemen: I am not arguing for charity, but investment.  The returns can be profound — not just for the people living in LDCs, but for all people — for the global economy.  Success for the LDCs is ultimately success for all.

Let us try our best to make this world harmonious, balanced and better for all.

By Ban Ki-moon
UN Secretary-General.

Bank of Uganda should reign in speculators

THE Bank of Uganda (BOU) should reign in on speculators that it accuses of driving the shilling to record lows against the dollar.

Our neighbours Kenya have already started auditing and restricting their interbank transactions and as of close of last week, Njuguna Ndung’u, the governor of the Central Bank of Kenya, said he had discovered improper interbank trading and taken action against five giant banks.

In fact, up to $260m (sh648trillion) was exported by the five banks, pushing the exchange rate to 91.90, the lowest Kenya ever recorded.

Ndung’u said this pointed to speculative positions. He also noted that four big banks were holding large overseas positions.Within the same period, borrowing from the Central Bank of Kenya by strong banks went up.

The same could be happening in Uganda since most of the big banks are foreign.

Given the high global demand for the dollar, it can be tempting for anyone to make a quick buck through speculation.

Much as dollar inflows are not substantial to offset the demand, the erratic behaviour of the shilling does not reflect trading fundamentals. For example, do all the dollars that the Central Bank inject into the market go into traceable transactions or does it just go to some few financial institutions, which airlift it out of the country?

Even if we are a fully liberal economy, times like these require that we tighten our supervision. As Tumusiime Mutebile, the BOU governor indicated recently, he needs to effectively burn speculators’ hands.

He should walk the talk. The public should see something being done in terms of predictability of the exchange market.

Since the Central Bank surely knows where the loopholes are, they should quickly fix them up to prevent our businesses from going under due to the increasingly unpredictable exchange rate