MPs reject BoU Shs500b request to cover losses

Cabinet, however, tasked Governor Emmanuel Tumusiime-Mutebile, who is the accounting officer, to explain the losses at the central bank, the institution charged with ensuring financial stability in the country.

Though it is not clear whether the governor explained the origin of the losses or not, the ministers later cleared authorities at Finance ministry to include Shs504b in 2018/19 budget and seek parliamentary approval of the corrigenda to the draft budget estimates for treasury operations.

On May 24, Mr Muhakanizi wrote to Clerk to Parliament, explaining that BoU had registered a deficit of Shs17b and talked of operating losses of Shs457b on account of “monetary policy” and “currency costs”.

“This projected deficit in the core capital position, together with the required core capital position of Shs30b, puts the additional recapitalisation securities to the tune of Shs504b,” Mr Muhakanizi’s letter reads in part.
According to sources, Mr Muhakanizi’s letter was to “prepare the ground” for the planned tabling of a new government request for additional expenditures in the 2018/19 budget.

However, when the Speaker forwarded the government request to the Budget Committee for scrutiny, MPs on the Committee led by Mr Amos Lugoloobi rejected the request and the House agreed with them.

The MPs accused Finance ministry of “stampeding Parliament” and insisted that the losses at BoU were not fully explained, and that the request recapitalisation came at the tail end of the budgeting process.

Others MPs demanded details on how the government intends to raise Shs504b for BoU recapitalisation project.

Asked why Parliament rejected BoU capitalisation and whether they understood the implications of a central bank with eroded capital, Mr Abdu Katuntu, who chairs that House Committee on Commissions Statutory Authorities and State Enterprises, called for probe into the cause of the losses before injecting more funds in the central bank.

“What should bother the country is the proposed financing of the recapitalisation… they want to borrow money domestically in addition to another Shs500b under classified expenditures. This is a big shock to the money market,” Mr Katuntu warned. “If we finance BoU recapitalisation through borrowing from the domestic market and without understanding the cause of these losses, the interest rates will skyrocket and the private business borrowing will be greatly be affected and private sector growth will be the ultimate victim of this recklessness,” he added.

In light of the new information on BoU losses, Mr Katuntu, who instructed the Office of the Auditor General to audit BoU operations in respect of the defunct commercial banks, promised to widen the scope of the on-going forensic audit into BoU to include losses.

Although losses were incurred by BoU, the bank’s communication’s director, Ms Charity Mugumya, asked Daily Monitor to seek explanation from Ministry of Finance.

Sensitive issue
The Ministry of Finance’s spokesperson, Mr Jim Mugunga, said: “You know this could be rather sensitive and best handled by BoU. Finance gave a reason (monetary policy and currency cost). Operationally, BoU deals with both. They also run and maintain the current bank capital adequacy plans.”

Mr Muhakanizi told Daily Monitor at the weekend that the central bank makes losses while intervening in the money market to save the country from inflation, and also when they print money beyond their capacity.

On the delayed request for recapitalisation, Mr Muhakanizi accepted that it was his own mistake to write to Parliament late but revealed he has already apologised for it.

“It is correct, I wrote the letter late but let the MPs kindly understand that there is a problem at hand with the central bank. I have already apologised and they should know that the central bank needs money to stabilise the economy,” he said.

What they say
Losses. According to Mr Muhakanizi, the central bank makes losses while intervening in the money market to save the country from inflation, and also when they print money beyond their capacity.
Position. The Parliament Budget Committee says that the losses at BoU were not fully explained.
Audit. Mr Katuntu promised to widen the scope of the on-going forensic audit into BoU to include losses.
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