2022 Report: BoU Sunk In Huge Losses As Foreign Investments Yield No Profit

2022 Report: BoU Sunk In Huge Losses As Foreign Investments Yield No Profit

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By Spy Uganda

The Uganda’s Central Bank is currently grappling with unbalanced books of accounts after a huge loss incurred in the bond market.

According to economic pundits, the above losses has led to paper losses on various holdings. Remember that Central Bank earns most of its income from investing the bulk of Uganda’s foreign exchange reserves in the bonds but pundits say when bonds are bought, money flows from them to individual banks in the economy thus reduction of money supply.

According to the BoU’s annual report for 2022 released in October, whereas some returns had been made on investments in the financial year that ended in June 2021, there was negative return on investments made in the financial year that ended on June 30 this year.

Click To Read Full Bank Of Uganda Report 2022

The negative returns come at a time when BoU’s expenditure, also referred to as an operating deficit shot through the roof, eclipsing income by Shs233 billion in the period ended June 30, 2022.

“Return on foreign assets experienced a slump, from 0.62 percent as at end June 2021, to -0.89 percent at close of June 2022,” the report reads in part blaming the situation on volatility in the markets caused by a variety of factors, including the Russia-Ukraine war, continued lockdown restrictions in parts of China and the emergence of other Covid19 variants.

Part Of The Report

The annual report indicates that foreign exchange reserves reduced from the level of $4.2b or Shs16 trillion (equivalent to 5.48 months of import cover) at the close of June 2021 to $4.1b or Shs15.6 trillion (equivalent to 4.17months of import cover) as at the close of June this year.

According to pundits, the reduction in the amounts of the country’s foreign exchange reserves is deemed to have been a major factor in the losses posted.

In FY 2021/22, BoU had foreign currency reserves of about $4.6 billion. The global interest rates in the year were around zero, meaning minimal income earned on reserves.

Meanwhile, in the same report, BoU reveals that the domestic economy, which has weathered several shocks, is showing signs of recovery.

Click To Read Full Bank Of Uganda Report 2022

”The Composite Index of Economic Activity (CIEA) grew slightly by 1.2 percent in the quarter to August from 1.1 percent in the quarter to May 2022, supported by increased industrial activity. Also, business sentiments have improved since the previous forecast round. Nevertheless, economic growth is expected to remain below its long-run trend until FY2025/26.”

BoU also noted that the risks of global recession and tighter financial conditions will likely to weigh on domestic economic growth. Moreover, the potential for a sustained weakening of the shilling exchange rate coupled with lower foreign exchange reserves and constrained demand for Uganda’s exports could add to the external financing strains.

The Central Bank says, higher domestic interest rates, declining private sector credit and tight fiscal policy could further weigh down economic growth.

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