Treasury Secretary Blames Borrowers for Uganda’s High Interest Rates

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High interest rates in Uganda are a significant barrier to credit access in the private sector. According to Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury, both the government and borrowers are contributing factors to this issue.

Government’s Role in High Interest Rates

During the second National Microfinance and Savings Groups Conference 2024 in Kampala, Mr. Ggoobi explained that the government’s actions contribute to high interest rates. The government’s increased domestic borrowing has led banks to prioritize lending to the government, making credit more expensive for private sector borrowers.

Borrowers’ Contribution to High Interest Rates

Mr. Ggoobi also pointed out that borrowers play a role in the high interest rates. Many borrowers are seen as untrustworthy or lack high-quality collateral. This reduces their creditworthiness, which in turn leads banks to charge higher interest rates.

Government’s Plan to Reduce Domestic Borrowing

To address these issues, the government is focusing on increasing local revenue mobilization. The goal is to raise Uganda’s tax-to-GDP ratio from the current 14% to 16%. The government aims to reduce its reliance on domestic borrowing by enhancing revenue collection and improving the quality of collateral and borrower traceability through national identification and better land registration.

Current State of Domestic Debt

The share of domestic debt in Uganda has been growing. As of December 2023, Uganda’s total public debt was UGX 93.38 trillion, with UGX 55.37 trillion being external debt and UGX 38 trillion being domestic debt. Despite public concerns, the government has continued to borrow domestically to support banks.

Efforts to Improve Creditworthiness

In response to the high interest rates, the government is working with the Uganda Registration Services Bureau to register business borrowers, aiming to improve the quality of borrower information. Mr. Ggoobi noted that while interest rates have decreased from an average of 25% ten years ago to 17.7% today, they are still high. The goal is to reduce these rates to single digits by addressing underlying challenges.

Conference Highlights

The second National Microfinance and Savings Groups Conference 2024 aimed to promote collaboration and foster a savings culture to support socio-economic transformation. State Minister for Microfinance, Haruna Kasolo, emphasized the importance of proactive monitoring by banks. He suggested that banks should use the monitoring fees they collect to support and advise businesses, rather than waiting for them to default.

Government Initiatives

Mr. Kasolo highlighted that the government has extended UGX 2 trillion through the Parish Development Model to Saccos across the country. Additionally, the government recently launched the Second National Financial Inclusion Strategy (2023-28) to enhance financial access, combat poverty, and boost economic growth.

Table: Uganda’s Public Debt Breakdown (December 2023)