The Kampala City Traders Association resolved on Tuesday to petition government over the shilling’s continued volatility and the increase of interest rates on old loans.
The weakening shilling, according to KACITA, has put pressure on the business community, especially when importing and paying rental expenses which has forced some of their colleagues to close shop.
“Our quarrel is also with commercial banks for increasing the interest rates on loans that were taken long before the current crisis. Because the loans are measured against our maximum ability to pay, any adjustment could kick us out of business,” said Everest Kayondo, KACITA chairman.
During the meeting, the traders resolved to seek a meeting with the president, the BOU governor Emmanuel Mutebile and the Uganda Bankers’ Association to chat a way forward and look at policies which can help to stabilize the economy.
The shilling continued to weaken against the dollar, shedding off 20% by end of business on Friday, and trading at approximately sh3,700 in exchange.
The Bank of Uganda has since April injected more than US$500m (about sh1.8trillion) to stabilize the shilling but the intervention seems not to be working, according to the traders.
Their concerns have been rising since the Bank of Uganda raised its benchmark lending rate (CBR), from 11 to 14.5% which forced commercial banks to follow suit by also increasing their prime lending rates.
“This means the banks will provide credit at a higher percentage for their most credit worthy borrowers, which is approximately 22.5 % up from 21.5%. Those borrowers deemed to be risky will even have much higher interest rates and conditions which does not favor us,” Kayondo lamented.
The CBR is the rate the Central Bank sets for inter-bank lending and it determines the rate at which commercial banks lend to borrowers.
The traders also faulted government for spending a lot of funds on creating more administrative units and defense spending at a time when the economy is weak.
“Our parliamentarians are busy increasing the number of districts and constituencies without looking at the cost to the country. It costs about sh 50 b to create a district and yet all the people need are good services and not administrative units,” said Isa Sekito, Kacita spokesperson.
The Private Sector Foundation executive director, Gideon Badagawa said government must cut its spending priorities and also regulate the economy to control financial out flows by multinational companies.
“When multinationals like telecoms take 90% of their profits out of the country, we lose dollars and the shilling is destabilized further. However, if we had regulation on how much to take out, we would still be smiling because the dollar would not be so scarce.
“Now we want to see the president and brainstorm issues affecting the private sector, including the tobacco bill to see that we find a solution that fundamentally addresses the current situation because our economy is on its knees,” Badagawa said.