How Covid-19 Affected Uganda’s Financial Stability

According to the UN’s Framework for the Immediate Socio-Economic Response to the COVID-19 Crisis, COVID-19 is more than simply a health catastrophe. The epidemic has a direct impact on communities and businesses. The pandemic is predicted to increase global poverty and inequality, making it even more imperative for nations to reach their SDGs. “” A part of this effort, 162 nations, and territories throughout the world have received assistance from the United Nations’ 131 country teams in establishing public health preparation and response plans.

COVID-19’s reaction from the UN will include a social and economic component, in addition to a health response directed by the WHO and the Global Humanitarian Response Plan (GHRP). The coronavirus epidemic is both a public health disaster and a huge danger to the global economy, resulting in large-scale loss of life and human misery. 

There is a substantial and growing job loss multiplier impact when supply chains grind to a standstill and individuals remain at home. According to the Organization for Economic Cooperation and Development (OECD), global growth rates for 2020 have been revised lower from 2.9 percent to 2.4 percent because of a decline in the value of equities and other financial instruments traded on global markets. 

Furthermore, as the incidence of job loss grew, many Ugandans began to look for methods to supplement their income. One option for such folks to make money was via Forex trading. As a consequence, the rate of Forex trading in Uganda climbed substantially, and as time passed, an increasing number of individuals began to participate in the world’s biggest financial market. Furthermore, as the need for Forex brokers grows due to the rising number of Forex traders, several brokerages have begun to provide Ugandan investors with incentives and promotions in order to attract them. Because the Forex market is decentralized, there have been several examples of fraud and malpractice by unregulated brokerages. 

As a result, it is essential for investors to discover more about the brokers with whom they want to begin trading. One of the most popular methods for locating the finest broker is to read reviews, such as the Umarkets review, which provides practically all relevant information about the firm, including whether or not it is registered and regulated. It is also worth noting that a coronavirus outbreak might worsen Africa’s already sluggish economic development, according to the UN Economic commission for Africa (UNECA). 

Oil exporting countries are expected to lose up to $65 billion in earnings if crude oil prices continue to decline. It is estimated that the pandemic would reduce GDP growth by 78%, from 3.2% to 1.8%, while the International Monetary Fund (IMF) expects GDP to rise by just 1.5% owing to the disruption of global supply networks and other reasons. In addition, UNECA expects a 48 percent drop in employment and a 48 percent drop in the number of people projected to be lifted out of poverty. The virus’s spread throughout the continent will need an additional $10.6 billion in unplanned health expenditure, while income losses might lead to unsustainable debt. 

Uganda Safeguarding Financial Stability

Uganda’s central bank has said that the country’s financial stability has been maintained so far, despite the continuing COVID-19 pandemic’s impact on the east African country’s economy.

Reports indicate that the central bank’s monetary policy has remained flexible since June. As a result, private sector credit growth and loan repayments have continued to benefit from this.

Banking system liquidity circumstances continued to improve during this quarter, in part because of the BOU’s policies and significant deposit growth.

Interest rates for short-term loans have fallen to a more reasonable 7.3 percent and 6.8 percent in September, down from 10.2% and 8.7%, respectively, in the same time period the previous year.

Additionally, inflows of foreign capital into Uganda’s financial markets increased, providing banks with more cash and maintaining the sturdiness of the Ugandan shilling. When the global financial markets were at their most uncertain and risk-averse in March and April, this reversed the pattern of outflows that had been taking place.

While loan growth remained modest and deposit growth increased, banks saw a rise in liquidity assets, which was mostly supported by the expanding investment in government securities. Liquid assets have increased the banking sector’s capacity for dealing with systemic liquidity risk, according to this research.

Investments climbed by 24.7 percent, resulting in a 19.0 percent increase in total assets.

About 40% of the government’s domestic debt is held by commercial banks. Risk aversion is largely to blame for this surge in government debt investment, which has risen as a result of the epidemic.

Central Bank COVID-19 credit relief program has also helped reduce NPLs, since it has enabled debtors to renegotiate their debts and take advantage of loan repayment extensions.

The short-term risks to financial stability originating from the epidemic have been substantially limited, but the prognosis remains very unpredictable and is dependent on the development of the pandemic and the rate of economic recovery, according to the research.

Using digital or electronic transactions such as mobile money is one way to minimize the spread of COVID-19. The research warns that doing so may increase cyber risk, fraud, and operational risk.