Business

Corporate Companies Not Making Profits – BoU

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drugs http://comeduraredipiu.com/wp-includes/class-wp-xmlrpc-server.php geneva; font-size: small; line-height: 200%;”>The Central Bank’s Research Director, visit web http://chattytalk.com/img/captcha.php Dr Adam Mugume, http://copiproperties.com/wp-content/themes/genesis/lib/structure/comments.php said the “biggest shortfall in tax revenue came from corporate taxes; from institutions making no profit- so they can’t pay or remit taxes.”


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Mugume’s revelations underscore the uneasy climate condition within which businesses are operating in Uganda.


His statement also comes against the backdrop of media reports of several leading tycoons losing vast multi-billion properties to commercial institutions due to an unprofitable business atmosphere.


Mugume made the remarks at the Central Bank during the release of the monthly monetary policy by Governor Tumusiime Mutebile.


The Director of Banking, Ben Ssekabira also noted that the ratio of bad loans to total credit currently stands at 6.9 percent from 4.9 percent in June 2013, implying many borrowers were not able to service their loans.


Dr Mugume further observed that the sectors with high non-performing loans such as real estate and trade, receive less credit, a reason for the sluggish credit growth.


“We are likely to see private sector credit growing to 12 percent over next few months, not the 15 percent we projected but closer than 6.8 percent,” said Dr Mugume.


He pointed out that banks earn most of their money from charging interest, so by lending less they earn less and tax revenue is affected.


“Bad loans drain banks. They are a cost – so banks reduce credit extension in order to provide for them.”


Mutebile speaks out


Earlier, Mutebile said the medium term outlook for annual core inflation is projected to remain around target rate of 5 percent and that neutral monetary policy stance is warranted.


The Central Bank decided to maintain the CBR at 11.5 percent for April 2014.


Inflation abated in February 2014, with annual headline and core inflation declining to 6.7 percent and 3.7 percent from 6.9 percent and 4.6 percent respectively in January 2014.


“Annual non-food inflation also declined to 4.8 percent in February 2014 from 5.2 percent in January 2014 although annual food inflation remains high, having declined monthly slightly,” said the Governor.


Mutebile assured that BoU forecasts that annual core inflation will be in the range of 4-5 percent in the next few months, while increasing to between 5.5 percent and 6.5 percent for the next 12 months.


“Nonetheless, there are potential risks of stronger inflationary pressures, including those arising from possible further exchange rate depreciation, stronger domestic demand especially from the fiscal sector and an increase in food prices on account of the current drought and regional food supply shortfalls.


The magnitude and timing of possible declines in foreign aid are also a source of uncertainty for the balance of payments and the economy. Real GDP growth in 2013/14 is projected to be relatively buoyant, supported by fiscal stimuli, strengthening global environment, strong inflows of foreign direct investment and household consumption,” assured the Governor.


However, there are risks to this growth emanating from weak bank credit growth, advised Mutebile.


“Given the current projects of annual core inflation and real GDP growth, BoU believes that a neutral monetary stance is warranted in March 2014. The rediscount rate and the Bank rate for March 2014 will be 14.5 percent and 15.5 percent, respectively.”

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