Bank of Uganda denies printing money for NRM

Uganda’s central bank last week found itself in a major campaign to counter allegations that it had printed campaign money as it also battled against sharp criticism over the country’s current economic woes.

Bank of Uganda (BoU) in a statement released on Thursday dismissed allegations that it had printed money to fund the campaigns for the 2011 elections for the ruling National Resistance Movement party (NRM) — a situation that some opposition politicians say is responsible for the current inflationary pressures.

BoU said rising inflation was being driven by supply shocks exacerbated by drought in various parts of the country.

The impact of the Ugandan shilling depreciating against the dollar led to a rise in the cost of oil prices and other imported goods.

Uganda’s inflation rose to a recent high of 30.4 per cent in October 2011 before beginning to decline in November 2011, when inflation stood at 29 per cent.

Dr Kizza Besigye, the Forum for Democratic Change opposition leader, was recently quoted in the press as saying the Central Bank had printed about $835 million to fund NRM election campaign.

The Central Bank’s statement was a reaction to Dr Besigye’s assertions that appeared in a local tabloid last week, alleging that BoU fraudulently printed and issued $835 million under the directive of governor Emmanuel Tumusiime Mutebile.

“BoU’s constitutional mandate is to, among other things, promote and maintain the stability of the value of the Ugandan shilling and regulate the country’s currency system. It is for this reason that the bank is the only entity authorised to print and issue out currency.

It can’t therefore be true that the Bank fraudulently printed and issued money as this is its legal duty,” reads the statement in part.

BoU has over the past one year faced criticism over its inability to rein in inflation and strengthen the weak shilling. High inflationary pressures sparked political and economic protests across the country last year.

High lending rates saw trade associations like Kampala city traders association stage protests against banks arguing that high lending rates were hurting their business prospects.

Uganda’s inflation rate slowed to 27 per cent last month from 29 per cent the previous month.

In December, BoU maintained benchmark lending rates at 23 per cent as analysts projected high interest rates would remain for the better part of the year.

High interest rates are supposed to reduce the demand for credit from the private sector, by helping cut the spending power of consumers and therefore easing demand for goods. Such a move should also strengthen the currency as it reduces demand for dollars.

The Bank targets core inflation in the medium term to stand at 5 per cent. The International Monetary Fund forecasts Uganda’s economy will grow by 5.5 per cent this year, down from 6.4 per cent in 2011.

The Bank said the amount of money in circulation as of November 30, 2011 stood at $847 million and only $159, 983 of that was old currency.

At the end of April 2010, just a month before the issuance of the new currency in May, currency in circulation stood at $555 million, all of which was old currency.

The central bank has been criticised for being tough on businesses through its current tight monetary policy.