One year after Mutebile’s death, financial sector remains strong

Monday 23 marked exactly one year since the passing on of former Bank of Uganda governor Prof Emmanuel Tumusiime-Mutebile.

He had served as governor and chairman of the board of directors of Bank of Uganda from 2001 till his demise on January 23, 2022. Mutebile left behind a strong legacy in Uganda’s economy.

A seasoned professional economist and reformer, he spearheaded the design and implementation of the Economic Reform Program that restored Uganda from the economic crises of the 1970s and 1980s to sound economic performance during his service, first as the permanent secretary and secretary to the Treasury in the ministry of Finance, Planning and Economic Development.

By the time of his death, the economy was still recovering from the adverse effects of the Covid-19 pandemic and the subsequent lockdown of different sectors of the economy. By December 2021, the bank had still managed to keep inflation below its five per cent target despite rapidly increasing energy and food crop prices at the time.

However, in September last year, Uganda faced its highest inflation rate in a decade. Domestic inflation hit double digits for the first time in a decade, rising to 10 per cent in September, from 2.7 per cent in January 2022.

The bank cited a combination of Covid-19 pandemic-related supply chain disruptions, a rebound in global spending, following the lifting of the measures against Covid-19, and the war in Ukraine as the reasons for the spike in prices of essential commodities.

With the deputy governor Michael Atingi-Ego now in charge, the bank, seeking to control spending, which is the most precise weapon against inflation, embarked on reducing the supply of money in the economy. For the first time since October 2018, the bank started increasing the policy interest rate, the central bank rate (CBR), from 6.5 per cent in February 2022 to 10 per cent in December 2022.

Even with the economic turbulence of 2022 and the bank having no substantive governor for a year now, economists say that Bank of Uganda has continued to perform to its expectations and managed to keep the economy afloat.

Dr Fred Muhumuza, the director Economic Forum, Makerere University Business School, said that the performance of the Central Bank ever since the passing of Prof Mutebile has been good with no bank collapsing or anybody losing confidence in Uganda’s financial sector.

He argues that the central bank has continued to ensure the stability of both the financial sector as well as the Ugandan shilling.

“The bank has managed to fight inflation and ensure price stability. Even though the prices of commodities went up in the past year, it was not the fault of the Central Bank. It was a global crisis and Bank of Uganda has done what any other central bank would have done to try stabilize the situation,” Muhumuza said.

On whether the absence of a governor had affected the economy, principal economist at the Electricity Regulatory Authority, Patrick Tutembe, said, “Between January 2022 when Mutebile passed on and now, there is actually [no negative effect] that has happened in the economy. The position of the governor is a position of a figurehead whose prime role is restoring confidence among economic actors like banks. These economic actors need reassurance that there is a person at the helm of the bank able to take economically binding decisions”.

“Although we have not had a governor for the last year since Mutebile died, there’s nothing crucial in the economy that his absence has created. The economy is majorly moved by both monetary policy in terms of managing inflation and the amount of products that we produce and export. The events happening in our economy today are majorly. affected by external factors like the Russia-Ukraine war and the global geopolitics that we have no control over.”

According to section IV of the Bank of Uganda Act, 2000, “there shall be a governor who shall be a person of recognized financial or banking experience and shall be appointed by the President on advice of the cabinet.” The same law also states, “The governor shall preside at all meetings of the board and in the absence of the governor, the deputy governor shall preside.”

Muhumuza noted that there are no functions of the central bank that cannot be performed because there is no governor since, according to the law, the deputy governor chairs the board and in his absence. He added that the central bank’s mandate of formulating and implementing monetary policy has also been done well with issuance of a monetary policy statement every after two months.

He, however, argued that if there are any internal administrative operations within the bank, it will take a major unraveling for the public to know that.

“For instance, if the governor is absent, how are internal administrative decisions being made, like promotions and dismissals? These questions come into mind because the governor also acts as the chief administrative officer of the bank. Even though responsibilities are shared out among departments, the governor still holds the ultimate responsibility,” he said.

On why it has taken the appointing authority this long to appoint a new governor, Muhumuza said that although it is the prerogative of the president constitutionally to appoint the governor, fortunately for him, there is no stipulated time within which this must be done.

He, therefore, thinks that this is an issue that should be considered by parliament in the Bank of Uganda Act to put a duration under which a new governor must be appointed in order to avoid similar incident in future.

Andrew Muhimbise, a financial expert, said whereas the bank has run smoothly and has remained as one of the well-instituted government bodies, the issue of having no new governor up to now smirks of a lack of political will, and that it could also be a sinister way to keep the central bank beholden to its political supervisors so they toe the line.

“The political balancing acts and trickery from the political establishment has definitely delayed the appointment of a new governor and I don’t think we are having any appointment soon unless our donors like World Bank and International Monetary Fund (IMF) put down their foot,” he said.

Tutembe credited Mutebile for creating strong systems that could outlive him, that even without him (Mutebile), the deputy governor is using the same systems today.

“If he [Antigi-Ego] has managed the economy in one year, it would be right to say that he is eventually good for the job and should be promoted because the central bank is an institution that deserves a head. To judge the deputy governor, you
can only judge him when he has been made the full governor of the central bank. It is then that we shall be able to evaluate whether he has worsened or improved the situations at the central bank.”

Muhumuza acknowledges that everybody in the financial sector misses Mutebile in their own capacity because as a person, he had his own personal wisdom or governor’s advice he would always pass to them. But in terms of policy, the banks still receive whatever policy guidance they need even without a substantive governor.

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