Researching the politics of development



The politics of central banking in Uganda: Exploring the rise and fall of Uganda’s premier ‘pocket of effectiveness’

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Working paper 175

Sam Hickey and Haggai Matsiko

The Bank of Uganda (BoU) was until recently considered to be the country’s premier pocket of bureaucratic effectiveness. After gaining independence in 1993, BoU delivered effectively on its mandate throughout most of the 1990s and 2000s, enjoying the political protection and ideological support of the political leadership, strong governorship and generous support from international financial institutions. However, the Bank’s performance in terms of both monetary and banking supervision dipped sharply from 2010. With Uganda’s political settlement becoming increasingly vulnerable and personalised, BoU was subject to political capture around the 2011 elections, leading to a significant spike in inflation. Central bank officials swiftly reduced inflation and re-enforced price stability, albeit through punishingly high interest rates that undermined growth, and its leadership fought a rearguard battle to regain autonomy ahead of the 2016 elections. The changing political settlement also undermined BoU’s performance in banking supervision. Official investigations into three controversial bank closures between 2012 and 2016 revealed that they were badly handled, involved collusive activities amongst BoU officials, and were informed by both an internal leadership crisis and, most likely, external political interference. BoU has not been able to escape being captured within Uganda’s survivalist politics, with de jure autonomy and international support able to limit but not arrest its decline.