Discovery of oil in western Uganda needs proper management

Mar 27, 2004 01:00 AM

Discovery of oil in western Uganda may cause more poverty if it is not managed properly, Bank of Uganda's governor Emmanuel Tumusiime Mutebile said.
"History teaches us that the discovery of oil has often turned out to be a curse rather than a blessing for developing countries."

Mutebile said while presenting a paper at a discussion on the development of the oil industry in Uganda. Last year, the Canadian based Heritage Oil announced that it had found significant oil deposits in the Semiliki Basin.
The firm is currently testing for the commercial viability of the deposits before its starts drilling. However, Mutebile said oil could boost Uganda's economy.
"Bank of Uganda is of the view that any tax revenue arising from the oil output should be used for reducing the budget deficit currently funded by donors. This would reduce the current burden of liquidity management being faced by the bank," he said.

Donor funds which finance the Sh 1,300 bn (2002/03) budget deficit could easily cause inflation and destabilise the economy. The central bank is under constant pressure to minimise this threat by mopping up excess money through the issuance of treasury bills and bonds.
In diamond-rich Botswana, as its mineral export earnings increased, the country vastly increased its foreign reserves and balances with the banking system while restricting government spending to only productive ventures.
"This discipline prevented over-appreciation of the Botswana Pula. It would therefore be advisable for Uganda to hold and accumulate its savings and only spend in a manner consistent with the country's absorptive capacity," he said.

The Petroleum Exploration and Production Department, ministry of mineral development, International Programme for Petroleum Management and Administration, (Norway) and NORAD sponsored the discussion.

Source: New Vision
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