2021 resilient economy

Ramathan Ggoobi

Key interventions by government supported positive recovery  

Kampala, Uganda | THE INDEPENDENT | Economic analysis for the year 2021 shows a somewhat positive recovery as opposed to a year before as government eased COVID-19 pandemic restrictions.

According to the ministry of finance annual report which incorporates the current and projected state of the economy as at June 30, 2021, in spite the challenges of dealing with the COVID-19 pandemic and the related restriction measures, the Ugandan economy remained resilient, expanding by 3.4% in real terms during FY2020/21 compared to 3.0% in FY2019/20.

Government officials said, this performance was a result of the fiscal and monetary policy interventions to support the recovery in economic activities, which were complemented by the easing of some of the pandemic-related measures.

In nominal terms, the economy expanded to an estimated Shs148trillion in FY2020/21 from Shs139.7 trillion in FY2019/20.

During FY2020/21, government instituted fiscal measures and monetary policy guidelines to mitigate the adverse impacts of the pandemic on economic activities.

These interventions include, making funding available to boost lending to small and medium enterprises at affordable rates, rescheduling loan obligations of financially strained debtors and settlement of verified domestic arrears owed to the private sector.

In addition, fiscal stimulus measures were put in place for social safety net programs to cater for the vulnerable groups within the population that were most affected by the impacts of the coronavirus.

The measures included immediate relief to vulnerable groups, increased funding to micro credit institutions as well as for initiatives on wealth and job creation (emyooga).

Experts say, sustaining this recovery will require effective containment of the spread of the COVID-19 virus, and vaccinating a significant percentage of the population, as government works towards the goal of fully re-opening the economy in January next year.

Improving the efficiency and effectiveness of implementation of public investments, rationalisation of ministries, departments and agencies combined with a recovery in external and domestic demand is expected to further boost economic activities, with growth projected to gradually increase and average between 6 to 7% in the medium to long term.

Key sectors

According to the ministry of finance reports, key strategic government interventions to mitigate the economic and health impacts of the pandemic, coupled with the easing of containment measures resulted in a modest acceleration in the pace of economic activities.

All the major sectors of the economy recorded positive rates of growth.

The services sector and industrial output – the most pandemic-affected sectors gradually recovered and achieved growth rates of 2.7 and 3.4 %, while performance by the agricultural sector was recorded at 3.8% during FY2020/21.

In-spite of a slow-down in the pace of growth in agricultural output, the sector remained robust and accounted for 23% of the total national output.

The importance of the sector is reflected in the recent national household survey results, which indicates that an estimated 10% of the working population that lost employment on account of the COVID-19 pandemic moved into agriculture-related activities.

During the period under review, annual headline inflation remained low and stable, and averaged 2.5%, largely due to low food crop inflation, resulting from bumper harvests amidst subdued domestic and regional demand.

The low and stable inflationary developments during the year contributed to the central bank’s decision to maintain an accommodative monetary policy stance to bolster economic activities.

Bank of Uganda’s policy rate – the central bank rate – was reduced from 10% in the FY2019/20 to a record low of 7% in July 2020 and 6.5 % in June 2021.

Subsequently, commercial bank lending rates declined from an average of 20.9% in July 2020 to 17% in June 2021, which contributed to a growth of 7.1 % in private sector lending.

During the year, the exchange rate experienced appreciation pressures but remained relatively stable.

The shilling appreciated by 1.4% from an average of UShs 3,714.6 per US$ in FY 2019/20 to UShs 3,661 per US$ during FY 2020/21, as stronger inflows from offshore investors, budget support and export earnings countered low demand.

Meanwhile, the country’s exports grew by 38.8% in FY 2020/21 following a dismal performance by -4.1 % in FY 2019/20, buoyed by a strong coffee exports performance. Coffee exports amounted to 6.08 million 60-kg bags as government interventions in the sector yielded expected outcomes.