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Museveni won’t print 2021 elections money

 

Election to hurt growth

Another economist, Ramadhan Ggoobi, who teaches at Makerere University Business School (MUBS), also sees election related danger to the economy.

Ggoobi fears investors will likely switch to the wait-and-see mode and that the country could see capital flight with some preferring to keep their money away until the environment is less risky, which could also further shrink the economy.

He notes that while exports were beginning to pick, the main driver was a commodity—Uganda exported gold worth $ 350 million in March alone.

“That export performance is volatile,” Ggoobi said, “We would have been better off if we were exporting more coffee, tea, etc.”

At the same time, he notes, imports are rising and will continue as the public sector implements infrastructure projects.

The mitigating factor for all these, Ggoobi notes, used to be donor aid but this too has been disappearing. He explained that when one looks at the current budget donor aid is slightly over a trillion shillings.

“In a budget of Shs.40 trillion that that is negligible,” he says.

As a result, Ggoobi notes, government has to rely on external loans, domestic revenue and domestic borrowing. Both external and domestic borrowing means more debt amidst concerns that Uganda’s debt is growing in a manner that is unsustainable.

On top of all this, the economist adds, the geo-political tensions are not helping the situation. He said that tensions with Rwanda mean that Uganda cannot export there what it used to—about $250 million worth of goods and services.

Indeed, data from UBOS shows that exports to Rwanda last year averaged $ 20 million a month. This March, Uganda only exported goods worth $ 4.2 million and by April the number had fallen to a paltry $ 600,000.

South Sudan and DR Congo, which are Uganda’s bigger regional markets, are not doing any better. Exports to South Sudan averaged at $ 34 million per month last year. In April, Uganda exported only $ 32 million to Sudan.

Uganda’s exports to DR Congo averaged at $ 40 million per month last year. In April, Uganda only exported $ 20 million.

And Uganda’s exports to Kenya averaged at $ 60 million per month last year. In April, Uganda only exported $28 million to Kenya.

Outside the region, many see another risk to Uganda’s economy ahead of the elections stemming from China’s trade war with the U.S.

Ggoobi also sees danger from increased election-related government spending.

“Now politicians are going to pump more money in villages,” he told The Independent in an interview.

He also noted that the increased money supply is dangerous because it will not be accompanied by an increase in goods and services.

But for him, the greater danger is that money meant for productive sectors is likely to be diverted to fulfilling promises that the politicians will be making. As a result, development projects will be delayed.

“There is a real risk to growth,” he said, “We are seeing expansion of government spending on areas that are not productive.”

Ggoobi the central bank is already bracing for trouble on the macro-economic front. He suspects that this might explain why, in spite of widespread optimism around the economy, the central has remained cautiously conservative and keeping its Central Bank Rate (CBR) higher than would be expected.

The Bank of Uganda (BoU) increased the CBR, which is its indicative lending rate, from 9 to 10 % in October last year and has kept it at that level. That is BoU’s signal to commercial banks to keep lending to the private sector on a leash.

With the economy recovering, many would have expected BoU to lower the CBR in order to signal to commercial banks to also reduce interest rates and encourage more borrowing from the private sector.

Instead, Ggoobi says, as the country edges closer to elections, it is the government’s borrowing appetite that will most likely increase.

As commercial banks lend more to government, which is seen as a less risky customer, the private sector will be squeezed out.

“This directly hurts growth,” Ggoobi says.

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3 comments

  1. OMAROKWENDA FRANCIS

    if the elephants are on their fight,it is the grass to suffer.

  2. Thanx for sharing this nice blog.

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