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Strong rebound for Uganda’s economy

BoU says 2022 economic outlook is more positive than earlier projected

Kampala, Uganda | JULIUS BUSINGE | There is good news from Bank of Uganda indicating a big rebound in economic growth in 2021, meaning Ugandans got more money in their pockets to buy goods and services.

In its monetary policy statement for February 2022, issued on Feb.14, Deputy Governor, Michael Atingi-Ego, maintained the policy interest rate – the central bank rate – at 6.5% citing improvements in economic activities, while also signaling to banks to possibly lend more to the private sector.

He said, the economy is estimated to have bounced back in 2021 growing in the range of 6.5-7%, higher than 1.5% contraction registered in 2020 as the COVID-19 pandemic forced some sectors of the economy to shut.

“The high frequency indicators of economic activity for Oct.2021 to January 2022 suggests that the economy was on a strong rebound,” he said. He explained that domestic demand is making a strong comeback as covid restrictions are eased, adding to the gains from robust external demand.

Considering this recovery and signs and the effects of the Omicron covid variant on economic activity has been relatively small, the outlook for economic growth is more positive than earlier projected,” Atingi-Ego said.

However, he said, in 2022, there could be a loss of growth momentum as global factors turn adverse. But real GDP is projected to grow by around 6% as domestic demand recovery broadens.

Lower global growth, continuous supply chain disruptions, and tighter global monetary and financing conditions could constrain external demand and negatively impact economic growth.

Inflationary pressures have remained low, reported at 2.3% (core) at the end of January which is below the 5% working target for BoU; the exchange rate has improved, with the Uganda Shilling trading stronger at UgxShs3500 (on average) in the past weeks and commercial banks interest rates for trusted borrowers remain relatively low, at an average of 18%.

Atingi-Ego said, further management of COVID-19, could support investments and boost confidence amongst investors, resulting in positive growth of the economy.

On Feb.11, a few days to his monetary policy committee meeting, Atingi-Ego together with the Permanent Secretary and Secretary to the Treasury, Ramathan Ggoobi had spoken at the Stanbic Bank 2022 Economic Outlook Forum.

Atingi-Ego said Bank of Uganda’s credit relief measures directed to education and hospitality sectors too will boost economic growth.

He said, education alone contributes 3.8% to the overall GDP of Uganda and that the backward and forward linkages related to the reopening of the sector will indirectly boost the contribution of the services sector to the overall GDP.

In addition, he said external demand for Ugandan exports such as coffee is expected to boost economic growth.

Ating-Ego also said, the accommodative monetary policy stance that the Bank of Uganda has implemented in the past months, by keeping the key policy interest rate unchanged too, will continue to trigger growth in all sectors of the economy.

Oil & gas prospects

Ating-Ego also said the recently signed Final Investment Decision (FID) anticipated to bring into the economy over US$20bn worth of investment in the construction of the refinery, the oil pipeline and other infrastructure will have a multiplier effect on the economy.

“For this financial year (2021/2022) the economy is projected to grow at between 3.8 and 4.5% which we expect to accelerate to between 5 and 6% in the next financial year and improve even further to 7% in the 2024/2025 financial year,” he said.

Ggoobi said, in the coming financial years, the government will take resources to where people are (rural areas) through the Parish Development Model programme.

“…this will see best services also reaching people more effectively because government has been absent where people are,” Ggoobi said.

Ggoobi, who spoke with a lot of confidence about the PDM, said, it will involve data collection to inform government planning especially when it comes to what he called ‘area-based enterprise selection’ and organizing households into productive units like cooperatives, farmer groups and SACCOs.

“We believe these will kickstart social economic transformation. We are going to encourage more savings, credit transfers and payments,” he said.

More cautious optimism

The Deputy Governor said, there are risks such as the uncertainty surrounding COVID-19 that could see new variants emerge and lead to new lockdowns, failure by commercial banks to extend more credit to borrowers, unsupportive weather conditions like drought that could lead to a spike in food prices and external factors like rising oil prices.

He urged government to think beyond investing in oil and gas to look at other key sectors like agriculture and green financing since oil won’t last forever.

Ggoobi also expressed caution noting that the government will be more stringent as it aims at managing its public debt curve. “Debt will never get out of hand because we are sober,” he said.

He said, as of June 2021, Uganda’s debt to GDP ratio was 47%, it is projected to rise to 51.6%, 52.4% in 2022, 2023 respectively before declining to around 50% in 2024/25.

In general, government will adopt a new strategy of borrowing to fund development/infrastructure projects, and that tax revenue will fund the other areas in the budget in the coming financial years.


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