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World Bank: Russia-Ukraine war dampens Uganda’s economic growth

Near-term macroeconomic outlook estimates growth at 3.7 percent in financial year 2022, which is lower than pre-COVID-19 projections of over 6 percent

Kampala, Uganda | THE INDEPENDENT | New global shocks and the impacts of the Russia-Ukraine war has dampened Uganda’s economic growth prospects  amidst the waning coronavirus pandemic and full re-opening of the economy and a clearer outlook for oil production following signing of the Final Investment Decision in February this year.

Uganda’s economy is now estimated to grow at 3.7 percent in 2022, which is lower than pre-COVID-19 projections of over 6 percent, according to the 19th edition of the Uganda Economic Update (UEU): Fiscal Sustainability through Deeper Reform of Public Investment Management, a biannual analysis of the country’s near-term macroeconomic outlook.

The country’s gross national income per capita stood at about $840 in FY21 and has increased only marginally in the year since,  leaving the country well below the lower-middle income threshold of $1,045. This is in contrary to President Yoweri Museveni’s pronouncement during State of the National Address on June.7 that the country had achieved the middle income status with a Domestic Product (GDP) per person at $1,046.

Real gross domestic product grew by 4.3 percent in the first half of 2022 supported by a strong and speedy recovery of the service sector upon the opening of the leisure and entertainment industry, accommodation, and food services, as well as sustained buoyancy of the information and communications sector. The report projects a 5.1 percent growth rate in FY23, 0.5 percentage point below the December 2021 forecast, increasing to about 6 percent in FY24.

Mukami Kariuki, the World Bank Country Manager for Uganda said the rising commodity prices and the overall increase in cost of living pose new risks to livelihoods that had just begun recovering from the effects of COVID-19.

“These and other shocks are threatening to stall socio-economic transformation, thus increasing the likelihood of the people falling deeper into poverty,” she said.

“It is therefore crucial for the Government of Uganda to adopt targeted interventions to support the vulnerable while managing debt and rising inflation.”

The UEU proposes four policy actions that will enable Uganda to sustain a resilient and inclusive recovery namely; accelerate vaccination efforts against COVID-19; adopting targeted interventions to support the vulnerable – such as building shock responsive social protection systems; maintaining prudent fiscal and debt management to support the fiscal consolidation agenda; and cautious monetary tightening in the face of rising inflationary pressures.

The report also recommends accelerating longer term structural reforms to strengthen revenue mobilization through the implementation of the Domestic Revenue Mobilization Strategy;  improving public investment management;  rationalising public expenditure to support faster, sustainable, and inclusive growth by investing strongly in human capital development; and  improving the trade and business environment and enable green investments.

The UEU notes that fiscal consolidation is needed to rein in debt and to create the necessary space to respond to shocks that could hurt or stall recovery. Latest statistics from the ministry of finance shows indicates that the country’s debt stock rose by 15.4%, equivalent to US$ 2.77 billion during the year from US$ 17.97 (Shs 65.58 trillion) as at end December 2020 to US$ 20.74 billion (Shs73.50 trillion) as at end December 2021 on account of increased disbursements and external borrowing due to revenue shortfalls and a rise in the fiscal deficit resulting from the negative impact of the COVID 19 pandemic on the economy.  As such, the nominal debt to GDP ratio increased by 2.5 from 47.2% to 49.7% during the same period under review.

The UEU said this can be done through better Public Investment Management (PIM) building on important reforms that have been undertaken by the government.

Rachel Sebudde, Senior Economist at the World Bank and the lead author of the Uganda Economic Update said Uganda has a great opportunity to harness Public Investment Management by making sure that beyond preparing good projects, effort is also directed at ensuring that they are efficiently funded, implemented, monitored, operated, maintained, and evaluated.

“These steps ensure that the country can reap the maximum value of public investments,” she said adding that “Strategic capacity building for government officials is crucial as it will improve the Ministries, Departments and Agencies’ effectiveness across the PIM cycle.”

This is based on the fact that the Auditor General Report FY21 reveals that out of a sample of 371 projects in the public investment program, 245 projects (66%) with total project values of Shs 643.4 trillion ($173 billion), did not have feasibility studies undertaken before they were allocated financing.

Notwithstanding the progress achieved in the PIM process, key challenges remain, according to the update.  These include low execution rates on donor and own-budget projects; long implementation delays; cost- and time-overruns on projects; and high commitment fees in the case of non-concessional externally funded projects.

Overall, the improvements around the administrative processes of the pre-investment phase of PIM are being discounted by challenges in critical areas, including project prioritization and selection, budgeting, and implementation.

However, Margaret Kakande, the head of Budget Monitoring Unit at the finance ministry said the high political interference is to blame for lack of proper channels in project implementations.

“The politicians are passing the process required to be followed in project establishments. Projects are coming through the window,” she said, adding that there’s also no prioritization of projects for proper planning.


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