By Hellenah Niwasiima
According to the highlights from the latest State of the Economy Report, Uganda stands out with a story of resilience and strategic foresight amidst its economic uncertainties. Uganda has faced several economic shocks, including geopolitical tensions, COVID-19 negative effects, supply chain disruptions, and extreme weather conditions which affect agricultural produce, yet manages to sustain growth and stability in the following ways.
Global and regional context: The global economy is predicted to maintain growth in 2024 and 2025, despite significant risks. Inflation has been a global concern, but Uganda has managed to keep its inflation rate at an impressive 3.2% over the past year, one of the lowest in the region. This achievement has been brought up by Uganda’s proactive monetary policies and favourable domestic conditions
Strategic initiatives: The Bank of Uganda (BOU) in consultation with its stakeholders has initiated a domestic Gold Purchase Programme which aims at boosting the country’s foreign reserves and mitigating risks in international financial markets. By purchasing gold directly from local miners, the programme not only strengthens reserves, but also supports local livelihoods, supports other sectors of the economy in line with the bank’s social-economic transformation and value addition to the minerals reducing on export of raw minerals from the country.
Financial markets and fiscal policy: Financial markets despite facing tight liquidity conditions earlier in the year reflected in the higher interbank money market rates. Fortunately, the domestic money market has seen easing since late May due to yields on treasury securities which have risen due to increased government borrowings, reflecting the tight monetary environment. However, government intervention programmes like the Parish Development Model which is projected to have contributed 0.5 of the GMD in FY2023/24 and the growth of fintech have complemented traditional banking, ensuring continued credit flow to the private sector.
Uganda’s fiscal stance has been notably expansionary, with increased development expenditures leading to a projected fiscal deficit of 4.5% of GDP by the end of FY2023/24. The government aims to enhance domestic revenue collections and curb inefficiencies in public spending to achieve fiscal consolidation in the medium term.
Economic growth and outlook: The Ugandan economy has greatly improved with a growth rate of 6% in FY2023/24, driven by household spending, public investment, and net exports. projections for FY2024/25 indicate growth between 6.0% and 6.5%, with the potential to exceed 7% in subsequent years, fuelled by investments in the extractive industry and productivity-boosting government programmes.
Inflation and monetary policy: The inflation rate has been at 3.6% as of May 2024, supported by tight monetary policy, favourable food supplies particularly coffee, inflows from Non-Government Organisations (NGOs) and a stable exchange rate. While inflation is expected to rise slightly due to increased decline in export decline, geopolitical conflicts and un favourable weather conditions affecting agricultural production, it remains well-managed within the projected range of 5.0% to 5.4%.
The Monetary Policy Committee (MPC) has maintained the Central Bank Rate (CBR) at 10.25%, reflecting a balanced approach to managing inflation risks.
Uganda’s Economic growth in FY2024/25 is projected between 6.0 per cent and 6.5 per cent, rising above seven per cent in the subsequent years driven by supporting of key sectors, investing in the extractive industry and government programs targeted at boosting productivity amidst its economic global pressure
