How will Uganda address the skyrocketing prices of commodities?

by Abbas Muhamad
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March has been a very hard month for most Ugandan citizens as the cost of living soared with an increase in prices of commodities, leaving the poor staring at destitution and businesses reeling.

While the situation has been largely blamed on external factors such as Russia’s invasion of Ukraine last month and the subsequent disruption of the global supply chain, citizens have been petitioning their government to urgently find measures to cushion them.

For instance, citizens are hanging on to the hope that a crisis meeting between the Prime Minister Robinah Nabbanja and manufacturers of soap, cooking oil, salt and other household items will lead to a reduction in the prices of essential commodities which have skyrocketed in recent weeks.

Uganda’s prices started through a fuel crisis and the government then maintained that the fuel prices were only for a short while following a gridlock at the border citing a protest by drivers against the fees slapped on Covid-19-tests.

The government would later claim there were shortcomings in the fuel marking system at the border which caused the delay to dispatch trucks to their final destinations.

While speaking at the International Women’s Day celebrations, President Yoweri Museveni attributed the rise of prices of essential commodities to the war between Ukraine and Russia.

The Uganda Bureau of Statistics last week said the increase in prices of commodities and services over the last 12 months ending February, has pushed Uganda’s inflation to 3.2%, up from 2.7% registered in January.

The government has been under pressure from opposition political parties mainly Forum for Democratic Change (FDC) and National Unity Platform (NUP) and Ugandans at large to do something about the steadily increasing prices of goods and services.

But even with pressure piling up from Ugandans, experts said the government has nothing much to do about the prevailing inflation in the short-term; for so much is outside its control.

They say Uganda is just emerging out of an economic crisis, which was posed by the two Covid-19 lockdowns. During the lockdowns, the government inevitably injected money into an inactive economy in an effort to shield her citizens against the effects of Covid-19. It is in the same lockdowns that the government heavily spent on elections.

Uganda Revenue Authority(URA), which is responsible for tax collections, is below its target by 1+ trillion shillings due to reduced economic activity created by Covid-19 lockdowns; and it is not clear whether it is to continue going below the target or otherwise.

As a consequence, experts say Uganda is incapable of running its budget as it had anticipated, being that Uganda is a heavily indebted country, and loan repayment schedules are fixed, it is highly probable that the Central Bank is printing money more than the economic output requires, to service local debt.

They note that increasing money supply without increasing real output certainly increases monetary demand for the unchanged number of goods and hence inflation.

According to Prime Minister Robinah Nabbanja, the government has looked into the issues of the skyrocketing prices for these commodities and they all point to the increased demand for raw materials following the global re-opening of economies after Covid-19 lockdowns.

“We have taken the trouble to find out what is happening elsewhere and the prices are going up. All companies opened up at the same time and they are overwhelmed by the demand in all countries across the globe, raw materials are imported on global demand, that is why,” she said.

Nabbanja pointed out countries like China, Malaysia, Indonesia which she said are demanding for materials to produce for sale, in the end affecting the market.

“It is the bulk importers that are taking advantage of this situation to raise the price and distort the market. Some companies have increased the price by a small margin, but others have hiked it to exploit Ugandans.”

The Forum for Democratic Change (FDC) has asked the government to exempt some basic commodities from taxes to save Ugandans from the high cost of living.

Speaking to the media at the party headquarters in Kampala, Ibrahim Ssemujju Nganda, the FDC spokesperson, accuses President Museveni of telling lies that the Russian invasion of Ukraine is responsible for the escalating prices of essential commodities in the country which he said is not the case.

“The truth is that prices have steadily been going up for months now. For example, the price of petrol rose from Shs 3,800 to Shs 5,000 towards the end of the year and has never gone down. At the time, truck drivers who had refused to pay for Covid-19 test at the Kenya border were blamed,” he says.

Ssemujju says the problem of truck drivers and Covid-19 has since been sorted but fuel prices have remained high.

Muhammad Muwanga Kivumbi, the Shadow Minister of Finance, Planning and Economic Development, highlights the proposals on how to deal with the issues regarding price of commodities.

The suggestions include Uganda Revenue Authority (URA) to start printing its own stamps rather than involving SICPLA (U) Ltd, a private company they are accusing of issuing expensive and inefficient digital ones.

He proposed the eradication of fuel marking, reasoning that the process imposes additional costs to a litre of petroleum products imported in the country.

The Permanent Secretary in the Ministry of Finance, Planning and Economic Development, Ramathan Ggoobi encourages Ugandans to rationalize expenditure and first cater for essential necessities as the global situation improves.

“This is an exogenous shock you cannot address internally. We are boosting the reserves of the central bank to fight inflation and we have the capacity to deal with this,” he says.

He notes that the government is now focusing on taking advantage of the rising prices by boosting the import substitution sector and export promotion.

“I am very optimistic that we shall be able to reform the economy. The future looks good,” he says, adding that the increase in demand for goods globally following the reopening of economies has constrained global supply chains and hence the rise in prices of some commodities.

“We are monitoring the situation with appropriate monetary policy to ensure inflation stays within target,” he says.

He explains the government economic policy is focused on supporting the economy and households to recover from effects of Covid-19 through small business recovery fund, emyooga as well as accelerating socio-economic transformation which is being done by repurposing the budget.

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