By Presidential CEO Forum
The 8th issue of the Uganda State of the Economy offers insights into key economic indicators such as inflation, exchange rates, interest rates, domestic credit, trade balance and economic outlook. Overall, Uganda’s economy exhibits resilience and growth potential despite the multiple shocks experienced during the past three years.
Annual Inflation
Uganda’s annual headline inflation declined to 3.9% in July 2023 from 4.9% in June 2023. Annual core inflation reduced to 3.8% from 4.8% over the same period. This decline in core inflation suggests that the persistent inflationary pressures, not driven by short-term fluctuations, remained relatively contained during this period. Additionally, Annual Services inflation declined from 3.3% in June to 2.5% in the year ending July 2023, linked to a deceleration in Annual Passenger Transport Services inflation from -3.9% in June to -7.0%. Food and petrol prices are driving the decline, with food accounting for 60% of the inflation calculation and energy and petrol accounting for 20%. Services inflation and energy costs are also falling, which contributes to the overall slowing of inflation.
Interest Rate Movement
Central Bank Rate (CBR). Bank of Uganda lowered the Central Bank Rate (CBR) to 9.5% in August 2023 from 10% in June 2023. Lowering CBR to 9.5% is appropriate to stimulate economic activity while fostering price stability. In addition, the Cash Reserve Requirement (CRR) has been lowered to 9.5% in August 2023 from 10%. The lending rates. May 2023 saw a lending rate of 20.14% for loans in Ugandan Shilling (UGX), eased to 18.41% in June 2023, hinting at a potential relaxation of credit conditions in the domestic market. Lending rates for foreign currency loans experienced a slight uptick, moving from 8.50% in May to 8.83% in June 2023. This nuanced shift in in borrowing costs for foreign currency-denominated loans reflects a complex trend.
Exchange rate Movements
The Uganda Shilling dropped more than UGX 130 in two days after the World Bank reacted to the Anti-Homosexuality Act. The shilling which has, unlike its regional peers been resilient against the US dollar for much of 2023, opening the week at a strong UGX 3600 on Wednesday 9th 2023 lost more than UGX40 in a single day’s trading, closing at an average of UGX3640. The shilling closed the month of August trading at about UGX3707 -3750.
Domestic Credit
In May domestic credit totaled to Ush.38.767 trillion, incrementally rising to USH. 38943 trillion by June 2023, indicating a slight 0.45% expansion. Government borrowing surged, with net credit to the government growing by 2.21% from Ush.15.535 trillion (May) to Ushs. 15.877 trillion (June 2023). This expansion in net credit to the government suggests an elevated level of borrowing and spending by the government, potentially driven by the need to finance various projects or address budgetary requirements. However, Private Sector Credit (PSC), slightly decreased. In May 2023, it stood at Ush.22.237 trillion, declining to Ush.22.103 trillion in June 2023 (-0.60%). This trend might hinder investment, impacting Uganda’s economic growth trajectory.
Trade Balance
During June 2023, Uganda’s trade deficit with the rest of the world narrowed both on a monthly and annual basis, owing to an increase in export receipts that more than offset the rise in the import bill. Between May and June 2023, the merchandise trade deficit narrowed by 12.3% from USD 282.08 million to USD 247.43 million. Year-on-year, the merchandise trade deficit narrowed by 32.2% from USD 365.11 million in June 2022 to USD 247.43 million in June 2023. This represented an 11.1 percent increase when compared to $585.81 million exported during May 2023. This increase was mainly on account of higher export earnings from beans, simsim, cotton and gold registered during the month. During the same period, coffee export receipts during the month amounted to $90.56 million, a 23.6 percent increase from $73.25million in May 2023. The growth was mainly attributed to the rising international price of Robusta coffee, which prompted exporters to off-load coffee from their warehouses for sale.
Uganda’s Export and Import Commodities
In June 2023, Uganda exported merchandise worth USD 650.57 million. The EAC remained the top destination of Uganda’s exports, accounting for 33.9% of the total market share. Within the EAC region, the top three destinations for Uganda’s exports were Kenya, South Sudan, and Democratic Republic of Congo, taking up 31.4%, 25.7%, and 24.7% of the total exports respectively. Asia and the Middle East emerged as the second and third top destinations for Uganda’s exports, accounting for 32.8% and 13.8% respectively. It is worth noting that Uganda’s export earnings from Asia significantly increased from USD 28.12 million in June 2022 to USD 213.53 million in June 2023, owing to the increase in gold exports to the region. The value of merchandise imports increased by 3.5% from USD 867.89 million in May 2023 to USD 898.0 million in June 2023. This growth was largely attributed to higher private sector imports, particularly animals and animal products, petroleum products, vegetable products, beverages, fats & oils, as well as textiles and textile products. Comparison with the same month last year shows that merchandise imports grew by 23.0% from USD 730.24 million in June 2022, to USD 898.0 million in June 2023. This increase was mainly driven by increased import volumes for mineral products (excluding petroleum products), vegetable products, animals, beverages, and fats & oils, among others.
Trade Balance and Terms of Trade
Uganda’s trade balance demonstrated a notable improvement, reducing the trade deficit with the rest of the world by 12.3% in June,2023 to USD 247.43 million from USD 282.08 million in May,2023. This positive shift was attributed to increased export revenues from the trade of goods. The terms of trade index (TOT) rose by 7.6%, shifting from 105.52 in May to 113.54 in June, signaling an enhancement in the value of Uganda’s exports.
Economic Outlook
Real GDP growth in Uganda will strengthen slightly to 6.5% in 2023/24 fiscal year, from an estimated 6.3% in 2022. This acceleration will be driven by robust fixed investment growth as work on major infrastructure projects gathers pace, although this will be partly offset by increased import demand. Expectations of strong external demand and government support could push annual growth beyond 7% in the medium term
