Uganda’s economy has fully recovered from various shocks, crises, and “false alarms” that brought it to its knees, the Finance Ministry has announced.
“You recall that when Covid-19 happened, leaders were told it would be worse than the financial crisis of 2008 and potentially as bad as the great depression of the 1930s. Instead, a fast and strong recovery has unfolded,” said the Finance Ministry Permanent Secretary and Secretary to Treasury (PSST), Ramadan Ggoobi on Tuesday.
Gross Domestic Product (GDP) grew by 6 percent last financial year 2023/24 up from an average of 4.1 percent in period between FY 2019/20 and FY2022/23.
The GDP growth had previously reduced to 3 percent.
This impressive growth was on account of higher growth in all sectors.
“The services sector grew by 6.6%, up from 5.9%, while the industry sector increased by 5.8%, up from 4.0%. The agriculture, forestry, and fishing sector saw growth of 5.1%, compared to 4.5% previously,” Ggoobi said
This is in line with recent trends in the high frequency indicators of economic activity. In FY 2023/24, the Purchasing Manager’s Index (PMI) averaged at 52.7, remaining above the 50-mark threshold and indicating an improvement in business conditions. The Business Tendency Index (BTI) also remained above the 50-mark threshold throughout the financial year indicating optimism from investors about doing business in the Ugandan economy.
Economic growth in FY2024/25 is projected between 6 and 6.5 percent, rising above 7 percent in the subsequent years driven by Uganda’s Tenfold Growth Strategy. This strategy is hinged on increased investment and growth in agro-industry; tourism development; mineral development including oil and gas activities; and science, technology and innovation (STI) including ICT.
Uganda targets a USD 500 billion economy in 10 years.
Inflation and Exchange Rate
At 3.9 percent in June 2024, inflation has been contained within the target due to the strong coordination of monetary and fiscal policies by Bank of Uganda. The country has sustained good food supply chains leading to low food crop inflation.
Government has also implemented a pro-active industrial policy that has helped to add value to agricultural and mineral commodities, replace some of the hitherto imported manufactured products, and boost export earnings.
“Manufactured products are increasingly becoming a significant contributor to Uganda’s export earnings,” said Ggoobi.
In 2023, Uganda exported cement worth USD 91.1 million, sugar USD 75.8 million, plastics USD 62.6 million, soap USD 33.9 million, and beer USD 25.8 million. The increased inflow of foreign exchange has led to a relatively stable shilling. In the last quarter, the exchange rate has reduced to an average of Shs 3,787 per US dollar last month from an average of Shs 3,857 in March 2024.
“These deliberate efforts by government have complemented the Bank of Uganda’s tight monetary policy actions and improved global economic condition to arrest the inflation.”
Interest Rates
The commercial bank lending interest rates for shilling-denominated loans has reduced to 17.7 percent in April 2024 compared to 19.3 percent in April 2023. Interest rates in the domestic debt market have remained broadly stable averaging 11.2 percent on the one-year Government Treasury Bills.
“Government is continuing with provision of several funds to support micro enterprises, SMEs, farmers, and large businesses to access investment capital that is patient and low cost.”
Expenditures for Quarter One of FY 2024/2025
Ggoobi also released the first quarter (July to September) expenditures for the 2024/2025 financial year amounting to 5.899 trillion shillings.
Of the Shs 5.899 trillion, Shs 1.990 trillion will cater for wages and salaries across Government; Shs 323.50 billion will cater for Pension and Gratuity; Shs 308.75 billion has been released to Local Governments including Education Capitation Grants (Shs. 112.28 billion) to cater for Third Term of the school year; Shs 95.26 billion to all Public Universities, Uganda Management Institute and Law Development Centre in line with the semester requirements.
Shs 43.77 billion has been disbursed to examination bodies i.e. Uganda National Examination Board (UNEB) and Uganda Business and Technical Examinations Board (UBTEЕВ); all Missions Abroad – Shs 100.58 billion (representing 50% of the Annual Budget) in order to hedge them against loss of poundage;
National Council of Sports has been given Shs 124.63 billion including payment of AFCON commitment fees, equivalent to USD 30 million.
Health institutions’ operational funds have been released for: Referral Hospitals – Shs 22.58 billion; Uganda Cancer Institute – Shs 12.31 billion; Uganda Heart Institute – Shs 7.06 billion; Uganda Blood Transfusion Services (UBTS) – Shs 4.1 billion; Subventions under MoH- Shs 21.85 billion for medical interns’ salaries.
In addition, Shs 173.68 billion has been released to National Medical Stores (NMS) for the purchase of essential drugs and medicines.
Ministry of Defense and Veteran Affairs has been given Shs 253.30 billion; Uganda Police Force – Shs 56.43 billion; Uganda Prisons Services – Shs 44.79 billion; ISO – Shs 28.08 billion; and, ESO – Shs 19.44 billion.
Parliament has been given Shs 153.60 billion; Judiciary – Shs 47.40 billion; Auditor General – Shs 10.11 billion; Science Technology and Innovation – Shs 124.63 billion; Uganda National Oil Company (UNOC) – Shs 124 billion for Equity acquisition in the East African Crude Oil pipeline (EACOP).
Sh 247 billion has been released to pay DRC in war reparations as ordered by the International Court of Justice (ICJ).
Development funds have been provided to cater for: Contract staff salaries – Shs 21.76 billion; URA-Shs 14.34 billion; KCCA Shs 22.67 billion; Ministry of Finance – Shs 14.53 billion to cater for Resource Enhancement and Accountability Programme (REAP) and Uganda Inter-governmental Fiscal Transfers Programme (UGIFT); Local Government grants – Shs 229.27 billion, representing one third of the development grant allocations; and all Missions abroad Shs 29.4 billion.
Domestic Arrears
The Permanent Secretary warned government accounting officers against creating domestic arrears which have accumulated rapidly.
Out of the 5.899 trillion shillings released by the Ministry of Finance for the first quarter of this financial year, 199 billion is to pay domestic arrears.
Domestic arrears are generally defined as governments’ financial obligations that remain unpaid beyond the fiscal year in which they were incurred and due.
In the 2024/25 financial year, government allocated Shs 217 billion to clear domestic arrears, which are its obligations towards local contractors who supplied goods and services to ministries, departments and agencies.
Government has suffered a rapid accumulation of arrears created by accounting officers of various entities of government even when the money to pay them off has not been provided for in the budget for that particular entity.
Gggobi said this must stop.
“Accounting Officers must prioritize payment of service providers on time and clearance of domestic arrears to avoid further accumulation of arrears and penalties. I wish to emphasize this – there should be no creation of arrears. Please, service providers, don’t supply people who atr not paying you, who don’t have money in the budget because also this has been a problem. The entity doesn’t have a budget, but its committing government creating unnecessary domestic arrears. We are going to review all our expenditures for the last couple of years. Those accounting officers that have committed government without money are going to be relieved of that function. They will not account,” said Ggoobi.
He added, “Accounting officers, please if you don’t have money in the budget, don’t commit government. Number two, if you had a budget but has not been released, don’t commit government until the money is released. We are going to be strict going forward and you will see what is going to happen to those accounting officers who go against these guidelines.”
PSST also said that no recruitment should be done without clearance from the Ministry of Public Service after ascertaining availability of adequate wage from this Ministry.
He further said that accounting officers are required to ensure that every promotion and re-deployment of staff made to a different cost center should be backed up by adequate wage provision.
All Government operations this financial year will underpin fiscal discipline, budget credibility, commitment to service delivery and timely project execution.