Uganda growth down with less govt spending

Although Uganda’s economy remains one of the fastest growing in Africa, the latest macroeconomic data by Uganda Bureau of Statistics indicates that the growth rate has dropped below government projection by 0.9 per cent.

Solome Lumala, Deputy Director of Research at the Bank of Uganda, told The EastAfrican on April 21 that the figures that have been supplied by the Bureau of Statistics to the central bank now put Uganda’s GDP growth rate at 5.6 per cent for 2009/10 and that it is still highly tentative.

“Uganda has not started compiling data on economic performance on a quarterly basis. We still compile data on the performance of economy on an annual basis,” she said.

She said that the main driver of economic growth in Uganda is the services sector, which is contributing close to 50 per cent of the total GDP.

Taking into consideration what was happening in the global economy, in 2009 Uganda projected that economic growth rate would slow down to 6.5 per cent in 2009/10. In the fiscal year 2008/09, due to the global economic crisis, Uganda’s economy slowed down to 7 per cent down from 8.1 per cent registered in fiscal year 2007/08.

However, starting in the third quarter third of 2009, Uganda’s economy has been experiencing low aggregate demand as a result of reduction in public expenditure by the government, leading to a slowdown in economic growth.

The reduction in public expenditure by the government has left most of the investment projects outlined in the national budget for 2009/10 not fully implemented.

However, the Bank of Uganda said last month during its monthly press briefing it maintained an accommodative monetary policy stance to support aggregate demand during the month of February 2010, mindful of the need to ensure price stability in order to achieve the agreed macroeconomic objectives for the year 2009/10.   

“Going forward, the Bank of Uganda will continue to monitor financial, economic and exchange rate development and stands ready to take appropriate monetary policy actions that will maintain price stability and foster a sound financial system, in support of sustained economic growth,” said the Bank spokesperson.

A slowdown in Uganda’s economic growth for this fiscal year was also forecast by the IMF mission team that visited Uganda in March to conduct the seventh and final review under Uganda’s Policy Support Instrument (PSI)

Addressing a news conference in Kampala on March 19 after the two-week review, the IMF African Department director, Martine Guerguil, said: “The Ugandan economy is at an important juncture. Cautious macroeconomic management has spared Uganda from the worst effects of the global financial crisis, but persistent structural rigidities — including pervasive weaknesses in public financial administration — have constrained efforts to raise investment and growth.”

However, Ms Guerguil added, “The authorities are taking steps to rekindle growth and build up infrastructure, particularly roads. Higher public expenditure will help boost activity and improve competitiveness.

But it is important to make sure that these resources are well spent. The authorities have committed to strengthening budget controls and enhancing capacity so as to ensure efficiency in spending. We forecast growth will stay below 6 per cent this fiscal year but will gradually rebound to around 7 per cent in the coming years.”

The decline in economic growth is in contrast to the findings of a recent survey by research firm Synovate that showed that Ugandan business leaders’ confidence levels had increased from 47.9 per cent in July 2009 to 66.3 per cent in February 2010.

According to the survey, the highest business confidence was registered in the financial sector at 73.3 per cent, while in ICT /media/telecommunications 66.3 per cent was recorded, with manufacturing at 61.8 per cent, hotels and tourism at 61.1 per cent and agriculture at 60.0 per cent.