Uganda’s economy is projected to grow by five percent in financial year 2017/18, above the 4 percent growth registered in fiscal year 2016/17, according to the latest Debt Sustainability Analysis Report released by the Ministry of Finance Planning and Economic Development (MFPED).
According to the report, the 5 percent growth will be driven by higher growth rates in agriculture and services, supported by improved implementation of infrastructure projects and a return to normal weather conditions.
“Real GDP growth is expected to average at about 5.9 percent in the medium-term and 6.7 percent in the long-term,” adds the report which continues that this growth will be supported by enhanced productive capacity from the completion of infrastructure projects, investment in agriculture, regional integration and oil production, as well as enhanced efficiency in resource allocation.
Meanwhile, the ministry reports that the annual headline inflation is expected to drop to an average of 4.9 percent in financial year 2017/18, from 5.7 percent in financial year 2016/17. According to the report, this is to be achieved on account of low food crop inflation supported by normalization of weather conditions; low demand pressures and a relatively stable exchange rate.
In the medium term, the report indicates, headline inflation is projected to average 5.3 percent, rising to 6.1 percent in the long term. “Core inflation is expected to stabilize around the BOU’s 5 percent target in the medium to long term,” it says.
Further, financial year 2017/18, the Ugandan Shilling is expected to depreciate against the US Dollar by an average of 4.1 percent, compared to 2.7 percent in financial year 2016/17. “This will be driven by Government dollar demand arising from infrastructure investments, the expected monetary policy tightening in the USA and a rise in international crude oil prices,” says the report.
However, in the medium term, the exchange rate is projected to depreciate by an average of 3.7 percent and 0.3 percent in the long-run as the country is expected to start earning oil revenues.
The report says that like in financial year 2016/17, tax revenue as a percentage of GDP is expected to increase by 0.3 percent, to Shs.14, 403bn in the current financial year. In financial year 2018/19, it is projected to increase by 0.7 percent to Shs.16, 692bn on account of a combination of improved tax administration and new tax measures.
“Specific attention will be paid to: expansion of withholding tax agents; determination of rentable values for commercial properties; improving on data analysis (audit information), improving VAT compliance of the telecom sector by enforcing the commission model rather than the discount model; debt recovery; and engaging the Judiciary to expedite tax cases, among others,” says the report.
However, the ministry projects that in the medium term, tax revenue will grow by 0.5 percent of GDP to reach a peak of 18.4 percent in the long term; driven by reforms in the tax system and efficiency in tax administration.
‘This will also require investments in tax collection systems, equipment and human resources’, it says.