Uganda’s economic performance generally remained strong despite the recent slowdown in real GDP growth, which is projected to reach 5.9 per cent in 2018, up from 4.8 per cent in 2017 and 2.3 per cent in 2016, according to the latest Uganda Economic Outlook.

According to the Outlook, the increase in economic growth in 2018 is expected to be driven mainly by public infrastructure investment; recovery in manufacturing and construction; and improvements in the services sector, particularly financial and banking, trade, transport, and information and communication technology services.

The document shows that Uganda has Uganda pursued a cautious expansionary fiscal policy stance to support key infrastructure projects in transport and energy, while keeping recurrent expenditure under control. “The overall budget deficit was slightly high in 2016, improved in 2017, and is projected to increase in 2018 and 2019,” it says.

The balance of payments deteriorated, mainly as the result of external economic headwinds, including low commodity prices due to slow growth in Europe and China and tightening global financial and monetary conditions, says the report, adding that the macroeconomic policy stance remains focused on containing inflationary pressures, enhancing exchange rate stability, and stepping up domestic resource mobilization growth by 0.5 percentage point of GDP.

Uganda continues to have a low risk of debt distress. However, the debt-to GDP ratio is increasing and is projected to reach 45% by 2020 from 34.1 percent in 2014. At these growth rates, the document notes, the debt burden is growing faster than government resources; the revenue-to-GDP ratio stands at only 13.4 percent.

However, the most recent International Monetary Fund and World Bank Group debt sustainability analysis in 2016 gives Uganda’s risk of debt distress a low rating.
Tailwinds
The main tailwinds for the 2018 economic outlook include increased agricultural production due to better weather conditions; higher foreign direct investment (FDI) flows following the recent issuance of oil exploration licenses; and the expected decision by the government to invest in oil infrastructure development in early 2018, given the projected increase in oil prices to an average of US $55 a barrel in 2017–18 from US $43 a barrel in 2016.

Headwinds
The country’s major external risks to economic performance include low commodity prices and demand for the country’s exports in major markets, appreciation of the U.S. dollar due to expected monetary tightening by the United States, tightening of global financing conditions that could discourage FDI and development assistance, adverse spillover shocks from fragile regional neighbors, and adverse environmental shocks.

Major internal risks include reduced domestic revenue mobilization and higher public spending on contingencies, poor institutional capacity and governance, and weak public financial and investment management systems

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Month-on-month, Uganda’s merchandise trade deficit narrowed by 7 per cent to US $175.3 million in July from 188.4 million in June 2018, according to the Performance of the Economy Report for the month of August, published by the Ministry of Finance.

The contraction, according to the report is mainly attributed to reduced import payments that offset a reduction in export receipts.

Year-on-year, the report shows that the merchandise trade deficit widened by 72.8 per cent to US $175.3 million in July 2018 from US $101.4 in July 2017. “This development is explained by an increase of 24.9 per cent in the import bill which offset the rise in export receipts,” says the report.

Uganda’s merchandise exports
According to the report, the value of merchandise exports increased on annual basis but decreased on a monthly basis. Export earnings reduced by 2.3 per cent to US $to 291.3 million in July from US $298.04 million registered in June 2018. The drop in the value of exports is a result of a drop in earnings of cotton, tea, beans, maize, hides and skins, fish and its products following a decline in their respective volumes.

Year-on-year, export receipts increased by 7 per cent to US $ 291.3 million in July 2018 from US $272.1 million in July 2017. The report attributes the increase to higher earnings of gold, tea, fish and its products.

Still year-on-year, coffee earnings reduced by 17.8 percent to US $40.7 million in July 2018 from US $49.5 million in July 2017. The report says the reduction in coffee earning was due to low international coffee prices on account of higher crop harvest in Brazil as well as lower production from the main harvest in Masaka and South-Western regions compared to the previous year. Coffee volumes and prices fell by 8 per cent and 10.6 per cent respectively.

Destination of Uganda’s exports
The East African Community was the largest market for Uganda’s exports followed by the rest of Africa. Exports to the EAC region grew by 28.5 per cent to US $126.5 million in July 2018 from US $ 98.4 million in July 2017. Uganda’s exports to all EAC Partner States increased save for Burundi which registered a drop of 34.6 per cent.

Uganda’s merchandise imports
According to the report, the value of merchandise imports declined on a monthly basis and increased on annual basis. The import bill reduced by 4.1 percent to US $466.5 million in July 2018 from US $486.4 million in June 2018. “This drop was primarily driven by a decline in government project imports and oil imports,” the report says.

The report tags the decline in the value of oil imports to the lower import volumes. The value of merchandise imports increased by 24.9 per cent in July 2018 compared to the same period last year. This increase was mainly driven by formal private sector imports (both oil and non-oil imports) which grew by 31.4 per cent, the report says.

Oil imports increased by 5.5 per cent whereas non-oil imports increased by 38 per cent. “A combination of higher import prices and volumes registered during the month contributed to the increase in the value of formal private sector imports,” says the report.

Import categories that recorded high increase included; miscellaneous manufactured articles; machinery equipment, vehicles & accessories; plastics, rubber and related products, vegetable products, animal, beverages, fats and oil.

Origin of Uganda’s imports
According to the report, during the month of July 2018, Asia remained the main source of Uganda’s imports followed by the Middle East and EAC. Of the imports from Asia, 81.1 per cent were from India, China and Japan combined. Within the EAC, 47.1 percent of the imports were from Kenya followed by Tanzania which contributed 39.4 per cent.

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