Uganda upbeat despite tough economic times
Experts shrug of concerns on credit but keeping a wary eye on political happenings in Kampala and Kenya
The Ugandan economy registered a sluggish first quarter in spite of efforts by the central bank to boost credit taking by lowering the Central Bank Rate (CBR) to less than 10 per cent — a first in decades — official figures indicate.
Experts are calling for more pragmatic interventions to spur economic growth, noting that performance in the first quarter of the financial year 2017/ 2018 could have been worse if the spillover of procurement commitments from a strong last quarter of the previous financial year had not helped.
Low revenue inflows resulting from weak exports and the adverse weather conditions that affected agricultural production caused collections in the quarter but procurements started to shrink in the past year and continuing into the quarter helped maintain some stability.
“We are still doing well even when revenue collections are low because we still have some ongoing procurements,” said Secretary to the Treasury Patrick Ocailap.
Both the agriculture and manufacturing sectors have performed minimally in the quarter, further weakening the shilling against major foreign currencies, especially the dollar, and is a pointer to a tough second quarter as the country heads into December.
Finance Ministry data shows that economic performance did not achieve the five per cent rate; dropping 1.1 percentage points to 3.9 per cent.
In spite of that, the government says it is meeting its obligations to clear debt arrears, which was a major factor in the financial crisis of financial year 2016/2017 when distressed traders called for bailouts after banks threatened foreclosures over failure to service their debts.
Many said their money was locked up in government debt while others were victims of the conflict in South Sudan.
The government released $1.1 billion towards debt settlement which is part of the $2.6 billion it allocated to debt clearance. The national budget for 2017/ 2018 stands at $7.8 billion.
However, political uncertainty courtesy of the violent confrontations with police over the age limit debate in Uganda nd Kenya’s election repeat could affect economic activity, further complicating matters.
Although the business tendency index, which gauges perception of business owners indicates positive signals, which finance ministry said gives confidence that the economy will rebound to attain the five per cent growth target, anxiety remains high.
“We are not so worried about the political issues in Uganda. We are more concerned with events in Kenya which is a key trade partner. The Kenyan route is a risk factor because it affects our exports, and collection of import duties and our growth projections depending on how the events unfold,” said Dr Albert Musisi, commissioner macroeconomics at the Finance Ministry.
The Kenya situation presents a conundrum as most of the country’s goods — imports and exports go through the port of Mombasa. The anticipation of violence breaking out post the re-election has made several traders to hold back activities in fear of losing goods as was the case was in 2007.
“When we asked the government about preparation for eventualities during the August Kenya elections, government said it was prepared, but we see now it was not prepared. We expect a contingency fund to offset any setbacks. The gist of the problem here is planning,” said MP Akol Anthony, the shadow finance minister.
In other efforts, government is already slowing down on selling Treasury bills as a measure to reduce competition for credit, and in effect, reducing interest rates.
Political developments in Uganda and Kenya remain the major headache to freeing economic growth from sluggishness.