Uganda: Bou Revises Economic Growth As Inflation Rises

8 February 2019

Kampala — Bank of Uganda yesterday revised Uganda's growth forecast from 6 per cent to 6.3 per cent for this financial year ending on June 30.

At the time of budget reading in June last year, the government had projected that the economy would grow by 6 per cent for this fiscal year.

However, the authorities at the central bank yesterday explained that the growth would be lifted by its current accommodating monetary policy.

While presenting the Monetary Policy Statement for February, the BoU governor, Mr Emmanuel Tumsiime-Mutebile, said: "The economy is projected to grow by about 6.3 per cent in Financial Year 2018/19 and remain on a steady growth trajectory over the coming years, with output trending above potential. Indeed, high frequency real economy indicators project that domestic economic growth momentum continued into the first half of FY2018/19."

Mr Mutebile said the strong growth is partly supported by our resultant favourable financial conditions, fiscal impetus and multiplier effects of the public infrastructure investments, ensuing strong domestic demand conditions and improved agricultural performance.

Private sector growth

However, he said there are risks to the projected economic growth momentum including weather-related constraints to agricultural production and challenges relating to finance of public investment programmes.

"In addition, the escalating global trade friction and lower than anticipated global growth may not only subdue external demand thereby weakening Uganda's external position, but could also lead to volatility in the domestic foreign exchange market," he said.

Speaking about the private sector credit growth, Mr Mutebile said private sector growth, remains below its historical trend and its contribution to economic growth could be weighed down by the relatively weak performance of foreign currency-denominated loans.

During World Economic Forum in Davos on January 21, the IMF said: "Global growth for 2018 is estimated at 3.7 per cent, as in the October 2018 World Economic Outlook forecast, despite weaker performance in some economies, notably Europe and Asia. The global economy is projected to grow at 3.5 per cent in 2019 and 3.6 per cent in 2020, 0.2 and 0.1 percentage point below last October's projections."

The IMF said an escalated trade tensions, tight financial conditions, pending withdrawal of the UK from European Union and slowdown in China's economy caused slowdown in global economic growth.

In sub-Saharan Africa, the IMF said growth is expected to pick up from 2.9 per cent in 2018 to 3.5 per cent in 2019, and 3.6 per cent in 2020.

On policy front, the BoU left the Central Bank Rate (CBR) unchanged at 10 per cent, citing elevated inflationary pressure in the near future and risks in exchange market due to tight global financial conditions.

"Overall, the MPC accesses that the risks to the projected inflation path are roughly balanced. Based on the assessment, the Monetary Policy Committee decided to maintain the CBR at 10 per cent," Mr Mutebile said.

Inflation

He said in the medium-term inflation outlook remains relatively unchanged from the December 2018 forecasts, with inflation projected to converge to BoU's target of 5 per cent.

Uganda Bureau of Statistics on January 31 said the annual core inflation, which excludes food crops items, metered water and fuel in the Consumer Price Index basket, increased to 3.4 per cent for the year ending January 2019 compared with 2.8 per cent rise in the year ended December 2018.

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