Uganda: Museveni Chose Economic Management Over Populism By Rejecting Subsidies During Oil Crisis, International Economic Consultant Says

19 October 2022

Museveni chose economic management over populism by rejecting subsidies during oil crisis, International Economic Consultant says

Prof Augustus Nuwagaba, an international economic consultant and wealth creation expert for Africa says he associates himself with Uganda's government's decision to reject subsidies for particularly oil products, urging it is the best economic practice to curb the rising inflation rates.

According to Nuwagaba, the current inflation being faced by Uganda is a global phenomenon largely caused by an upset in the supply chains of oil products.

"It is an imported inflation caused by three factors, one of them being the disruption in the supply chain of oil products leading to the rise in prices of fuel and gas," Nuwagaba notes.

He also maintains that the inflation has also globally been caused by the Russia- Ukraine conflict which started early this year and is yet to stop, while climate change has its own share amongst the causes since it results in crop failure hence drought.

"The net effect of these three factors has been the soaring prices of goods and services," Nuwagaba says.

Nuwagaba says that people may argue that the government should provide subsidies to oil products but it could turn out to be a populist decision with more catastrophic results than an economic management one.

"This is not good economic management, it may sound popular, but this is not the time for courting populism," he said.

Nuwagaba says that insisting on such a populist decision would lead a country to a situation similar to the UK.

"The UK recently made the greatest mistake of mixing politics in fiscal metrics and the results have been catastrophic, there is no way the government can subsidise energy costs, simultaneously with huge tax cuts, in a situation of high inflationary pressures, bordering on recession," Nuwagaba argues.

"The Brush Chancellor of the Exchequer was fired because of this mistake after markets roiled and the British Pound nose-dived to a level not seen in 100 years. Economists, please be careful not to politicise prudent economic management," he adds.

Nuwagaba's comments are in line with President Museveni's reasons for refusing to intervene in the fuel crisis that hit the country last month.

While addressing the same, President Museveni insisted that the government would not intervene in the fuel crisis through subsidies or tax cuts as it would create a worse scenario than there was.

Museveni instead asked that Ugandans get alternatives to high-cost imported goods by using local products like Cassava. In his argument, president Museveni said making a decision to place subsidies and tax cuts would deplete the country's national reserves and in the end create the inability to purchase products hence an economic crisis.

Inflation in the country continues to rise, largely influenced by external cost pressures stemming from higher global food and energy prices, persisting global production and distribution challenges, as well as rising domestic food crop prices due to dry weather across the country, this according to a statement from Uganda's Central Bank.

"The annual headline and core inflation rose to 6.8 per cent and 5.5 per cent in June 2022 from 6.3 per cent and 5.1 per cent in May 2022 respectively. Annual food crop inflation has sharply risen from 0.7 per cent in February 2022 to 14.5 per cent in June 2022," a statement from Central Bank confirms.

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