Uganda’s economy will grow at a slower pace than previously expected due to a slowdown in government spending and a decline in net exports, global research firm BMI said as it cut its 2023 growth forecast.
BMI, a subsidiary of Fitch Solutions, said Uganda’s GDP growth will slow to 4.6 per cent this year, down from 6.4 per cent in 2022. This is down from the 5.5 per cent it had projected in September. It also cut its 2024 forecast to 5.8 per cent from 6 per cent.
It added that its update is in light of the latest GDP estimates released by the Statistics Bureau earlier this month, which revised growth for the first six months of the year “significantly” downwards. Ubos said the economy expanded by 1.8 per cent in the first quarter, down from an initial estimate of 2.4 per cent, while growth in the second quarter fell to 5.4 per cent from an initial estimate of 6.8 per cent.
“Coupled with our subdued outlook for government consumption and net exports in Q423, this informs our decision to revise down our 2023 growth projection,” BMI said.
In its September outlook, BMI said government consumption growth would slow from 8.8 per cent in 2022 to 2.5 per cent in 2023, contributing just 0.3 per cent to growth, as authorities sought to “rationalise spending over the coming quarters to prevent a marked deterioration in its (the government’s) fiscal balance.”
It now expects the contribution of government spending to growth to fall by 0.6 per cent in 2023, recovering to 0.4 per cent in 2024. It also expects government consumption growth to rebound to 3.9 per cent in 2024, driven by “favourable base effects and increased borrowing from mainland China,” although it will remain subdued in the short term due to the World Bank’s funding freeze.
A pick-up in private consumption and fixed investment will lead to an increase in demand for imports, with import growth outstripping that of exports. BMI said that the fall in net exports will subtract 4.1 per cent from GDP growth this year, up from its previous estimate of 1.4 per cent.
BMI added that growth next year will be underpinned by strong fixed investment, which will increase by 7.9 per cent, driven by the development of Uganda’s oil projects, and contribute 2.2 per cent to GDP growth, down from 2.5 per cent this year.
