After growing at an average rate of 7.8% in 1990-2010, the expansion of Uganda’s economy slowed to 4.5% in the five years to 2016. The prevailing consensus among economists is that growth this year will hew to the rate of the last few years.
According to the chief economist for East Africa at Standard Bank, Uganda’s GDP growth in 2017 will rebound closer to 5%, after a tough 2016 that saw Uganda register the poorest growth in the region.
The risks to this forecast, according to Jibran Qureishi, are the weather, political developments in Uganda’s regional export partners (Kenya, South Sudan, and the Democratic Republic of Congo), and global uncertainty, particularly in Europe and the United State of America. Jibreshi was speaking at the Stanbic Economic Forum held in Kampala on Monday.
Mr Qureishi said that there are risks to the inflation outlook in the coming months, and that the shilling will also weaken in 2017. “We think that inflation will rise close to 8% around May before base effects bring it down, and of course there will be some element of base effects at the end of the year that will bring it lower,” he said.
“But this is predicated on our view that it will rain around March, April, May. If it doesn’t rain, then yes, this number changes.”
A strong dollar in 2017 could also make life difficult for the currency, Mr Qureishi said. The Uganda shilling, more than the Tanzania and Kenya currencies, is reacting a lot more to global sentiment. The Ugandan economy has a lot more of hot money and portfolio investors who bought the one-year treasury bill, and who look likely to exit for other markets in the coming months.
Mr Qureishi’s views largely chime with those of Adam Mugume, executive director research at Bank of Uganda. The domestic growth outlook remains constrained against the backdrop of weak business and consumer confidence, he said. Dr Mugume also believes that the uncertainty surrounding the global economic outlook will persist for some time, creating a “more challenging and volatile financial environment.”
The central bank expects inflation to rise in the next six months, peaking at about 8%, Dr Mugume said. However, he said there is no need to policy action to control the rise since the bank believes it will fall back to its medium-term target of 5%.
Dr Mugume said the three major factors complicating the inflation outlook are external developments, poor crop harvests, and the trajectory of the exchange rate – which continues to be influenced by both domestic and external shocks.
“Our view at Standard Bank research is that a cut is not needed right now,” Mr Qureishi said, with the central bank’s Monetary Policy Committee meeting on Wednesday to set a policy rate for the next two months. “We believe that there are a lot of risks.”
More time is needed for Bank of Uganda’s previous cuts to be transmitted, the Standard Bank economist said. But he is not ruling out another cut just yet. “As credit growth is picking up momentum, as you can see towards the end of the year (2016), we expect a neutral stance. But of course there is a bias for a cut.
“But we still think that is the final one. So that should be the bottom of monetary policy rate cuts from the Bank of Uganda for this year.”