Uganda will experience more growth due to rains that have increased agriculture output, a stronger global outlook, and the development of oil infrastructure as the country prepares for commercial petroleum production, the World Bank said on Tuesday.
The economy is expected to increase to 5.5% this financial year and then accelerate to 6% in 2018/19, according to Rachel Sebudde, a senior economist with the World Bank. The Uganda Bureau of Statistics puts GDP growth at 4% in 2016/17.
Figures from the statistics bureau show that the economy expanded at a faster rate in the first half of the current financial year compared to the previous year. GDP growth in the period was 7.1% compared to the 2.4% expansion in the same period in 2016/17 after a turn in weather conditions and better agricultural productivity.
Output in the agricultural sector increased by 6.3% compared to the same period last year, driven by an increase in food crops production. An increase in the services sector was also responsible for the strong growth in the period, supported by expansions in ICT, trade, and financial and insurance services.
The Bank, which was releasing its 11th edition of the Uganda Economic Update, said economic expansion could increase further in 2018/2019 to 6% “barring adverse weather conditions and continued inefficiencies in the execution of capital spending.”
The outlook assumes favourable weather conditions which would see an increase in food supply, increased foreign demand leading to an increase in exports, and an increase in public investment.
Good management of government spending is expected to drive an increase in imports for public projects, particularly hydropower dams, roads – including in the oil basin in western Uganda, and the oil refinery and pipeline to Tanzania should investment in the two projects follow official timelines.
But a risk to this outlook, according to the Bank, is the low revenue-to-GDP ratio and government’s poor planning and output. “The Government sees low budget absorption for infrastructure projects as the consequence of the delayed acquisition of right of way for projects and lengthy procurement processes,” according to the update.
An accelerator for growth, especially in the event of delays in execution of public investment or underperformance of the projects, is better domestic revenue mobilisation, which was a focus in the economic update, and more effective use of collected revenue.
“Improving domestic revenues will create fiscal space for infrastructure investment and social safety spending, and safeguard debt sustainability,” the update said. More tax revenue would strengthen the government’s potential to support stronger macroeconomic growth over the medium term and help reduce the pace of public borrowing.
Uganda’s tax-to-GDP ratio currently stands at 14%, way below the 18%-23% range in countries with similar economic characteristics. A “fundamental shift in attitudes towards taxation is needed to improve the tax system’s productivity,” the Bank said.
Another risk to the economic outlook is regional instability which could undermine exports, according to the update. Intensified conflicts in South Sudan and the Democratic Republic of Congo, Uganda’s 2nd and 4th biggest export destinations, could bring down exports and “also have negative implications for Uganda’s current account and debt sustainability.”