Uganda’s economy is expected to grow by 5.5% in 2023, following a strong performance in the first half of the year. Inflation in Uganda is on a declining path, providing a favorable environment for economic recovery.Challenges for Uganda’s economy include geoeconomic fragmentation, global inflation, and climate change consequences, necessitating measures to boost tax revenues and reduce reliance on external financing.
The International Monetary Fund expects Uganda’s economy to grow by 5.5% this year, following a good half-year performance and some encouraging data from high-frequency activity and confidence indicators.
The International Monetary Fund Resident Representative, Ms Izabela Karpowicz, stated, “Inflation peaked in late 2022 but it’s now on a declining path. As it continues to decline and global uncertainties decrease, external demand would support a stronger recovery in 2024 and beyond, thus a return to pre-Covid-19 growth rate of 6 to 7%.”
Ms. Karpowicz, on the other hand, stated that dangers to this prognosis include geoeconomic fragmentation, a return to greater and more unpredictable global inflation, and climate change consequences. She stated that Sub-Saharan Africa is experiencing increasing borrowing costs as a result of global monetary policy tightening in reaction to excessive inflation.
“Uganda is not spared from this. Yields on government securities peaked at 12-15 percent early in 2023 and the Uganda shilling has depreciated. Difficulty in raising concessional financing, coupled with a higher interest burden, means that fewer resources are available for discretionary spending, notably on development and climate change adaptation,” Ms. Karpowicz said.
She insisted that the best course of action for the Ugandan government is boosting tax revenues, which are below regional competitors. In her assessment, this move is not only necessary but can also help finance development investment while preserving governmental debt sustainability.
Additionally, Dr. Adam Mugume, the Executive Director of Research at the Bank of Uganda, identified the challenge Uganda’s reliance on external financing poses, stating that this constitutes a problem as it complicates the global financial squeeze.
He stated; “However, Uganda should be able to maneuver through given that most of Uganda’s external debt is from multilateral creditors, mainly World Bank, IMF, and African Development Bank. Uganda’s exposure to non-concessional loans is to a great extent limited and as such there is limited concern on risks associated with rollover of maturing loans from commercial lenders.”