Weak shilling, elections slow economic growth
Kampala- The International Monetary Fund (IMF) yesterday said the depreciation of the Uganda shilling and the upcoming elections have contributed to slowdown in Uganda’s economic growth to 5 per cent down from 5.8 that had been projected.
The IMF also says the economy is affected by the external (global) environment, particularly slowdown in world trade, leading to low commodity prices due to slower global economic growth.
“Uganda is not immune to the difficult external environment affecting other countries.
Together with domestic nervousness relating to the upcoming elections, external shocks and uncertainty have resulted in a sharp decline in the shilling (27 per cent over the past one year), creating challenges for policy makers,” Ms Ana Lucia Coronel, the IMF mission chief and senior resident representative in Uganda, said.
She was briefing journalists on the outcome of their one-week economic policy review mission with government in Kampala yesterday.
However, Ms Coronel said the growth rate of 5 per cent is reasonable enough for Uganda considering what is going on in the global economy though the country needs high economic growth of 6 per cent to 7 per cent per annum because of high poverty levels and low income.
Instabilities in Uganda’s macroeconomic environment due to the shilling depreciation against the US dollar and a rise in food prices have pushed up Uganda’s annual headline inflation rate to 7.2 per cent.
Ms Coronel said: “The exchange rate depreciation raised domestic prices given the high import content of the consumption basket, created uncertainty for consumers and investors, and generated market uneasiness.
The mission welcomes the authorities’ proactive and effective response to challenging situation, notably the timely monetary policy tightening, which has helped curb further inflationary pressures.”
The mission team of IMF from Washington DC led by Ms Coronel visited Uganda from September 24 to October 5 to review its economic policy programme Policy Support Instrument (PSI) with the government of Uganda to find out whether the government is following the agreements in the policy support instrument.
Ms Coronel said discussions focused on policies to be conducted over the rest of the fiscal year, pointing out the mission welcomed the authorities’ determination to adapt policy mix to the ongoing challenges, including those related by to the political cycle, by closely coordinating fiscal and monetary actions.
“On the fiscal front, the authorities are encouraged to continue to build on strong revenue performance of last year by improving tax collections even during the election period,” she said.
On September 29, the permanent secretary/Secretary to the Treasury, Mr Keith Muhakanizi, said government would reduce its fiscal expenditure in case URA fails to raise the revenue that has been budgeted in the ministry of Finance.
Over the medium term, Ms Coronel said core inflation is set to decline toward the 5 per cent target and growth is expected to gradually return to its potential about 6 per cent or 6.5 per cent.
The IMF say performance under the PSI was satisfactory.
