Guard against growth obstacles

In October 2011, Uganda’s inflation rate rose to 30.5 per cent, the highest the country had ever witnessed since 1993.

Last week, the World Bank released this year’s Global Economics Prospects Report. In the report, the World Bank urged developing countries like Uganda to prioritise domestic productivity and also exercise prudence in their fiscal and monetary policy management in order to safeguard their economic growth gains.

According to the report, the Ugandan economy is estimated to have grown by 3.4 per cent in 2012 and it is expected to register higher growth of 6.2 per cent this year, 6.9 per cent in 2014 and 7.3 per cent in 2015. It is a rather hopeful outlook for Uganda given the numerous local challenges that the economy has had to grapple with in the recent past.

In October 2011, Uganda’s inflation rate rose to 30.5 per cent, the highest the country had ever witnessed since 1993.

This consequently drove the Central Bank to raise the benchmark Central Bank Rate by four percentage points to 20 per cent, pushing commercial banks to increase their lending rates to near prohibitive levels. Today, the Ugandan economy appears to be slowly creeping out of the doldrums but the endogenous risks are still lurking.

The managers of Uganda’s economy will need to guard against the bottlenecks and excesses that analysts say have largely contributed to the lukewarm economic growth that the country has witnessed in the recent past. For the economy to be completely out of the woods, it will need an environment that spurs local investment and boosts the country’s exports.
This way we can be sure of creating jobs and reducing the country’s balance of payments deficit. As the report mentioned, the world economy remains fragile and growth in high-income countries is weak.

Developing countries-like Uganda- need to focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the Euro area and fiscal policy in the United States.

Indeed, to regain its pre-crisis growth rates, Uganda needs to emphasise internal productivity-enhancing policies. One way Uganda can do that is by leveraging the intra-regional trade and market opportunity.
That said, government will need to be deliberate on creating an investment climate that is free of obstacles that have stifled growth in the past.