The Central Bank has warned that a number of risks both internal and external are likely to dampen the economy in the next two to five years.
Speaking at the presentation of the Monetary Policy statement in Kampala yesterday, Mr Emmanuel Tumusiime Mutebile, the Bank of Uganda governor, said external risks such as depressed global economic growth were likely to affect tourism receipts thus worsening an already tilted balance of payments.
This, he said, could be exacerbated by domestic risks resulting from weather-related constraints to agricultural production and delays in the implementation of public investment programmes.
However, Mr Mutebile maintained, the economic growth will in the medium term remain robust, growing at about 6.2 per cent.
“There are downward side risks to this outlook. On the external scene, lower external demand due to depressed global economy could weigh on our balance of payments, particularly in the tourism sector and lead to volatility in the domestic foreign exchange market,” Mr Mutebile said, but noted the projected risks were still manageable.
Global economies including UK and US have already reported signs of sliding into recession, which could be disastrous for particularly Uganda that has in the last 10 years seen increased dependency on foreign direct investment and remittances.
Bank of Uganda also maintained the Central Bank Rate at 10 per cent with Mr Mutebile noting that the monetary policy stance had helped to keep inflation below the Central Bank target of below 5 per cent.
However, the Central Bank noted that inflation is projected to edge up slightly and peak at 6.4 per cent in the fourth quarter of 2020 due in part to stronger domestic demand conditions.
Food crops prices, which highly contribute to inflationary pressures, and the path of the exchange rate, have remained volatile, thus presenting risks to the current stability.
Uganda, according to Dr Adam Mugume, the Bank of Uganda executive director in charge of research, has already seen a decline of 9 per cent in export receipts resulting into a drop in coffee, beans and maize exports.
However, he noted, the country received the highest volume of foreign direct investment for the 2018/19 financial year. $1.8b was registered in the period.
Much of Uganda’s foreign direct investment, according Bank of Uganda data, comes from Europe, US, China and India.
Uganda receives a fairly higher remittance share but inflows, Dr Mugume said, have remained flat at $1.2b for the past two years.
Dr Adam Mugume, the Bank of Uganda executive director in charge of research also noted that the shilling continues to gain against the dollar, registering a lower depreciation rate of 0.5 per cent against the dollar by June 2019.
The shilling yesterday closed at Shs3,689.71 (buying) and Shs3,699.71 (selling).