Standard Chartered Bank has projected that expenditure on importation of goods and services will rise to 9.2 per cent in 2020 from an earlier projection of 5.6 per cent.
However, the forecast, which is contained in the Standard Chartered Bank Global Focus for July with focus on Uganda, indicates that whereas the deficit will widen, the economy is expected to recover gradually in the months ahead, after government lifted Covid-19-rleated containment measures last month.
Ms Razia Khan, the Standard Chartered Bank Africa and Middle East head of research, said in excepts from the forecast that Uganda’s current account deficit will rise to 9.2 per cent of gross domestic product for 2020 while projections for 2021 and 2022 will rise to 8.7 per cent and 7.4 per cent from earlier forecasts of 5 per cent and 4.9 per cent, respectively.
This, she said, will mainly be because of fading hopes of eventual oil production and an increase in imports of oil-related developments.
However, Ms Khan said, foreign direct investment will be key in financing the current account gap, noting that how things move, especially Total’s acquisition of Tullow’s stake in the Lake Albert oil development project, will drive the direction of the economy in the medium-term.
Total and Tullow have already reached a deal to farm down all Tullow’s interests in Uganda.
In fact, Tullow shareholders last week voted in favour of a complete exit out of Uganda. The Anglo-Irish company has been mobilising resources pay debts and increase investment in markets where it has larger prospects.
The finalisation of the deal, which now awaits government’s approval, is likely to lift delays in final investment decision that has held back a number of activities in Uganda’s oil sector.
Ms Khan also noted that the elections expected in February 2021 will be a key driver of both social and economic activity driven by a 13.5 per cent spending increase.
However, she warned, that whereas election spending might help to stimulate growth, excess money or high and uncontrolled election-related expenditure might exert pressure on the economy, thus weakening private-sector credit growth.
The Standard Chartered Bank outlook also indicated that government is expected to register a wider than earlier projected revenue collection shortfall broadening to 7.5 per cent of gross domestic product in 2020 from 7.2 per cent.
Government will be seeking to finance a Shs45.5 trillion ($12.2b) budget but it is, according to Standard Chartered expected to face revenue collection shortfall of 9 per cent from the earlier projected 7.6 per cent because of a six-month tax payment deferral from.