Government, economists optimistic about economy in 2019

Faster growth in Gross Domestic Product (GDP) expands the economy’s size and helps government to design beneficial development programmes.

Sources of high GDP growth rate depend on number of factors such as increased capital, for instance investment in new factories or investment in infrastructure, such as roads energy, increase in working population, increase in labour productivity, through better education and training health or improved technology.

Strong productivity growth can increase per capita GDP and income. However, high GDP growth rate without economic transformation may not translate into high personal income or a high standard of living .

This partly explains why many Ugandans don’t feel the impact of high GDP growth rate Uganda’s economy has registered following the economic reforms of the nineties in their pockets.

It is almost a month into 2019. Government officials and economists say Uganda’s economic outlook is positive with GDP growth rate expected to reach 6 per cent for this fiscal year 2018/19 ending June 30.

Mr Moses Kaggwa, the acting director economic affairs at the Ministry of Finance, in an interview last week, said Uganda’s economic outlook is positive.

“We are seeing rebound in manufacturing, agriculture, wholesale/retail, services sector is really doing well. Tax collection by URA is above the target by Shs300 billion. So, we expect GDP growth rate for this year to be at 6 per cent,” he said.

Going forward, Mr Kaggwa said there is need to pay more attention to the agricultural sector because that is where many people are involved to increase productivity in the economy and household income.
“Specific attention needs to be paid to storage facilities, fertilisers, seedlings and information on the existing markets for agricultural products for the farmers because there is a connection between agriculture and agro-based industries,” he said.

The Bank of Uganda (BoU) in its Monetary Policy highlights of December 2018 said economic activity remains robust with positive prospects pointing out that growth in 2018/19 is projected to be higher than previously projected at 6 per cent.

“Growth remains mainly driven by the services sector implying stronger domestic demand. The industry sector notably recovered, supported by increased lending to the manufacturing sector. Growth above 6 per cent would be above estimates of potential growth, implying a positive output gap in the economy,” BoU said.

In policy perspective, the economic outlook projections are made for a range of key macroeconomic variables in quarterly and annual frequencies, over a two to three year future horizon. The outlook is designed to provide a consistent framework for the policy debate in and between economic researchers’ policy makers or governments.

Inflation
Central Bank says the inflation outlook remained relatively unchanged from the previous forecast round on account of a less depreciated exchange rate revealing that core and headline inflation were lower by 1 percentage point and 0.7 percentage point, respectively to about 6.6 per cent and 5.1 per cent in 2019 quarter two.

PricewaterhouseCoopers country manager, Mr Francis Kamulegeya told Prosper magazine in an interview last week that Uganda’s economic outlook for 2019 is a very positive thanks to a recovery in the agricultural sector, the sustained growth in services and government’s continued huge investment into public infrastructure.

Mr Kamulegeya said the medium term growth of the economy is also very positive, adding that the government is projecting the economy to grow by 6.2 percent next financial year 2019/20, with agriculture, industry and services projected to grow at 3.8 per cent, 5.6 per cent and 7.8 per cent respectively.

“Domestic demand supported by healthy private sector credit, as well as investments in public infrastructure together with FDI [Foreign Direct Investment] inflows are also expected to drive growth of the economy in FY19/20,” he said.

He explained that this positive outlook assumes continued favourable weather conditions, robust external demand and an increase in FDI inflows as oil exports draw closer, and public infrastructure spending is executed as planned.

“At the moment, most macroeconomic fundamentals in the country remain favourable. For example, foreign exchange reserves are adequate, currently at 5.3 months import cover; consumer price inflation is comfortably below the BoU’s medium term target of 5.0 per cent; and public debt though increasing, is still considered sustainable,” he said.

“Adding: Over the next two years, massive investments in the infrastructure development related to the oil and gas sector and the related expected increase in FDI inflows will drive the Uganda’s economic growth to 7 per cent or more.”

Growth
Absa economist Samantha Singh said Uganda’s GDP growth climbed to 6.8 per cent on year on year basis in quarter three of 2018 from 5.2 per cent.

“Many sectors performed better while business activity has improved on a multi month basis. Credit growth has also been accelerating. Investment into key infrastructure will lead growth over the medium term. Risks on further delays to oil production pose a risk to higher growth potential,” she said.

In terms of growth outlook, Ms Singh said Absa puts Uganda’s economic growth for 2019 at 6.0 per cent, for 2020 6.6 per cent and for 2021 growth rate is at 7.1 per cent.

Ms Sing said GDP credit growth is improving arguing that for now general agriculture production looks good pointing out that investment spending is likely to rise. Growth could be given a boost with investment decisions on oil.

Monetary policy
Ms Singh says monetary policy faces limited risks because of low oil prices and adequate food supply which could act as a catalyst to contain inflation for now.

Uganda Bankers’ Association head of research and market development Musa Mayanja Lwanga says private sector growth is expected to be robust in 2019 stemming from increased investment due to favourable macroeconomic conditions, foreign capital inflows in the oil and gas sector, reduced cost of power due to increased generation capacity if Karuma and Isimba hydropower dams are completed. Real sector indicators show increased optimism and positive expectations regarding the health of the economy.

Mr Mayanja said the Business Tendency Index and the Composite Index of Economic Activity collected by BoU have generally been improving over time, revealing that Overall Business Tendency Index stood at 59 in December 2018 compared to 58 and 54 recorded in 2017 and 2016 respectively. Expectations in all sectors are positive with increased optimism in agriculture and whole sale trade.

The IMF resident representative in magazine that growth remains strong, thanks to the expansion of manufacturing, services and construction, with the impact of the agricultural rebound fading.

“For next fiscal year, growth is expected to remain robust, probably at around 6 1/4 percent. Medium term prospects are also positive, provided that the infrastructure and oil sector investment advance as expected,” she said.

However, Ms Clara said risks remain elevated; as the uncertain global environment—with rising trade tensions and protectionism and a tightening of global financial conditions could affect Uganda’s shilling and weigh on domestic growth. Weather conditions also remain a risk.
“Furthermore, regional security and health-related risks, political tensions and potential further delays about the start of oil production could dampen confidence.

TRADE TENSIONS
Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains. “Robust economic growth is essential to reducing poverty and boosting shared prosperity,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Mr Ceyla Pazarbasioglu.

“As the outlook for the global economy has darkened, strengthening contingency planning, facilitating trade, and improving access to finance will be crucial to navigate current uncertainties and invigorate growth,” he added.

In the report, the World Bank said the informal sector accounts for about 70 per cent of employment and 30 per cent of GDP in emerging market and developing economies.
In its world economic outlook released last week in Davos during World Economic Forum, the IMF warned that the global expansion has weakened.

“Global growth for 2018 is estimated at 3.7 per cent, as in the October 2018 World Economic Outlook (WEO) forecast, despite weaker performance in some economies, notably Europe and Asia. The global economy is projected to grow at 3.5 per cent in 2019 and 3.6 per cent in 2020, 0.2 and 0.1 percentage point below last October’s projections,” the IMF said.

In sub-Saharan Africa where Uganda lies, the IMF says growth is expected to pick up from 2.9 per cent in 2018 to 3.5 per cent in 2019, and 3.6 per cent in 2020.

However, the IMF said for both years the projection is 0.3 percentage point lower than last October’s projection, as softening oil prices have caused downward revisions for Angola and Nigeria.

“The headline numbers for the region mask significant variation in performance, with over one-third of sub-Saharan economies expected to grow above 5 per cent in 2019–20,” said IMF.

Speaking about the global outlook the managing director of International Monetary Fund, Ms Christine Lagarde, said: “In October, the IMF cut its global growth forecast for 2019 and 2020, partly because of the negative effects of rising trade barriers.”

Ms Lagarde said the bottom line is that after two years of strong expansion, the world economy is growing more slowly than expected and risks are rising.

AFRICA'S OUTLOOK
In African Economic Outlook African Development Bank (AfDB) presented in the bank’s headquarters in Abidjan, Cote d’Ivoire, on January 17, AfDB forecasted that in the medium term, growth is projected to accelerate to 4 per cent in 2019 and 4.1 per cent in 2020.

In its 2019 economic, AfDB explains that Africa’s economic growth continues to strengthen, reaching an estimated 3.5 per cent in 2018. This is about the same rate achieved in 2017 and up 1.4 percentage points from the 2.1 per cent in 2016.

Senior Vice President Charles Boamah said: “Even though the report presents daunting challenges, “Africa has the means to overcome them by joining hands together and removing barriers to integration and drivers of migration.”

Rising risks
Specifically, growth in advanced economies is projected to slow from an estimated 2.3 per cent in 2018 to 2.0 per cent in 2019 and 1.7 per cent in 2020. This estimated growth rate for 2018 and the projection for 2019 are 0.1 percentage point lower than in the October 2018 WEO, mostly due to downward revisions for the euro area.

The IMF explained that a range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications, especially given the high levels of public and private debt.

“These potential triggers include a “no-deal” withdrawal of the United Kingdom from the European Union and a greater-than-envisaged slowdown in China,” said the IMF.