The decline in aggregate demand in the country this financial year has caused a drop in the economy, Bank of Uganda (BoU) has said. The economy suffered 0.2 per cent drop in growth.
Aggregate demand is the total demand for goods and services within a particular market (country). Household real income growth translates into higher consumer spending in the economy.
The drop has also been aggravated by global economic slowdown and the unresolved trade tension between the United States and China thus affecting the demand for commodity exports and low value in export earnings.
In a telephone interview yesterday evening, Bank of Uganda Deputy Governor Louis Kasekende said the economic growth has slowed down but insisted the rate at which it has slipped is still good enough for Uganda.
“The reason why we are witnessing a slower growth rate is because of low aggregate demand in the economy compared to last year, which is contributing to a slowdown in economic growth rate,” he said.
Dr Kasekende said the value of export earning has also reduced by 12.9 per cent of last year’s due to slowdown in the global economic growth and demand.
He also said the value of Uganda’s imports is higher than the value of exports leading to wider current account deficit which is now more than $3 billion.
He said the earlier economic growth rate was based on projections, not real growth rates.
“If you remember, there was a projection of 6 to 6.5 per cent, so we are likely to register growth rate of 6 per cent.
In the FY2016/2017, Uganda Bureau of Statistics said the economy grew by 6.5 per cent for the financial year 2018/2019 following expansion in the industrial sector and agriculture as well. At the time of budget reading in June, government had projected economic growth of 6.2 per cent for this fiscal year 2019/2020.
On October 15, the International Monetary Fund said global growth is forecast at 3.0 per cent for 2019, its lowest level since 2008–09 and a 0.3 percentage point down from the April 2019 World Economic Outlook. Growth is projected to pick up to 3.4 per cent in 2020 (a 0.2 per cent drop compared to the 3.6 per cent in April). During a Monetary Policy Committee (MPC) meeting on Monday, BoU decided to keep the Central Bank Rate (CBR) at 9 per cent and said the maintaining same rate was informed by the situation in the economy.
The BoU Governor, Mr Emmanuel Tumusiime-Mutebile, said the MPC will continue to assess the balance of risks to domestic growth and inflation to ensure that monetary policy decisions remain consistent with price stability.
“Overall, economic growth is projected to be in the range of 5.5-6.0 per cent in 2019 and the pace sustained into 2020. This projection remains subject to downside risks, mainly stemming from uncertainties in the global economy,” he said on Monday.
However, he stated that over the medium term, the country will achieve stronger GDP growth which will boost private sector investment and the economic growth outlook.
However, Mr Mutebile noted: “Going forward, a combination of persistent global geo-political tensions and uncertainty around trade policies and softening domestic private sector investment spending could generate headwinds to economic growth.”
“In addition, public sector financing needs have risen amid limited fiscal space, raising the prospect of further pressure on the domestic borrowing costs. Overall, economic growth is projected to be in the range of 5.5-6.0 percent in 2019 and the pace sustained into 2020,” he added.
Mr Muebile said this projection remains subject to unpredictable risks, mainly stemming from uncertainties in the global economy.
He said the inflation outlook remains unchanged from the October 2019 forecast round.
Annual core inflation is projected to remain below the 5 per cent target until December 2020. However, Mr Mutebile said the inflation in the next 12 months is projected to remain stable. However, he noted that due to unpredictable weather patterns, food price inflation could go up.
A senior country economist of the World Bank, Ms Racheal Sebudde Kaggwa, said she agrees with BoU on the reasons for the decline in economic growth rate.
“The developments in the global economic slowdown and the trade war between US and China has affected growth rate in developing countries. This slowdown in global growth is leading to low demand for commodity exports and reduction in export value,” she said.
At the international scene, she said decline in the global economy also contributes to reduction in Foreign Direct Investment into Uganda and private capital inflows from individuals abroad.
“At the domestic scene, I think election period is drawing nearer, probably it could be also contributing to slowdown in economic growth, because the investors may not be making a lot of investments in the economy,” Ms Kaggwa said.
Dr Albert Musisi, the commissioner for economic department in the Ministry of Finance, said the central bank’s explanation is valid, considering the trends in the global economy.
“Global economic slowdown affects us with a lag. It will affect us but I see it [global effect] next year not this year. We trade more within the EAC region. So we shall continue earning from regional exports. For me I am still keeping my figures of 6.3 per cent for this financial year; I am going to revise my numbers in January 2020 when I have got enough data,” he said.