Government should rescue people from poverty

Karimojong eat porridge offered by the Office of the Prime Minister recently. Karamoja sub-region is worst hit by poverty

Many Ugandans have already felt the heat as the economy takes a beating from the Covid-19 pandemic.
Reports have emerged of people who have failed to afford more than a meal a day after restrictions were issued in a bid to stem the spread of the deadly virus.

Estimates from the Finance Ministry show that an additional 2.6 million Ugandans will go into poverty should Covid-19 cases keep rising.

There are a few interventions put in place, like the move by Bank of Uganda to ease the Central Bank Rate (CBR) by 1 percentage point to 8 per cent. This has brought down interest rates on commercial loans to an average of 17 per cent and should eventually improve the cash flow of firms to allow them to make more investments.

However, to have a meaningful rescue, some businesses should be allowed to return to normalcy in the shortest possible time.
As long as consumption is not boosted, companies will not be able to generate any revenue in order to pay their employees. Therefore, the question is: What will stimulate demand and eventually boost peoples’ decreasing incomes?

The ‘medically induced coma’ has created both supply and demand shocks. On the demand side, consumers and firms are holding onto whatever cash they have, spending it only when they must since they are uncertain about how long this Covid-19 crisis will last.

The low activity in the industry and services sector has also seen more Ugandans watch their modest incomes evaporate due to job cuts, pushing more people into the poverty bracket. The nationwide curfew in addition to other measures intended to limit the spread of coronavirus have definitely put several people out of business for the unforeseeable future.

This simply means government is still struggling with frozen activity in the economy as some households are not earning any money. Considering that 75 per cent of economic activity in this country is driven by consumption, once supply is constrained, what will be consumed?

To revive Uganda’s economy, we must ensure that the limited available money continues flowing. The agriculture sector, for instance which employs most Ugandans, should be positioned well in the recovery process. Economists have argued that in the circular flow, agricultural households are the only entities that double both in production and consumption at the micro level.

Therefore, strengthening agricultural production and productivity increases food supply while pumping in income. This will be required to jumpstart the industries and service sectors through increased demand. This can go a long way in rebuilding the economy’s resilience.

A phased lifting of the lockdown will, thus, slowly stimulate demand and ensure that there is some money in the economy.