Covid-19 shocks: Economy to grow by slower pace of 3.1%
What you need to know:
- Government has projected a slowdown in economic growth to 3.1 per cent - the second slowest in the recent past - due to the coronavirus.
As the coronavirus pandemic takes its toll on the economy, Uganda’s economic growth has slowed down to second slowest rate in the recent past.
The Ministry of Finance, Planning and Economic Development has said Uganda’s Gross Domestic Product (GDP) is projected to grow by 3.1 per cent this financial year 2021, which is lower than the pre-pandemic projection of 6.2 per cent. This is arguably the second slowest rate since the Financial year 2019/2020, where the economy grew at 2.9 per cent.
The Ministry of Finance says the year 2020 has been a challenging one as far as economic management is concerned. This is mainly because of the emergence of the Covid19 pandemic which is not only a global health crisis but also the biggest global economic crisis since the great depression of the 1930s.
In the pre-election economic fiscal update released on January 5, the Ministry of Finance, says during the year 2020, fiscal operations have been the most challenging. On the one hand, the slowdown in economic activity and international trade resulted in major revenue shortfalls.
“Expenditure has increased as additional funding has been required to deal with Covid-19 related economic and health challenges. This has translated into a widening fiscal deficit, projected to be 10.7 per cent this financial year up from 7.2 per cent in FY2019/20. As a result, public debt stock is projected to increase to 49.9 per cent of GDP in FY2020/21, from 41.2 per cent in FY2019/20,” Mr Moses Kaggwa, the acting director of economic affairs in the Ministry of Finance, wrote on behalf of the Permanent Secretary/Secretary to the Treasury Mr Keith Muhakanizi in the pre-election economic fiscal update.
Mr Kaggwa added: “Going forward, the Government remains committed to increasing revenue mobilisation efforts and moderating borrowing to ensure fiscal and debt sustainability. Emphasis will be on accelerating implementation of the domestic revenue mobilisation strategy, increasing efficiency in public expenditure and investment, and enhancing prioritisation in line with the third National Development Plan (NDP III) to ensure that the economy returns to potential growth levels.”
He said for the first half of the current fiscal year 2020/21, Shs26.615 trillion or 58.5 per cent of the total approved budget has been released for spending. Of this amount, Shs20.626 trillion was for externally financed projects as well as all government discretionary spending (thus excludes debt service (domestic debt refinancing, external amortisation and interest payments).
He said Shs11.68 trillion (equivalent to 56.6 per cent of the amount released for this purpose) has been spent in the period July to October 2020.
Expenditures on recurrent and development activities amounted to Shs6.595 trillion and Shs4.156 trillion, respectively, while expenditures associated with HPPs and BOU recapitalisation (considered as net lending) and domestic arrears repayments amounted to Shs554.4 billion and Shs378.4 billion, respectively.
The major expenditure drivers in FY2020/21 are mainly related to mitigating the health challenges posed by Covid-19 and alleviating its impact on the economy and the livelihoods of the vulnerable population.
These Covid-19 related expenditures in the first half of FY2020/21 among other public health response measures, Shs170.03 billion was released to enhance health systems through increasing direct health expenditures for both Covid-19 interventions and capacity strengthening and supporting scientists and innovators engaged in scientific research for Covid-19 interventions.
To mitigate the economic and social impact of the pandemic, government announced a stimulus package which seeks to restore household incomes and safeguard jobs, provide emergency social protection, and re-ignite business activity.
Mr Kaggwa said the key interventions in the package include increasing access to credit at Uganda Development Bank to offer low interest financing to manufacturing, agribusiness and other investments to facilitate our import substitution and export promotion strategy, providing tax relief to most affected sectors and expediting the payment of arrears owed by Government to private sector firms.
“Since last financial year, the Ministry of Finance has allocated a total of Shs 1.073 trillion to the various Ministries, Departments and Agencies (MDAs) involved in the whole electoral roadmap. Of that amount, Shs 768.42b has already been released to them and the remaining amount will be released as planned,” Mr Kaggwa wrote.
Covid-19 relief measures
Other measures included the provision of seed capital to organized special interest groups under the Youth Fund, Women Entrepreneurship Fund and the ‘Emyooga’ Talent Support scheme; rolling out of the Social Assistance Grant for the Elderly (SAGE) nationwide to persons aged 80 years and above - including the elderly aged 65 years in the piloted 15 districts.
It is presumed that these measures will enable the country to return to higher economic growth levels starting this financial year, while improving the welfare of the population.