Uganda’s economy is projected to contract by negative 0.3 per cent this year, in line with global contraction of minus 4.4 per cent, a report from the International Monetary Fund (IMF), has indicated.
An economic contraction happens when the economy does not grow and some of what is left is eroded.
Bank of Uganda (BoU) attributed the contraction to the drop in Foreign Direct Investment, remittances and exports.
“We used to get FDI of $1.2 billion (Shs4.4 trillion) and the IMF is projecting that this could drop to $500 million (Shs1.8 trillion) in 2020 to 2021,” Mr Adam Mugume, the bank’s executive director of research, said yesterday.
Speaking about Uganda’s economic growth, Ms Izabela Karpowicz, the IMF country representative, said: “The Covid-19 shock was hard. Looking at the last financial year, growth was only 2.9 per cent. Going forward, we expect a subdued recovery in order of 2.5-3 per cent for FY 2020/2021. Growth will gradually increase over the medium term as the impact of the Covid-19 shock dissipates.”
However, BoU allayed fears that the effect could deepen the economic stress.
“Services are already constrained and they are the ones causing the contraction, but for agriculture, which contributes about 25 per cent [to the GDP], people will continue doing their gardening whether you make noise on the street or if there is tear gas. If the situation spreads to the rest of the country, then it would become a concern,” Mr Mugume said.
Speaking about sub-Saharan Africa Regional Economic Outlook themed: ‘A difficult Road to Recovery’, Ms Karpowicz said the public debt will increase this year due to the crisis that shrank domestic revenue and increased Covid-related spending needs.
In light of the growing public debt which IMF and BoU projections show will reach 56 per cent of GDP in the 2022, the IMF advised Uganda to focus on implementation of their domestic revenue mobilisation strategy and strengthen spending efficiency with continued pursuit of concessional financing.
The report shows that the low level of economic activity has elevated debt with the ratio of public debt to GDP at 48 per cent in FY 2020/2021 from 40 per cent in the previous year and is projected at 50 per cent in the next year.
The IMF report recommended what the report termed “broad-based economic resilience” which warns governments against living beyond their means.