Uganda’s savings drop to 16.3%

Uganda’s savings rate has dropped from 18.1 per cent in 2019 to 16.3 per cent in 2021 following government’s draw down in savings, according to Central Bank.

The Central Bank highlights of the Monetary Policy Report for June 2021indicate that the main drag is coming from weak external demand reflected by a negative contribution from net exports of-3.9 per cent and negative growth in private investments of -6.7 per cent. This is largely heightened by the Covid-19 induced uncertainties. 

As calculated by Uganda Bureau of Statistics, annual Gross Domestic Product (GDP) growth for FY2020/21 is estimated at 3.3 per cent, up from 3.0 per cent in FY 2019/20.

Agricultural GDP has the highest growth rate of 3.5 per cent, followed by industry at 3.4 per cent, and services despite protracted Covid-19 lockdown measures. 

“Growth  in  FY2020/21  supported  by  government  absorption  and  household  consumption  was financed  largely  by drawdown on savings,” said the central bank.

The Composite  Index  of  Economic  Activity  (CIEA)  estimates  suggest  rebound  in  economic  activity  on  track  in  the quarter to April 2021 with 1.2 per cent growth in the quarter to Apr-2021, down 0.6 percentage points from the quarter to Jan-2021.

Agric, services top growth
Growth acceleration was registered in services and agriculture sectors, while a slowdown in growth was noticed in industry due to weak growth in the manufacturing subsector.

Business confidence improved in the quarter to May-21, reflecting the fading of political uncertainty, positive sentiments due to policy support measures, and distribution of vaccines.

Similarly, the business confidence index rose to 54.9, up from 50.8 in the quarter to Feb-21, and was positive for all sectors. 
“Consumer Confidence is improving although still in pessimistic territory. Consumer perception on both the current economic conditions, and short-term outlook improved,” the central bank noted.

The central bank further stated that the index rose by 3.2 points to 48.1 in the quarter to May 2021, while prospects for consumers’ buying intentions improved, pointing to higher short term demand, adding that consumers anticipate prices to be lower in the short term.

Regarding the developments in the credit spectrum, the central bank said the commercial bank lending rates have gradually declined, reflecting the accommodative monetary policy stance. 

“It, however, picked-up slightly in the quarter to Apr-21,” said the central bank.

Lending rates on Shilling loan rose to an average of 18.9 per cent from 18.1 per cent in the quarter to January 2. Lending rates on forex loans also rose to an average of 5.9 per cent from 5.4 per cent in the quarter to Jan-21. 

The Bank Lending Survey results for March 2021 show that, overall, banks expected lending rates to remain unchanged. 

Private Sector Credit (PSC) is on a sustained, but gradual increase since Aug-2020, reflecting the accommodative monetary policy stance, impact of the credit relief measures and a recovery in economic activity.  

Risk of higher NPLs
The Central Bank Monetary Policy Report for June 2021shows that Private Sector Credit slacked in March to April 2021.

In the months ahead, private sector credit could be unduly deterred by higher non-performing loans as forbearance periods come to an end and the real impact of the Covid-19 pandemic on businesses and individuals become clearer. This will substancially slow economix recovery.

With many private businesses especially trade being suspended, there are fears that the lockdown will result in pickup in economic activities that was beginning to take place in the country.