FDI grows by 35% in 2022 last quarter
An improved FDI position lifts pressure off the shilling. Photo / File
What you need to know:
Growth in Foreign Direct Investment (FDI) boosts performance of the shilling, which heavily lost ground against the dollar last year
Foreign Direct Investment (FDI) grew to $474.8m (about Shs1.769 trillion) in the last quarter of 2022, according to Bank of Uganda.
The growth, the Central Bank noted in the state of economy report for December 2022, was an increase of 35 percent compared to the previous quarter ended September supported by increased activity in the oil sector.
Bank of Uganda also reported an 18 percent slowdown in capital outflows to $227.6m (about Shs845.8b), signaling a return of investor confidence.
The outflows, the Central Bank has previously indicated, were putting pressure on the shilling, which had closed the year with more than two months of appreciation.
“The increased inflow was on account of a drawdown on deposit to a tune of $125.8m (about Shs468.7b),” Bank of Uganda said, noting that monetary policy tightening in advanced economies in the later part 2022 had triggered offshore investors’ exit from domestic debt securities in favour of safe and increasing yields in advanced economies. Bank of Uganda, however, reported that outbreak of Ebola during the last quarter of 2022 impacted tourism receipts, which dropped by 30.7 percent.
“Ebola is expected to continue weighing down tourism inflows, while high government expenditure on imports and debt service obligations will likely constrain reserve build-up, further weakening Uganda’s balance of payments position,” Bank of Uganda said.
During the period, the Central Bank also noted that the current account deficit had widened, both on an annual and quarterly basis, by $112.7m and $41m to $3.9b and $1b, respectively due to an 18.5 percent decline in trade balance and a 25.9 percent increase in the services deficit.
The trade deficit widened as exports fell considerably to $4.1b while the imports rose to $7.8b.
Excluding gold trade, the trade balance deteriorated even further, by 21 percent to $3.6b due the decline in terms of trade.
The import bill excluding gold substantially increased due high private sector oil and non-oil imports, which increased by 67.7 percent and 15.8 percent to $1.5b and $5.6b, respectively.
The Central Bank also indicated that the import price index rose by 19.8 percent during the period, exceeding the 4.5 percent increase in the export price index. Uganda’s trade position, Bank of Uganda said will in the short-term, be largely determined by a number of activities, among which include geo-political tensions, high borrowing costs, elevated financial vulnerabilities, subdued global growth and movements in global commodities prices.
“Headwinds from extended global geopolitical tensions, tightening global financial conditions, subdued external demand, heightened foreign investor risk aversion, high cost of external borrowing and weakening global growth will continue to pose negative effects on Uganda’s external sector position.
