‘Build economy that benefits everyone’

What must be done immediately to make economic growth more inclusive?

To drive inclusive and job-rich economic growth, efforts must be focused on the low-income segment of the population to promote shared prosperity. Hence, implementing the following building blocks should be considered: sustaining the current macroeconomic stability; investing in human capital and physical infrastructure; creating an enabling environment for competition and trade; promoting financial inclusion to provide savings and credit access to the bottom of the pyramid population; increasing productivity in the agricultural sector by facilitating structural transformation from subsistence to commercial crop production; promoting value addition chains in the production process; building strong and effective institutions, especially the legal and regulatory environment, and enhancing environmental sustainability. The aforementioned building blocks are regarded as a set of growth fundamentals that are required for achieving high income levels for the general population in the long-run.

When will Uganda regain its potential growth of 6-7 per cent?

A pick-up in vaccination rates and continued observance of the Covid-19 SOPs should result in the safe and gradual reopening of the economy which will in turn help to build the momentum in recovery.

Consequently, economic growth is likely to return to its potential level of 6 to 7 per cent in the financial year 2024/25. The rebound in growth is premised on an acceleration in private consumption due to pent-up demand, strong growth in external demand, which should contribute to a solid pickup in exports and business investment, a gradual return of tourism, and commencement of construction of the oil pipeline following the finalising of the investment decisions in the oil sector.

What must be done to increase national savings?

In the short- to medium-term, the BoU and government should develop and support initiatives that drive financial inclusion to ensure access to timely, affordable, and adequate financial services to all citizens in the economy. One initiative already in place is the National Financial Inclusion Strategy 2017-2022 which was formulated by the Ministry of Financial Planning and Economic Development and BoU.

How can Uganda realise an increased return on her development projects?

To realise increased returns on development projects, the country needs to enhance its public investment management capacities. Efficient public investment management has the potential to help the country address its current constraints on growth, especially the infrastructure deficit. Government over the past 30 years, has developed systems and processes to ensure a higher level of efficiency throughout its operations, particularly in public investment management.

Nevertheless, there is always room for improvement in efficiency and effectiveness of public investment management. In this regard, the government authorities should strengthen institutional capacity across the entire project cycle to prepare quality projects, carry out rigorous appraisals, construct assets efficiently, and monitor and maintain the assets. There is also a need to harmonise standards and guidelines for quality control, greater tracking, and monitoring of results. The legal and regulatory frameworks should be strengthened because these underpin efficient and successful public investment.

Despite the drastic reduction in the Central Bank Rate; the risk aversion by the commercial banks continues to be in place. How should this propel increased lending to the private sector?

Commercial banks’ lending decisions are influenced by their assessment of the potential borrowers’ ability to repay their loan obligations, which depends on the borrowers’ financial health or income, as enabled by the economic conditions, operational costs, and marginal cost of funds, including the costs of wholesale funds and retail deposits. The Covid-19 pandemic and associated containment measures have disrupted economic activity and growth, compounding banks’ uncertainty about potential borrowers’ creditworthiness. This has sustained banks’ risk aversion to private sector lending, even though the interest rate environment (cost of borrowing) has been relatively accommodative given that BoU eased the monetary policy stance.

How is the liquidity level in commercial banks?

The banking industry holds strong liquidity buffers, supported by the continued growth in retail deposits and the banks’ prudent build-up of liquid assets through holdings of the Government of Uganda treasury securities. Retail deposits, which are the main and stable source of funding for the banks’ intermediation, continued to grow, increasing by 8.7 per cent over the year ended June 2021. Furthermore, wholesale funding conditions for the banks have also improved, with the cost and volatility of interbank funding easing, indicative of reduced systemic liquidity stress.