How Uganda can navigate global economic shocks

As the global environment keeps changing, the economists who gathered in Uganda for the fifth Stanbic Economic Insights Symposium under the theme: Globalisation reshaped — Riding the waves of Economic shifts on March 11.
The symposium saw the participants discussing global trends and their potential impact on the local economy.

The economists echoed that for any country to benefit from the global system, they should have a strong rule of law because it leads to stability in the economy, high investment, productivity and high economic growth.

The economist advised that Africa's leaders should recognise that globalisation can facilitate the much-needed inflows of private investment and transfers of technology and increase the access of their countries' exports to world markets.

Globalisation

This means reaping from the benefits of globalisation depends primarily on the initiative and commitment of their government’s policy initiatives. This also means that African countries must persistently pursue policies that create the conditions that attract investment, both domestic and foreign, and enhance trade.

Many benefits are being highlighted about Uganda’s oil and gas sector, with expectations that it will drive significant economic growth, potentially reaching double digits. The development of infrastructure and addressing key challenges facing the country are also anticipated once commercial oil production begins.

The resident representative of the International Monetary Fund (IMF), Dr Sébastien Walker said Uganda needs to strengthen the economic environment for all the sectors to thrive.
Dr Walker said Uganda should strengthen governance, infrastructure and human capital development, notably for health and education.

Technology is a key driver of improvements in income and standard of living. Historically, technological developments have been concentrated in a few large industrialized economies. Therefore, technology diffuses across countries is central to how global growth is generated and shared across countries.

Globalisation has likely changed the diffusion process, with a large body of literature highlighting the importance of trade and foreign direct investment.

The economist with the Stanbic Bank, Mr Christopher Ligilisho said currencies have been stable in the East African region with Uganda, Kenya registering the most stable currencies, while Tanzania registered depreciation in the East African region.

Turning to economic growth, Mr Ligilisho said economic growth remains high despite uncertainty in the global economy.
“We expect Uganda’s economic growth to be in the range of 6.5 percent to 6.7 percent for this year and 7 percent to 7.5 percent in the following years both on services sector, agriculture, industries oil sector and strong private sector consumption,” he said.

 Mr Ligilisho said the oil development in Uganda is roughly at 50 percent, while the remaining crude oil project is under the East African Crude Oil Pipeline (EACOP), which still needs to be developed.

Mr Ligilisho said the other sectors that will contribute to Uganda’s high economic growth rate amidst uncertainties in the global economy are: the Standard Gauge Railway, which contributes to Foreign Direct Investment.
“The coffee prices could dent exports' earnings that have been high in recent years,” he said.

Uganda’s current account deficit, Mr Ligilisho said it will widen from 7 percent to 9 percent of the Gross Domestic Product (GDP) in 2025, due to increased imports of capital goods related to oil activities.

Following the executive orders that have been signed by the US President, Donald Trump, one of which is the freeze of foreign aid which was used for funding health-related projects, among others, leading to loss of jobs in Uganda and other countries in Africa.

Mr Ligilisho said Uganda was among the top recipients of US Aid receiving $700 million, Kenya receiving between $800 million to $900 million, Ethiopia topping with $1.6 billion followed by DRC with $1.2 billion.
However, Mr Ligilisho said with this abrupt freeze of US donor Aid the currency has remained strong despite the withdrawal of the foreign Aid from the NGOs.

The Bank of Uganda has the full responsibility of maintaining price stability in the economy, Mr Ligilisho said the Bank of Uganda is one of the well managed central bank in the African region and they expect headline inflation to rise to 4.5 percent in the second half of 2025 and the core inflation is expected to remain within the Bank of Uganda policy target of 5 percent.

The IMF says African countries could also benefit from the establishment of regional infrastructures, both physical and financial.

A regional approach in key structural areas-such as tariff reduction and harmonisation, legal and regulatory reform, payment systems rationalisation, financial sector reorganisation, investment incentives and tax system harmonisation, and labour reform enables participating countries to pool their resources and avail themselves of regional institutional and human resources, to attain greater technical and administrative competence than they could on their own.

Mr Ligilisho said African countries could save themselves from global uncertainties due to the looming trade war in form of increasing tariffs by reducing regional tariffs to encourage increased trade volume among the African countries.

He also said there is a need for the World Bank to begin financial programmes and there is also a need for Uganda authorities to begin a new programme with the IMF because the Bank of Uganda relies on locally generated revenue to buy US Dollars to build foreign exchange reserves.

The executive director of research at Bank of Uganda, Dr Adam Mugume said in the in 1990s, 60 percent of Uganda’s budget was financed using foreign Aid and only 40 percent was being financed by the Uganda government. But this has gradually changed.
Dr Mugume said currently, the size of Uganda’s economy is $59 billion, meaning it has been growing and it is expected to reach $60 billion next year. 

“This is (foreign Aid freeze) shock, we are exposed to global shocks in the financial sector in the work-related areas, we have the money as a country but how do we allocate it?” he said.

However, Dr Mugume further stated Uganda’s economy is small and there is still room to diversify exports which will contribute to increased foreign exchange earnings.

 On the concerns about price instability in the economy, Dr Mugume said liquidity is now held by the central bank, rather than being with the commercial banks as it was previously.

“Inflation will not go off the board as it was in 2011/12 unless extraordinary things happen,” he said.
Talking about private sector credit growth, Dr Mugume said it has been growing at 6.4 per cent. But as of November, it was growing at 7.7 percent and the weighted interest rate came down 17.4 percent, but edged up to 18 percent in November 2024, while the non-performing loans came down to 3.8 percent.

“The biggest giant in the room is yields on government security (treasury bonds), which is in the range of 15 percent to 16 percent while the treasury bill is 10 percent, which keeps the commercial interest rates in banks high,” he explained.

Dr Mugume explained that the Bank of Uganda pays investors the interest they have earned by investing in government securities. This is why the government allocated Shs9 trillion to BoU in terms of government borrowing from the central bank.

 Dr Mugume said the US dollar is likely to go where the global economic growth is.  “It is too early to state where the foreign exchange market in Uganda will be and they are consciously watching the behaviors in the foreign exchange market, adding that the Uganda shilling has been stable.”

He said since July 2024, the Bank of Uganda has made a net purchase of $900 million for building a foreign exchange reserve, something they had not done since 2020. They expect to buy up to $1.2 billion from the domestic foreign exchange market, which is more than what had been planned for his fiscal year 2024/25.

The director of the economic forum at Makerere University Business School, Dr Fred Muhumuza, spoke on the necessity of a multi-faceted approach to development. 

“Our tax to GDP ratio is approximately 13 percent. Our current monetary policy is working against tax mobilisation and growth. And it’s a debate to economists: At what point should I stabilise the economy? There is very little aggregate demand in the economy because we want to solve the inflation issue. This is not just a Bank of Uganda issue but a fiscal policy issue,” he said.

Dr Muhumuza said Uganda needs to be in double-digit growth and redesign alternatives to generate the US dollars to guard against shocks that come with a freeze of foreign aid. Singling out government allocations to sectors, Dr Muhumuza said the Shs10 trillion allocated for security calls for a cut in government expenditures by having only the ministers and Permanent Secretaries driving cars and other cars driven by the commissioners and directors parked.

Stanbic Bank chief executive, Mr Mumba Kenneth Kalifungwa, said with the shifting signs of international trade, emerging technologies and evolving market dynamics, there is a need to work together.

Head of economic research at Standard Bank Group, Mr Goolam Ballim said their research reveals that over the past five years, the United States of America has been leading productivity in the global economy because of its well-structured economic system. 

Mr Goolam said African countries, including Uganda, should have a strong rule of law.
“The rule of law is crucial for higher productivity and economic growth. The stronger the rule of law, the higher the growth of the economy,” he said.

Stanbic Bank chief executive, Mr Mumba Kenneth Kalifungwa, said with the shifting signs of international trade, emerging technologies and evolving market dynamics, there is a need to work together.

Picking on one single issue, which applies to all countries in the world, Mr Goolam said African countries, including Uganda, should have a strong rule of law. 
“The rule of law is crucial for higher productivity and economic growth. The stronger the rule of law, the higher the growth of the economy (GDP),” he said.

In his opening remarks, Francis Karuhanga, the chief executive of Stanbic Uganda Holdings Limited (SUHL), reminded the gathering of the key takeaways from the previous edition and emphasized the importance of these discussions in shaping economic policies.

He said, “A lot has happened since we last met. Last year, we were under the theme of ‘Global crossroads, reimagining business. We explored a lot of things and much has already happened. One of these was geopolitics, for example, the war in Ukraine persisted longer than all of us would imagine. 

“The changes at the White House, the Middle East mix and wars in South Sudan and the Democratic Republic of Congo. All these have a direct impact on the companies and businesses we lead.

We also talked about climate change and Artificial Intelligence, and surprisingly, whatever we discussed, we saw it happen in 2024,” he said.