Inflation could rise this year, says BoU

Global economic developments will, to a large extent, affect Uganda’s economy, the deputy governor of Bank of Uganda, Mr Michael Atingi-Ego,  has said.

Mr Atingi Ego told Daily Monitor yesterday that while the global economic recovery is on course, the pandemic has caused persistent divergences in recovery across economies, reflecting unequal access to vaccines, as well as the extent and timeliness of policy support.

Inflation is rising in some advanced and emerging market economies, including the USA, UK, India, Brazil, and South Africa due to the acceleration of demand as economies reopened amid the deceleration of the supply of key commodities.

Mr Atingi-Ego said although inflationary pressures are expected to subside in most countries this year, the prospects for higher future inflation even as employment data is below their long-term paths in these countries presents difficult choices for policy makers.

He said higher inflation may lead the central banks in advanced economies and some emerging markets to raise their policy rates.

He said overall, the state of global economic confidence driven by the evolution of the pandemic cost pressures and related central bank policy responses, as well as concerns about huge debt burdens are likely to shape the external economic outlook.

“We expect growth momentum to be sustained into 2022, supported by increased external demand, policy support measures, and full reopening of the economy in January,” he said.

The International Monetary Fund said in its recent world economic outlook that the global economy is projected to grow 5.9 percent in 2021 and 4.9 percent this year.  The sub-Saharan Africa economy where Uganda falls, is being projected to grow at 3.8 percent this year.

This rebound is welcome and largely results from a sharp improvement in global trade and commodity prices.

Bank of Uganda says the economic growth in the country will be in the range of 3.5 to 3.8 percent in the financial year 2021/2022 and 5.5 percent to 6.0 percent in the next financial year.

Mr Atingi-Ego said the coming year presents higher prospects for stronger economic activity.

However, the outlook is contingent on the evolution of the Covid-19 pandemic and the balance between protecting lives and livelihoods.

“Subject to the domestic inflation outlook, the BoU will sustain a policy stance that supports the economic recovery, while maintaining strong external reserve buffers to maintain exchange rate stability,” Mr Atingi-Ego said.

 “However, the bank will remain vigilant and poised to take the necessary measures if the shilling experiences excess volatility as a result of the potential reversal of portfolio flows following interest rate increases in advanced economies,” he added.

On what needs to be improved in the country to enable the economy to regain and perform better, Mr Atingi-Ego said implementation of structural reforms to ease the cost of doing business would attract more private sector investment, including foreign direct investment.

Finance ministry plan

The Permanent Secretary in the Finance ministry, Mr Ramathan Ggoobi, said: “During the next financial year and over the medium term, our economic policy will seek to achieve the following three broad objectives: mitigation of the Covid-19 impact on business activity and livelihoods through widespread vaccination to fully reopen the overall economy and financial support to business.” “Speeding up socioeconomic transformation through re-prioritisation of the national budget to redirect resources towards wealth and job creation, industrialisation, export promotion and other areas with high return on investment; and sustaining national security and macroeconomic stability as key foundations for recovery, growth and transformation.”

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