Melting economy chokes Ugandans 

A man walks past closed shops in Kampala on August 3, 2021. The government missed its revenue collection target for last financial year by Shs1t. PHOTO | FILE

What you need to know:

  • The government is failing to pay salaries of many of its employees and disbursements to ministries, departments and agencies are below allocations despite increased borrowing. 

The government missed its revenue collection target for last financial year by Shs1t, remittances by Diaspora dropped by 1.8 percentage point, and debt portfolio has grossed Shs79 trillion on its acceleration to the Gross Domestic Product (GDP) ratio redline.

Official statistics show that inflation remains hovering in double-digits and trade deficit up at $5.6m (Shs20.4b) as Uganda’s economy throttled by Covid-19 shocks and international supply chokes of Russia’s invasion of Ukraine struggles to kick back to a better life.  

As a result of high inflation, cash at hand can only afford less of groceries for families on the eve of Christmas, which has been preceded by rise in prices of on-demand popular staples and drop in prices of a handful. 

Bureaucrats while providing an outlook of the economy yesterday, however, struck an optimistic tone: expected half-a-percentage growth in domestic revenue and an economy projected to roar at 6-7 percent next financial year from the current subdued 4.7 percent growth. 

The favourable forecast flies in the face of warning by experts, including a senior Work Bank official and budget-aligned civil society actors, that unpredictable weather could hamstring anticipated buoyant yields in agriculture, which employs roughly six in every 10 Ugandans.

There are also worries that a depreciation of the shilling against the dollar on account of higher interest rates in the world’s largest economy would widen the import-export spending gap, worsening Uganda’s balance of payment position. 

Plus, the government is failing to pay salaries of many of its employees and disbursements to ministries, departments and agencies are below allocations despite increased borrowing, prompting experts to call for austerity in public finance management. 

Details released yesterday show that cash transfers - remittances by Ugandans abroad - fell by 1.8 percent from $1.2b (Shs4.2t) during the Financial Year (FY) 2020/2021 to $1,1b (Shs 4.1t) in the FY 2021/2022 ended in June this year as economies world over struggled to contain effects of the Covid-19 pandemic. The merchandise trade deficit, too widened to $301m (Shs1t) as at October 2022 as the import bill grew faster than export receipts.

This state of affairs, experts warned yesterday, calls for heightened government austerity including reviewing spending priorities, and growing domestic revenue mobilisation to curb on external borrowing.

“At the national level we can see the economy is recovering and we need to commend the Ministry of Finance and Bank of Uganda. True there is recovery, but which is not felt in the pockets of Ugandans.  A growth rate of 4.7 (percent) is still very low. We have always grown at an average of 6.5 percent,” said Arthur Bainomugisa, the executive director of Advocates Coalition for Development and Environment (ACODE), a think-tank.

Despite the reported economic recovery which both President Museveni and his economic advisers are ecstatic about, Mr Bainomugisha said a vast majority of Ugandans continue to struggle to make ends meet while most businesses are struggling financially.

Expert after another, who spoke at a meeting last week on Wednesday to explore ways of financing the FY 2023/24 budget, offered mixed scorecards to the Ministry of Finance and Bank of Uganda for steadying the economy rocked by macroeconomic turbulences as a result of the Covid-19 pandemic which barreled in the country in March 2020 and necessitated locking down the economy twice. However, the experts noted that a large section of the population were knocked out of the economy and government has not done much in intervention.

Since the onset of Covid-19, Uganda’s economic growth trajectory declined from 6.4 percent in the FY 2018/2019 to 3 percent in the FY2019/2020. Economic growth has since rebounded to 4.7 percent in the last FY 2021/2022 due to higher growth rates in industry and services sectors, which grew by 5.1 percent and 4.1 percent, respectively.

During the first quarter of the current financial year, the government struggled to find cash to meet many of its statutory obligations. As the government struggled to pay civil servants on its payroll, evidence pointed to acute economic austerity gaining traction. President Museveni, for instance, met lawmakers subscribing to the National Resistance Movement (NRM) party in August to impress upon them the cost-cutting benefits of rationalising government ministries, departments and agencies. 

Finance Ministry Permanent Secretary Ramathan Ggoobi, who doubles as the secretary to Treasury, said that there is a silver lining to post economic growth rate of 5.3 percent next financial year through the Parish Development Model (PDM) cash handouts and the oil sector engineering, procurement and construction activities peaking.

“Over the medium term, economic growth will average between six percent and seven percent, driven by anticipated increase in productivity within agriculture and manufacturing sectors-supported by government intervention,” Mr Ggoobi said.

Early this year, the government and the oil companies; France’s Total Energies E&P and China National Onshore-Offshore Company (Cnooc), closed Final Investment Decision (FID) for development of the oil fields in Buliisa, Nwoya, Hoima and Kikuube districts, respectively, and the 1,445-kilometre East African Crude Oil Pipeline (Eacop) that will transport Uganda’s waxy crude oil to Tanga port en-route to the international market.

Projections show that approximately $15b will be injected in the economy in 2023 and 2024, of which Ugandans are expected to rake in $4.2b (Shs13t) through provision of goods and services as the country prepares to start commercial oil production in the last quarter of 2025.

However, the World Bank warned in its forecasts earlier in June that Uganda will not escape the economic blues, especially the sluggish economic growth on account of the Russia-Ukrainian war now into the eleventh month. The conflict interrupted global supply chains for essential commodities including food and fuel, and triggered soaring cost of living across the world.

Mr Julius Mukunda, the executive director of the Civil Society Budget Advocacy Group (CSBSG), cautioned government on borrowing and said a balance needs to be struck between deficit financing and debt management.

The agriculture sector which employs 60 percent of the population is been struggling to rebound over the last two years. According to the Ministry of Finance, the sector registered modest growth in crop farming and animal husbandry, forestry, and fishing sector to 4.4 percent.

However, Ms Rachel Sebudde, a senior economist at the World Bank, noted that the sector is highly susceptible to especially climatic shocks and government must immediately put in place interventions.

“There has been some effort but it is not yet sufficient; that is why we continue to see lots of relativities because it hasn’t reached to all farmers,” Ms Sebudde said.

In addition to irrigation, she cited the need to develop insurance for agricultural activities, saying there is no agriculture that is going to grow without insurance, amid effects of such as prolonged droughts.

State of the economy

Growth rate: Gross Domestic Product (GPD) growth rate revamped to 4.7 percent in FY 2021/22 down from 6.4 percent in FY 2018/2019. It is projected to average between six and seven percent in FY 2023/2024.

Inflation: Annual headline inflation in November 2022 reduced to 10.6 percent from 10.7 percent registered in October 2022. It is projected to average 8.3 percent and 7.2 percent in FY 2022/2023 and 2023/2024, respectively.

Debt stock: Public debt stood at $20.98 billion (Shs78.8 t) in June 2022 and is projected to peak at 53.1 percent by the end of FY 2022/2023.

Tax revenues: Uganda Revenue Authority hit Shs100b surplus in first quarter of this financial year. Over the medium term, domestic revenues areprojected to grow by 0.5 percent of GDP.

Trade deficit: There has been an increase in trade deficit of about $5.6 million between August2021 and September 2022 with the country realising only $4.7 million from its exports and importing $10.3 million.

Fiscal deficit: In 2023/24 Financial Year, it is expected to stand at 3.8 percent.

URA: In FY 2021/2022, Uganda Revenue Authority (URA) realised a net revenue collection of Shs21t against the target of Shs22t.