Board of Directors

Operating Environment: Uganda

Operating Environment: Uganda

Uganda’s economy is expected to grow 6.3 percent in 2019 (International Monetary Fund, IMF), slightly higher than the 2018 growth rate of 5.3%, helped by robust activity in sectors including manufacturing, foreign direct investment in the oil and mining subsectors, and reforms to improve the business operating environment. 2018’s growth was an improvement from 5.0% in 2017. On the supply side, industry and services contributed considerably to this growth while agriculture showed slower growth. On the demand side, greater investment in public infrastructure was the main contributor to growth while the current account registered a deficit due to growing imports of capital goods, thereby stymieing growth.

Treasury Bills yields for the 91, 182 and 364 day T-bills all increased slightly to 10.8%, 12.0% and 13.0% as at the end of December 2018 from 8.69%, 12.5% and 13.1% at the beginning of the year.

Inflation reduced to an estimated 3.2% in 2018 due mainly to lower food inflation and prudent monetary policy. In the near term, inflation outlook is slightly lower than the previous forecasts, mainly on account of lower food prices. Both headline and core inflation are forecast to converge on the 5.0% target in the medium term.

The fiscal deficit widened to an estimated 4.7% in 2018, driven largely by ongoing public infrastructure investments supported by borrowing from both domestic and external sources. The country’s debt to GDP ratio was estimated at 40.0% in 2018. Despite this ratio, the country’s debt sustainability assessment indicated a low risk of debt distress. The fiscal deficit is projected to narrow to 4.4% in 2019 with the current account deficit stabilizing at 4.9%.

The Uganda shilling on average remained relatively stable during 2018 with a year on year average depreciation rate of 3.2% against the US dollar. Going forward, the Uganda shilling may remain relatively stable in the very near term on account of increased inflows. Over the medium term however, the shilling may come under pressure on account of the weak current account position owing to higher import growth that is likely to continue outpacing the growth in exports in addition to the volatile international economic environment.

2019 has potential to be a good year for Uganda given that the 2016 elections went by peacefully, despite some disputes. Upsides come from the improved credit to the private sector anchored by supportive monetary policy stance. Moreover,
anticipated expansion of the manufacturing, construction, and services sectors will also support growth in 2019. This outlook is premised on the continued favourable weather conditions, external demand, increased Foreign Direct Investment (FDI) inflows as oil exports draw closer, and prudent expenditure on public infrastructure projects, as planned.

These tailwinds are however hampered by potential downside risks to the economy such as adverse weather impact on the agricultural sector. Furthermore, the slow implementation of infrastructure investments, low commodity prices and demand for the country’s exports in major markets, appreciation of the US dollar and tightening of global financing conditions that could discourage FDI and adverse spill over shocks from fragile regional neighbors.