Uganda: 2015 Economic Snapshot

The Republic of Uganda is a landlocked country in East Africa. It is bordered on the east by Kenya, on the north by Sudan, on the west by the Democratic Republic of the Congo, on the southwest by Rwanda, and on the south by Tanzania. The southern part of the country includes a substantial portion of Lake Victoria, which is also bordered by Kenya and Tanzania. Uganda takes its name from the Buganda kingdom, which encompassed a portion of the south of the country including the capital Kampala. Half of the population of the country lives below the international poverty line of US$1.25 a day.

Inflation – After reaching a multi-year low of 1.3% y-o-y in January this year, consumer price inflation has only shown a marginal uptick, with the most recent figure being a 1.9% y-o-y increase in March. This is slightly higher than the 1.6% y-o-y increase recorded in February. Food prices continued to decrease in March, with the sub-index recording an eighth consecutive month of deflation. The food sub-index decreased by 2.2% y-o-y in March compared to a 3% y-o-y reduction in February.

Growth – The most recent figures from the Uganda Bureau of Statistics (UBOS) show that the Ugandan economy expanded by 1.2% q-o-q in Q3 2014, which is equivalent to the revised 1.2% q-o-q expansion in Q2 2014. Real GDP growth is expected to remain on an upward trajectory over the medium term as public investments materialise and private sector investment increases due to the development of the country’s oil sector.

National development plan – The 2014/15 fiscal year (ending June) marks the final year of the current five-year national development plan (NDP), which has attempted to address structural bottlenecks in the economy to accelerate socioeconomic transformation, thus reducing poverty. Looking forward, the authorities have stated that the goal of the second phase of the NDP (NDP2, starting FY 2015/16) will be to propel Uganda to middle-income status by 2020.

Outlook on Uganda

Outlook on Uganda

Uganda is a country with a strong economic growth track-record, stable macroeconomic fundamentals, and positive development prospects. After maintaining an average real GDP growth rate of nearly 8% p.a. between 2008 and 2011, the economy endured a significant downturn in 2012 due to a balance-of-trade shock as well as a severe drought. These exogenous shocks required tight management of monetary policy and, in support, prudent fiscal policy, which exacerbated the economic downturn. However, prudent policy management restored macroeconomic stability, and the economy was back on a strong growth trajectory the following year. Most macroeconomic variables remain sound, with an adequate level of foreign reserves, strong FDI inflows, a stable monetary environment, while public and external debt levels are not particularly high. The largest concern from an economic perspective involves the country’s twin deficits, particularly the widening current account deficit.

While largely investment driven, the wide current account deficit will continue to put pressure on the shilling exchange rate, which could in turn negatively affect the country’s monetary environment and the Bank of Uganda’s (BoU) ability to accumulate foreign reserves. In turn, the fiscal budget is under pressure due to the government’s ambitious investment programme. The infrastructure deficit needs to be addressed, but the scale thereof will test public financial management and effectiveness of public spending. Two salient sources of upside economic growth potential stem from the development of the country’s nascent oil sector, and more rapid integration into the East African Community (EAC). The development of the country’s oil industry is regarded as the catalyst to propel Uganda onto an amplified development path, while EAC integration would allow Uganda to take advantage of the larger regional market.

Visit the KPMG Africa website to download the full report on Uganda and other African countries

David Okwara

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