Matia Kasaija, Uganda’s Minister for Finance, Planning and Economic Development has for the first time revealed why Uganda’s economy is performing poorly.
The minister insists that Uganda’s economy is not in recession but growing moderately.
“The size of the economy this financial year is projected to rise to Shs90.5 trillion, equivalent to USD 25.7 billion. This represents a real annual economic growth rate of 3.9%,” Kasaija said on Thursday afternoon while reading the 2017/18 budget at the Kampala Serena Conference Centre.
He added that although this is lower than the target growth of 5.5%, Uganda’s performance is higher than the average Sub-Saharan Africa growth rate this year, which is estimated to be only 1.4%.
Explaining why economic growth has slowed down, the ever jovial minister said global factors including slow economic recovery in Europe, economic recovery in the USA and rise in interest rates globally have negatively impacted on Uganda’s economy.
He explained that slow economic recovery in Europe has translated into lower demand for our export commodities, while America’s economic recovery has led to a reduction in capital flows to Africa, as investors prefer to invest in US markets.
He added that regional and domestic developments that have affected the state of Uganda’s economy include civil conflicts in parts of the East African region, effects of climate change and environmental degradation, high interest rates and non-performing loans and undue delays and inefficiency in execution of Government programmes and projects. These have dampened anticipated positive impact on the economy.
He also pointed out corruption as a key bottleneck to the economy.
“This has held back projects and programmes in some sectors. This disease has turned into Cancer, which has hampered service delivery,” he said.
He revealed that growth in agricultural output slowed to 1.3% this year compared to 2.8% in the previous year, the main reason being the unusually prolonged droughts.
“Industrial sector growth also dropped to 3.4% this year as against 4.7% last year. This is because of contraction in mining and quarrying activities. The Construction sector also slowed down,” he said, adding that growth in Services also slowed to 5.1% compared to 5.9% last year as a result of marginal growth in trade and transportation, and contraction in financial services.
“But on a positive note, aggregate demand, while subdued, has grown at 2.7% this year, compared to 1.0% last year,” he said.
He added that the financial sector remains well-capitalized, noting that a sharp rise in interest rates in 2013 led to increased non-performing loans which peaked at 10.5% of total loans in December 2016, but have gladly reduced to 6.3% as at the end of March 2017.
He revealed that Uganda’s external and domestic Public debt amounted to USD 8.7 billion as of 31st December 2016.
“In nominal terms this is equivalent to 33.8% of our GDP. However, when future debt payment obligations are discounted to today’s value, our Public Debt to GDP ratio stands at 27%. This is much lower than the threshold of 50% beyond which public debt becomes unsustainable. Uganda’s public debt therefore, is sustainable over the medium to long term,” he said.
He further disclosed that Per capita incomes in real terms have more than tripled to USD 773 in 2016 up from USD 250 in 2002. This is despite an increase in population from 26 million to 36.9 million people.
“Per capita income has been growing at only 2% annually compared with population growth of 3% per annum. This needs to be reversed,” he said.
He noted that there is growing unemployment, especially among the youth and prolonged droughts as a result of partly environmental damage arising from the destruction of wetlands and deforestation.
He revealed that government plans to turnaround the economy by enhancing agricultural production and productivity, as well as increasing the pace of industrialization. “
For example, the vagaries of climate change will be tackled by, among others, fast-tracking irrigation. As regards industrialization Government will, first and foremost, vigorously promote agro-processing and mineral beneficiation. Through this double pronged approach we shall be addressing the unemployment,” he said.
The theme for the Financial Year 2017/18 Budget is ‘Industrialization for Job Creation and Shared Prosperity’.
Kasaija further said Uganda aims to graduate to middle income status by 2020. “Average incomes or GDP per capita will therefore need to rise to USD 1,039. Given a population estimate of about 41 million people by 2020, the size of the economy will need to grow by an additional USD 17 billion for us to attain that target,” he said. The 2017/18 budget is Shs29trn.
Note: Details of the budget to follow.
