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BoU: Why Uganda’s Economic Activity Slowed Down In 2019

The Bank of Uganda (BoU) has revealed that Uganda’s economic activity slowed down in 2019 due to slowing global activity and domestic factors.

“The BoU’s high frequency indicator of economic activity, the Composite Index of Economic activity  (CIEA),points  to  a moderation of economic  activity since  the  beginning  of 2019,” BoU Governor, Prof. Emmanuel Tumusiime-Mutebile said Monday while issuing the Monetary Policy Statement for December 2019.

He added: “The  moderation  of domestic  economic  growth  has  been  driven  by both slowing  global activity and  domestic  factors. Indeed,  in  the  first  10  months  of  2019, tourism  receipts  are estimated  to  have  grown  at  a  lower rate  and  merchandise exports,  excluding gold and  re-exports, contracted reflecting   moderating   external   demand.”

On   the   domestic   scene,  Mutebile said moderation  of  domestic  demand  conditions  could  also  have  contributed  to  the  slowing  of economic activity.

“Going  forward,  a combination  of persistent  global  geo-political  tensions  and uncertainty around  trade  policies and softening  domestic private  sector  investment  spending could generate  headwinds  to economic growth,” he said, adding: “In  addition,  public  sector  financing  needs  have risen amidst  limited  fiscal  space,  raising  the  prospect  of  further  pressure  on  the domestic borrowing costs.”

 Overall, Mutebile explained, economic growth is projected to be in the range of 5.5-6.0 percent in 2019and the pace sustained into 2020.

“This projection remains subject to downside risks, mainly  stemming  from  uncertainties  in the global economy. Over  the  medium  term, monetary  and  fiscal impetus is  expected to  support  stronger  GDP  growth.  As  a result, private  sector  investment will increase,  providing  additional  support  to  the economic growth outlook.”

The  Consumer  Price  Index  (CPI)  data for November2019,released  by Uganda  Bureau  of Statistics  (UBOS),indicates that inflation remained  subdued.

 However, annual  headline and  core inflation rose to 3 percent and 2.9 percent,  respectively from 2.5 percent  and 2.6 percent in October2019. The increase in inflation was in  part  driven  by higher  food  crop prices,  and Energy, Fuel  and  Utilities  (EFU)  prices.

Food crops inflation increased from minus 0.9 percent in October 2019 to 0percent in November2019, while EFU inflation rose to 7.4 percent  in November 2019  from 5.1 percent  in October 2019.

“A  relatively  stronger shilling  and  subdued  domestic  demand  contributed  to  moderation  of  the  increase  in inflation. The inflation outlook remains  unchanged  from the October 2019 forecast round.    Annual core  inflation  is  projected  to  remain  below  the  5  percent  target  until  the  fourth  quarter  of 2020,” Mutebile said.

 However,  the risks  to  the  inflation  outlook in  the  near  term  (12  months  ahead) are assessed to  be  largely  on  the upside.

“Due  to  unpredictable weather  patterns,  food  price inflation remains uncertain.   A  further  upside  risk  to  the  inflation  outlook is capital  flow volatility  which  could  put  pressure  on  the  exchange  rate.  On  the  downside,  demand pressures  remain  subdued. Nonetheless, inflation  is  forecast  to  converge  to  the  target  of  5 percent in the medium-term (2-3 years),” Mutebile said.

Against the above background, the Central Bank decided to keep the Central Bank Rate (CBR), a benchmark lending rate for commercial banks, at 9 percent in December 2019.

Taddewo William Senyonyi
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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