The Uganda Government has revealed that the projection for economic growth in FY2019/20 has been revised downwards from 6.0 percent to between 5.2 -5.7 percent depending on the severity of the COVID-19 impact on Uganda.
This is contained in a statement on the economic impact of COVID-19 on Uganda presented to Parliament by Matia Kasaija (pictured), the Minister of Finance, Planning and Economic
“The biggest impact will be on the services sector. Travel restrictions are already affecting the tourism sector including hotels, accommodation and transportation. Supply chain disruptions are hampering trade, and this is expected to continue until the virus is contained at the global level,” Kasaija said.
According to Finance Ministry, travel restrictions at the global level will also affect the flow of imports into the country leading to disruption in supply of inputs into the Industry sector. This will affect industrial output, he said.
“The low activity in industry and services sectors will result into loss of jobs further leading to a decline in economic growth and an increase in the level of poverty. The number of people that could be pushed into poverty is estimated at approximately 780, 000,” Kasaija said.
Government says tourism will be severely affected by a sharp drop in tourists coming to Uganda following extensive travel restrictions in
the USA, Europe and Asia. Tourism earnings are expected to decline significantly in the last four months of the financial year.
“Exports are expected to decline in the last four months of the financial year, on account of a sharp reduction in global demand and travel restrictions imposed by Uganda’s key trading partners in the Middle East, European Union and Asia,” Kasaija said, adding that imports will also be affected by travel restrictions and a reduction in demand within the local economy. The majority of Uganda’s imports come from Asia, particularly China which has been the most affected country.
“Overall, imports are expected to decline by 44% in the last four months of this financial year. However, this provides an opportunity for the country to produce some of the imports locally in line with our import substitution and export promotion strategy. We therefore need to put more effort in the implementation of this strategy in order to reduce our dependence on imported inputs and final goods in the case of such emergencies,” he said.
The Minister said Worker’s Remittances and Foreign Direct Investments
(FDI) will also be affected by the slowdown in the global economy.
In the last four months of the financial year, he said, FDI and remittances are projected to each decline significantly.
The Minister said that “due to the travel restrictions, scarcity of goods and lower inflows (tourism, remittances, exports and FDI), the balance of payments is likely to deteriorate leading to a likely depreciation of the exchange rate and consequently inflation.”
“This has already contributed to the depreciation of the exchange rate of 1 percent between February and 10th March
2020,” he said, adding that given the above assumptions, the current account balance (CAB) in FY20I9/2O is projected to widen by US$ 363.1 million (12.7%). Consequently, foreign exchange reserves are expected to decline from 4.2% future months of imports to about 3.5,” he said.