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Kasaija: Economic Growth Has Averaged 4.9% In Last Five Years But Will Soon Rise Up To 7%

Finance Minister Matia Kasaija

The Ministry of Finance, Planning and Economic Development had an assignment in the 2016 NRM Manifesto to consolidate growth, employment and macro-economic stability. While presenting the Ministry’s  progress at the OPM Auditorium on Wednesday,  Finance Minister Matia Kasaija said his ministry has achieved a lot  in the three key aspects of socio-economic transformation.

During the period under review, Kasaija  the economy attained higher growth between FY 2017/18 and FY 2018/19, registering an average growth of 6.5 percent.

However, according to Kasaija, the outbreak of COVID-19 negatively impacted economic activity with real GDP growth declining to 2.9% in FY 2019/20.

This, he said, was due to the lockdown restrictive measures on people movement across borders, closure of non-essential businesses and supply chain disruptions which mostly affected the manufacturing sector.

As a result, the average real GDP growth between FY 2016/17 and FY 2019/20 was 4.9%,  which Kasaija said is below the growth target of 7% as stipulated in the manifesto.

“This was due to a number of shocks like drought, floods, armyworm, locusts and more recently COVID-19 which all affected demand and supply resulting in lower economic growth during the period,” he said.

The economy is however expected to gradually improve over the medium term with real GDP growth being projected at 3.1 percent in FY 2020/21 and to further increase to the potential of 6%-7%.

“The positive outlook is premised on better economic prospects in the oil and gas sector following the completion of the Final Investment Decision (FID), and the on-going COVID-19 vaccination. Government’s continued efforts towards investing in infrastructure, agriculture, education and industrial parks will also contribute to higher economic growth in the medium term,” Kasaija assured the audience.

Kasaija says that over the manifesto implementing period, the GDP per capita has improved by 12% between 2015/16 and 2020/21.

Under Macroeconomic Stability, Kasaija said, Bank of Uganda (BoU) continued implementation of the Inflation Targeting monetary policy framework and succeeded in keeping inflation low and stable, consistent with the medium-term target of 5%.

The monetary policy stance implemented was aimed at boosting private sector credit growth so as to strengthen the economic growth momentum. The CBR was reduced to 7% since June, 2020 from 17% in January 2016 as the low and stable inflation outlook provided room for a reduction in the policy rate to support economic growth.

Consequently, he said, the lending rates declined to 19.3% in FY 2019/20 from 24.0% in FY 2015/16. The reduction in lending rates partly contributed to the positive growth in lending to the private sector. As a result, the stock of private sector credit as at June 2020, was recorded at UShs.17.3 trillion, from UShs.11.9 trillion in January 2016.

The average Annual headline inflation for the period of 2016 to 2020 remained low at 4.3%.

Kasaija revealed that this was due to prudent macroeconomic policy adopted by government, as well as increased supply of agricultural produce to the market which brought down food prices.

In terms of financial sector performance, Kasaija said government undertook reforms in the Financial Institutions (Amendment) Act, 2016 to promote the legal and regulatory efficiency in the financial sector. These reforms, he said, have helped in reducing the overhead cost of financial institutions and other key factors considered when determining interest rates in the financial sector.

The Ministry also spearheaded the development of the Tier 4 Microfinance Institutions and Moneylenders Act, 2016, for which implementation became effective in July, 2017.

Kasaija says Government since FY 2015/16 has disbursed over Ugx. 1.1 trillion as capitalization to Uganda Development Bank to guarantee long term financing and support to key development sectors that are in line with Government development priorities while capitalization of the Microfinance Support Centre (MSC) increased from UGX 4.9 billion in FY 2016/17 to UGX. 341 billion in FY 2020/2021.

For the period 2016 to date, MSC has provided affordable credit and business development services to 52 Microfinance Institutions totaling UGX. 9,899,695,117; 756 MSMEs totaling UGX. 29,932,535,056; 06 Cooperative Unions totaling UGX. 3,158,713,918; 380 SACCOs totaling UGX. 51,654,000,000; 805 Village Savings and Loans Associations totaling UGX. 16,845,452,400; and 1,007 Individuals totaling UGX. 7,495,900,000. The interest rates of this credit ranges from 8% to 17%.

MSC prioritizes financing to agriculture, Kasaija said.

Government has capitalized MSC towards implementation of the EMYOOGA programme, to a tune of 260billion in FY 2020/21.

As at 31st March 2021, the Microfinance Support Centre had disbursed UGX 196.96 Bn to 6,344 Constituency-Based SACCOs in 347 constituencies, 146 districts including cities.

With respect to targeted lending to the poor, MSCL has lent UGX. 218,986,296,491 to enterprises in the urban ghettos.

Under production, government distributed improved seeds and breeding materials under Operation Wealth Creation (OWC) and National Agricultural Advisory Services (NAADs) to the District Local Governments (DLGs). These seeds include: coffee, maize, beans, Cassava Cuttings, Banana suckers, Irish Potatoes, tea, Citrus, Mangoes, grafted apples, pineapples suckers, cocoa, and rice. This resulted in increased volumes in production and exports as follows:

i) Increased coffee production from 5.7 million 60-kg bags to 7 million bags between 2017 and 2019;

ii) Fish catches grew from 391,000 Metric Tons to 561,000 Metric Tons between 2017 and 2019 while fish export volumes have increased by 27%.

iii) Increased Oil palm production in Kalangala in 2018 by 55% to 37,800 Tons valued at Shs. 21.4 billion compared to the 2016 production of 24,300 Tons valued at Shs. 13.4 Billion.

iv) Increased milk production in 2018 by 19% from 2.1 billion litres in 2015 to 2.5 billion litres in 2018.

v) A total of 13,800 acres of sugar cane have also been established at the Atiak Sugar Factory in Northern Uganda and more is planned when the Amuru project starts.

Established and rehabilitated water for production facilities such as valley dams, valley tanks, irrigation schemes, and small-scale irrigation demonstrations and water harvesting sites to increase availability of water for agricultural production at farm level. Among the irrigation schemes that were completed and commissioned include: –

i)                    1,178 hectares at Doho II in Butaleja District, 480 hectares at Mubuku II in Kasese District, 1,000 hectares at Wadelai in Nebbi District, 500 hectares at Torchi in Oyam DIstrict, and 880 hectares at Ngenge in Kween District among others.

ii)                   Completed construction of 50 small scale irrigation demonstrations and water harvesting sites in selected districts under 9 Zonal Agriculture Research and Development Institutes; small scale solar powered Irrigation Schemes in the districts.

Value Addition

To promote value addition under various chains, the following interventions were undertaken to sustain growth:

 a.       Passed UDC Act in 2016 and strengthened UDC to spearhead the establishment of strategic industries to enhance value addition for the various value chains for sustained growth. Progress has been made on the following:

UDC partnered with Kigezi Highland Tea Limited and completed construction of two tea factories in Kabale and Kisoro. In this regard, UDC has also extended financial support to tea factories in Western Uganda through a ten-year equipment lease financing for Kigezi Highland Tea Co. Ltd, Kayonza Growers Tea Factory and Mabale Growers Tea Factory Limited; Established a fruit processing in Teso (Teju-Soroti fruit factory) and Luweero; Commissioned Yumbe mango fruit factory in January 2021; Dairy industry in Ankole; and Vegetable Oil industry in Kalangala.

Through UDC, GoU acquired 32 percent stake in Atiak Sugar Factory which has a nucleus farm and an Out Growers’ Scheme that is potentially viable in job creation and agro-industrialisation. This factory that is run through a PPP arrangement between GoU and Horyal Investment Holding Company Ltd was launched in October, 2020.

b.      UDB launched its 5-year Strategic Plan for 2018-2022 with key sector intervention strategies in Agriculture, Manufacturing, Tourism, Infrastructure, Human Resource Capital Development; Mineral, Oil and Gas sectors. Government has continued to capitalize Uganda Development Bank (UDB) Limited to provide long-term financing for manufacturing and agriculture. To date, GoU has capitalized UDB to the tune of about Ugx1.1 Trillion over the 2016-2021 period.

To further operationalize the 2015 BUBU Policy, the Public Procurement and Disposal of Public Assets Authority (PPDA) guidelines of 2018 on reservation schemes were enacted to promote local content in public procurement. Database of local suppliers in the Oil and Gas sector was established to enable them work with foreign investors.

 Domestic Revenue Mobilization

 From FY 2016/17 to FY 2018/19, revenue collections grew on an average of 15% from Shs. 12,958.45 billion in FY 2016/17 to Shs. 17,069.74 billion in FY 2018/19.

 With the Domestic Revenue Mobilization Strategy (DRMS), this steady growth in revenue had been anticipated to continue in FY 2019/20 where we had a revenue target of Shs. 20,448.73 billion. However, this was disrupted by the global COVID 19 pandemic and the subsequent lockdown measures that curtailed economic growth and this resulted to net revenue collections of Shs. 17,285.86 billion hence a shortfall of Shs. 3,162.87 billion.

For the current financial year, cumulatively, collections for the period July 2020 to March 2021, amounted to Shs. 14,351.75 billion hence a 7% growth rate in revenue collections compared to the same period in FY 2019/20.

This growth is due to the resilience of the economy and ease of some of the lockdown measures. Based on this performance and the current level of economic activity, the projected revenue outturn for FY 2020/21 is Shs. 19,302.86 billion hence a 12% growth compared to FY 2019/20.

External Financing

 The NRM Government was able to mobilise resources from external sources amounting to US$ 7.873Billion from FY 2015/16 up to FY 2020/21. Of these US$6.495Billion was raised in loans while US$1.377Billion was in grants. The loans were mainly used to invest in infrastructure projects envisaged in the NRM manifesto mainly roads, transmission lines, oil infrastructure etc. The loans and grants were further used to invest in projects to spur industrialisation, promote trade and develop water and irrigation infrastructure to advance agricultural development. The full list of projects is attached as an Annex to this statement.

Kasaija says the above report summarizes the progress that has been achieved in the implementation of the 2016 NRM Manifesto

By Francis Otucu

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